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Table of contents
1. Are you ready? Many importers are not prepared for a Customs audit, the experts say. Come next year,
they'll pay dearly..............................................................................................................................................

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Document 1 of 1

Are you ready? Many importers are not prepared for a Customs audit, the experts say. Come next
year, they'll pay dearly
Author: Jones, Allen
ProQuest document link
Abstract (Abstract):
Why are importers so concerned with audits these days? Because Customs has changed the way it monitors
imports, moving from time- and resource-consuming border inspections to a model more like income tax, where
records of imports are audited periodically by Customs to ensure an importer is complying with the rules.
Nancy-Lee Glover, president of Glover Customs Brokers, says this represents a major shift in the burden of
responsibility -- from Customs to the importer. "Prior to the change of legislation," she says, "if Customs
accepted the importer's entry, the importer was off the hook. Now the burden is on the importer to have everything perfect, to make all declarations correctly.
"Ties between what was ordered, what was physically received, what was paid for, what was reported to
Customs -- these are the truly relevant things Customs are looking for," he says. "With Free Trade and reduced
focus on revenue collection, the risk-management aspect of Customs can be shifted to those importers whose
business systems don't provide Customs the opportunity to periodically peek in for a quick, insightful and
accurate snapshot of the importer's compliance status."
Full text:
Rather than wait in fear and loathing for their number to come up, some importers are actually inviting Canada
Customs and Revenue Agency to do its periodic verification audit on their companies.
According to Bob Armstrong, president of the Canadian Importers Association, importer companies have good
reason to greet the Agency's audit team with open arms.
First, there will be benefits. If you establish a good record of compliance with customs regulations, "you could
be treated as a lowrisk importer, which means less examination of your goods, inspections and the like. And
then a better way in which to pay -- an easier system in which to make the actual accounting for the entries
when the goods cross the border," he says.
If Customs views you as a fairly compliant importer in the audit process, "it's going to help you get onto the new
programs in the year 2001," Armstrong expects. These tailored programs aim at customs self-assessment
(CSA) and will yield benefits of efficiency to qualifying importers.
Early audits also avoid the wrath of AMPS, the much-debated and often-delayed Administrative Monetary
Penalty System due to take effect next year. "The risk right now, if the audit finds you calling a widget the wrong
tariff classification, is double the duty and taxes owing," says Armstrong. "When the monetary penalty system
comes in, the fine for that might be, for example, $100 for each and every entry where you did that, plus the
duty you owe. Better to find out now than when the monetary penalty system is implemented.
"So on the whole for the importer, there's a timing element and a bit of work to be done. But I don't think they
should fear it because they can anticipate a lot of hand-holding on the part of the audit team."
Why are importers so concerned with audits these days? Because Customs has changed the way it monitors
imports, moving from time- and resource-consuming border inspections to a model more like income tax, where
records of imports are audited periodically by Customs to ensure an importer is complying with the rules.
Nancy-Lee Glover, president of Glover Customs Brokers, says this represents a major shift in the burden of
responsibility -- from Customs to the importer. "Prior to the change of legislation," she says, "if Customs
accepted the importer's entry, the importer was off the hook. Now the burden is on the importer to have everything perfect, to make all declarations correctly.
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"The way Customs checks on that is through these periodic verification audits. And I would say periodic
verifications can be quite rigorous on an importer. It's like getting a tax audit, and they could be in your premises
for weeks.
"They could go back four years from the date of entry, and check you out. If you were making a mistake, that
could have a pretty large financial implication. For a small company it could even be very serious."
Glover tries to sell her importer clients on a kind of practice audit, using her company as a consulting service.
"But in a lot of instances, it's a hard sell," she admits. "If a client says to you, 'well we've never had any trouble
before, why should we worry about this now?' we're sometimes having difficulty selling the client on it being as
important as it is -- telling people that the whole basis for Revenue Canada's interaction with them has changed.
