Financial Management:

Control Weaknesses Limited Customs' Ability to Ensure That Duties Were Properly Assessed

AIMD-94-38: Published: Mar 7, 1994. Publicly Released: Mar 7, 1994.

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Pursuant to a legislative requirement, GAO reviewed the U.S. Customs Service's: (1) controls over revenue collected during fiscal year 1992 (FY); and (2) ability to properly assess duties and taxes on foreign goods imported into the United States.

GAO found that: (1) Customs' internal controls did not provide reasonable assurance that all goods imported into the United States were properly identified and that the related duties were assessed; (2) Customs could not measure overall compliance with trade laws, since random inspections were not consistently performed; (3) Customs' controls over goods held in warehouses and foreign trade zones (FTZ) were weak; (4) Customs' controls over refunds were weak, since Customs did not have a practical means of maintaining data to ensure that such refunds were appropriate; and (5) in 1993, Customs began implementation of a new inspection program that would allow it to periodically assess the effectiveness of target inspections and other enforcement actions.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: Customs had planned to electronically capture both automated and manual vessel bill-of-lading data in the vessel entrance and clearance module of ACS. But, according to Customs officials, this capability is no longer a priority because of more pressing need for development of ACE. Customs developed and conducted workshops to instruct carriers, freight forwarders and exporters on responsibilities and proper Customs procedures. Customs had provided information from the Journal of Commerce and the Association of American Railroads and the Railway Association of Canada showing 85 percent of incoming ocean container volume and 80 percent of Canada-to-U.S. rail, respectively, use AMS. Additionally, Customs estimated that about 30 percent of air freight is cleared by Air AMS. Since this was not a key recommendation and it appears that use of AMS has increased, GAO will close the recommendation at this time and designate the actions taken as not fully responsive.

    Recommendation: The Commissioner of Customs should obtain reliable data on carriers' use of the Automated Manifest System as a percentage of all manifest submissions so that expanded use of the system can be more accurately monitored.

    Agency Affected: Department of the Treasury: United States Customs Service

  2. Status: Closed - Not Implemented

    Comments: According to Customs, a proposal to require the inclusion of accurate harmonized numbers on manifests is not viable because carriers cannot certify that the numbers are accurate. Although Customs is not directly implementing this recommendation, it is planning several alternative actions that will meet the objective of this recommendation, which is to obtain consistent, accurate information as early in the process as possible to facilitate Customs review of entry documents and imported merchandise. In March 1995, Customs will have the capability to integrate electronically AMS data from the carrier with ABI entry data from the broker, thereby using the "accurate" harmonized number from the broker to provide the desired consistency in describing goods for which entries have been filed. In addition, Customs-proposed changes to the in-bond system will limit the transmission of in-bond data to electronic filers and require selectivity data transmissions on each shipment.

    Recommendation: The Commissioner of Customs should consider requiring all documents, including manifests, to identify goods in a uniform manner, such as through the use of harmonized tariff codes.

    Agency Affected: Department of the Treasury: United States Customs Service

  3. Status: Closed - Implemented

    Comments: Customs stated that it has taken several measures to address this recommendation, including issuance of a policy memorandum emphasizing the importance of accurate data entry into its Automated Commercial System (ACS), and implementation of the nationwide statistically based compliance measurement program (TIN MAN) to track and control in-bond shipments. According to Customs, TIN MAN provides for the automated input of in-bond data, statistical sampling, and post audit of transactions. Customs further stated that enhancements to TIN MAN are underway currently. However, in its audit report on the fiscal year 2000 Customs financial statements, Treasury's OIG noted that controls over in-bond shipments still need to be strengthened. The OIG stated that notwithstanding the advent of TIN MAN, Customs still is not able to ensure that goods moving in-bond were not substituted or diverted into U.S. commerce without proper assessment. Because the Treasury OIG continues to report on a similar recommendation, GAO is closing the recommendation as "action taken not fully responsive" due to the lack of significant progress made by Customs over the years to address the recommendation.

    Recommendation: The Commissioner of Customs should monitor implementation of the new procedures for accounting for in-bond transfers to ensure that they address the weaknesses that have been identified. In conjunction with this effort, the Commissioner should provide personnel involved in maintaining data on in-bond transfers with clear and detailed guidance and adequate training on complying with the new procedures.

    Agency Affected: Department of the Treasury: United States Customs Service

  4. Status: Closed - Implemented

    Comments: Customs stated that it has designed a compliance measurement program (CMP) for bonded warehouses (BWH). However, in its audit report on the fiscal year 2000 Customs financial statements, the Treasury OIG reported that as of the completion of its fieldwork, Customs had not yet reported the nationwide results of it fiscal year 1999 BWH CMP exams, nor had Customs begun the fiscal year 2000 exams. In regard to Foreign Trade Zones (FTZ), the Treasury OIG reported that Customs has not formulated a CMP for FTZs which would measure compliance by FTZ operators with Customs' requirements. Because the Treasury OIG continues to report on a similar recommendation, GAO is closing the recommendation as "action taken not fully responsive" due to the lack of significant progress made by Customs over the years to address the recommendation.