"We're telling clients that just because they (Customs) haven't looked up to this point, doesn't mean they're not
going to look, and take a pretty hard line."
For clients who will listen, Glover is telling them that everything is up for review in a verification audit. The
auditors want to make sure that your shipping and receiving department is passing the information on to your
accounting department, and then that information is being passed on to your broker, or the people within your
department who are responsible for customs. She says the auditors have found in a lot of instances that those
linkages were missing, that the customs department was operating autonomously from some of these other
departments, based on the transactional model of accountability.
Another issue Glover points to: "There was no demand to adjust an entry, prior to the changes in the customs
act, if it had no ramifications to the importer. The importer only corrected things if they wanted to get money
back. So they were more likely to tell you about shortages than they were about overages. Now everything is of
equal importance."
What would be the benefits of getting all your ducks in a row? Says Glover: "Customs is promising things such
as faster release, less need for examination, once they've built a profile on clients. They are saying there could
be benefits such as accounting for goods on a monthly basis, instead of a transaction-by-transaction basis. So
they're kind of saying if you're willing to take some of these burdens, maybe there'll be less restriction on you,
on your goods. It's a carrot, but a lot of people are finding that perhaps that carrot isn't worth it."
That attitude may be the consequence of a currently efficient border. But a for-ward-looking Glover points out
that as import transactions increase, Customs' resources grow slimmer. So they'll need a more efficient model
just to maintain the status quo.
"They have a lot of programs and a lot of initiatives under way right now, and they are promising that there
could be benefits if you've got a clean record, a clean bill-of-health. But, it's not necessarily a promise unless
you want to go on to one of their other programs," she says.
Bruce Johnson, vice president, professional development services, with Unicity Customs Services Inc., says
many brokers are trying to inform their clients of the government's new focus on compliance. Meanwhile, many
importers, relying on past government performance, are hesitant to invest in developing a compliant posture -until they actually see a compliance audit happen.
"In the interim," Johnson says, "you will see the compliant, or at least those able to demonstrate compliance,
receive faster, more preferential treatment or status. Those not able to do so will find themselves the subject of
more detail-oriented manual processes and a greater occurrence of physical inspection."
Johnson finds the majority of importers ill-prepared for an audit. Most fail to recognize the scope of
accountability to which they will be held. Importers have generally been lulled into a false sense of apathy, he
contends, predicated on the assumption that because there is no duty, there is no accountability. This apathy
has also grown due to a decade of what he sees as lax enforcement by Customs.
Johnson advises that the truly significant facets of the importer's profile, in the eyes of the auditors, are linkages
in an importer's internal record stream.
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"Ties between what was ordered, what was physically received, what was paid for, what was reported to
Customs -- these are the truly relevant things Customs are looking for," he says. "With Free Trade and reduced
focus on revenue collection, the risk-management aspect of Customs can be shifted to those importers whose
business systems don't provide Customs the opportunity to periodically peek in for a quick, insightful and
accurate snapshot of the importer's compliance status."
As director, customs and traffic, for Ingram Micro Canada, the nation's largest computer distributor, Trent
Cosgrove is responsible for importing into Canada $800 million a year worth of computer equipment. He sits on
the board of the Canadian Importers Association and chairs its Electronic Importers Committee.
And Cosgrove knows a thing or two about periodic verification audits. Four years ago he helped steer the
company through a customs audit that lasted, off and on, for 14 months and ate up 850 person-hours, the first
such audit in his industry sector. Whereas Cosgrove expected them to audit his department, it quickly became
clear they were auditing the company.
"The expectation going into the audit was that they would examine our tariff classifications, look at our NAFTA
certificates of origin, look at our valuations," he recalls. "Instead, what they did was look at how we account for
imported products. And that means the whole system. So they would ask us questions that we never thought
about before, because we were only thinking in a silo, thinking about making sure that all the information that
came into our department was correct.
"They ask you, 'if you get a document that says you imported 100 items, how do you know that you actually
received 100 items? What procedure do you have to ensure that your receiving department will inform you if
they receive 101, or if they receive 99?' We were completely caught off guard. We weren't expecting that
approach. It really made us think differently about our role. Today we think beyond the island and look at the
whole scope."
Cosgrove is quick to quash any notion that the systems Ingram put into place to accommodate the audit were
just sensible business practice anyway. "They're cumber-some. They're costly, quite expensive from an
administration point of view," he contends, "but necessary to meet the requirements."
On the other hand, he believes there's a pot of gold at the end of the audit trail. "If you tighten up all of your
systems, you may be able to save administration costs by having the ability to prepare reports and make a
monthly declaration, as opposed to signing a Canada Customs entry coding form every time you have an
import."
His pot of gold takes the form of a competitive advantage. "In the supply chain, you don't want hiccups,"
Cosgrove explains. "You don't want any delays. We will have a competitive advantage when we have a
truckload of product coming from anywhere in the U.S., or air cargo coming from anywhere in the world, coming
directly to our door as a domestic order. And then we'll have the ability of within a month to make the
declaration of items that were shipped or were received.
"The competitive advantage is speed, and lower administration costs. If we import a monitor every day, I prefer
to make one declaration of 30 monitors at the end of the month. That might be over-simplified, but that's what it
boils down to."
Tariffs and efficiencies aside, Cosgrove has high regard for the general attitude of the customs auditors who
camped at Ingram all those months. Kind and friendly are the words he uses.
"Originally I thought they were out to get us," he admits. "I expected to get a final report that would have 100
pages of documented procedural errors, and they'd all be surprises and I'd have two weeks to try to address
them all.
"They didn't do that. Every issue that they brought up in the final report was a valid issue that they had already
made me aware of. I knew what they were going to put in the report. I was surprised at how open the auditors
were. I think it's important to say it's a kinder, gentler audit."
Glen Perry won't argue with that general assessment of the periodic verification audit. "From what I can see it's
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not a threatening kind of audit," says Perry, a customs specialist for Canadian Tire Corp. "It's more, 'let's work
together, put something in place, and let's work from there. Find out your weaknesses.' It's looking at your
systems in place to track your imports and your adjustments to those."
Perry is currently wrestling with an audit that was initiated in November of 1998. For the moment, he says, "the
auditors do seem to be looking more at having systems in place than trying to penalize for duty. That's what it
seems to be -- but I'll tell you at the end of the day."
He says they're looking for a good audit trail to determine your imports -- what did you buy, what did you
receive, what did you pay?
"Very simply put, that's what it is. For an importer of maybe 10 commodities, this should be a very simple
process. But we have a lot of vendors, and our product mix is very diverse. So it's quite intense to track it all."
If he views the audit as a necessary evil, Perry nevertheless envisions certain benefits will accrue from
successfully completing it. Canadian Tire may qualify for CSA and gain more efficient release of goods it
imports from the USA, but it's the back-end benefits of simplified accounting and longer payment schedules that
represent the real attraction there. And benefits of this nature may well extend to goods the company imports
from offshore, he believes.
Allen Jones is a Cambridge, Ont.-based freelance writer.
Subject: Customs regulations; Imports; Laws & regulations;
Classification: 9172: Canada
Publication title: Canadian Transportation Logistics
Volume: 103
Issue: 3
Pages: 39
Number of pages: 0
Publication year: 2000
Publication date: Mar 2000
Year: 2000
Publisher: Business Information Group
Place of publication: Don Mills
Country of publication: Canada
Publication subject: Business And Economics--Marketing And Purchasing, Transportation
ISSN: 11874295
Source type: Trade Journals
Language of publication: English
Document type: PERIODICAL
ProQuest document ID: 203011751
Document URL: http://search.proquest.com/docview/203011751?accountid=25704
Copyright: Copyright Southam Business Communications, Inc. Mar 2000
Last updated: 2014-03-01

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Database: CBCA Business

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