    Recommendation: The Commissioner of Customs should direct the Assistant Commissioner for Inspection and Control, in conjunction with the Chief Financial Officer, to require district offices to maintain perpetual inventory records of goods held in bonded warehouses and FTZ that they are responsible for overseeing.

    Agency Affected: Department of the Treasury: United States Customs Service

  5. Status: Closed - Implemented

    Comments: Customs stated that it has no legal authority to require a perpetual inventory system in FTZs. According to Customs, it is in the process of developing a system to accept FTZs' paperwork (CF-214) filed on the Internet which will enable it to develop a CMP for FTZ. In addition, Customs stated that a pilot to accept CF-214s electronically is scheduled to begin in October 2001 and national implementation will be contingent on funding. However, the Treasury OIG reported for fiscal years 2000 and 1999 the lack of a CMP for FTZ as a weakness in the Customs CMP. Because the Treasury OIG continues to report on a similar recommendation, GAO is closing the recommendation as "action taken not fully responsive" due to the lack of significant progress made by Customs over the years to address the recommendation.

    Recommendation: The Commissioner of Customs should direct the Assistant Commissioner for Inspection and Control, in conjunction with the Chief Financial Officer, to enhance the Automated Commercial System (ACS) so that the district offices could use this system to maintain perpetual records of merchandise quantities at each warehouse and FTZ.

    Agency Affected: Department of the Treasury: United States Customs Service

  6. Status: Closed - Implemented

    Comments: To address this recommendation, Customs issued a memo to field managers directing them to conduct annual assessments and the requisite number of spot checks of bonded warehouses and FTZs. In addition, field managers will be required to report on the status of these assessments and spot checks, such as the locations chosen and discrepancies found, within 90 days.

    Recommendation: The Commissioner of Customs should direct the Assistant Commissioner for Inspection and Control and the Assistant Commissioner for Commercial Operations, as appropriate, to emphasize to district offices the importance of spot checks of bonded warehouses and monitor this activity to ensure that districts comply with headquarters directives.

    Agency Affected: Department of the Treasury: United States Customs Service

  7. Status: Closed - Implemented

    Comments: To address this recommendation, Customs issued a memo to field managers directing them to conduct annual assessments and the requisite number of spot checks of bonded warehouses and FTZs. In addition, field managers will be required to report on the status of these assessments and spot checks, such as the locations chosen and discrepancies found, within 90 days.

    Recommendation: The Commissioner of Customs should direct the Assistant Commissioner for Inspection and Control and the Assistant Commissioner for Commercial Operations, as appropriate, to require district offices to periodically spot check all FTZ that have not been audited or surveyed for over a year.

    Agency Affected: Department of the Treasury: United States Customs Service

  8. Status: Closed - Implemented

    Comments: Customs has revised the spot check worksheets so that more complete information is captured during these inspections. For example, the new worksheet provides space for the inspector to identify all categories or items were reviewed, note whether the categories or items were in compliance or violation, and describe any actions taken on violations, such as fines or penalties.

    Recommendation: The Commissioner of Customs should direct the Assistant Commissioner for Inspection and Control and the Assistant Commissioner for Commercial Operations, as appropriate, to provide more detailed guidance on the use of spot check worksheets so that they will capture complete information on these inspections.

    Agency Affected: Department of the Treasury: United States Customs Service

  9. Status: Closed - Implemented

    Comments: In fiscal year 1995, Customs programmed ACS to detect drawback claims that exceeded the total amount of duty and tax paid on related import entries. However, ACS cannot link drawback claims related to import entries filed prior to fiscal year 1995. Customs stated that it now requires drawback specialists to annotate on the original import entry the line items and quantity for which the drawback is claimed. However, in its fiscal year 2000 audit report, the Treasury OIG noted that drawback specialists still did not consistently annotate, on the original import entry or invoice/packing list at the line item level, the quantity for which the drawback was claimed. Because the Treasury OIG continues to report on a similar recommendation, GAO is closing the recommendation as "action taken not fully responsive" due to the lack of significant progress made by Customs over the years to address the recommendation.

    Recommendation: The Commissioner of Customs should direct the Assistant Commissioner for Commercial Operations, in conjunction with the Chief Financial Officer, to develop a means of automatically entering information needed to verify drawback claims into ACS so that liquidators can use the system to automatically verify drawback claims.

    Agency Affected: Department of the Treasury: United States Customs Service

  10. Status: Closed - Implemented

    Comments: During fiscal year 1995, Customs issued instructions to liquidators on how to use representative sampling. Regulatory audit has taken on more responsibility to review and verify whether the instructions are being followed. Based on OIG's FY1995 audit results, this recommendation is closed.

    Recommendation: The Commissioner of Customs should direct the Assistant Commissioner for Commercial Operations, in conjunction with the Chief Financial Officer, to until this capability is developed and implemented, require that liquidators use representative sampling procedures for reviewing drawbacks that relate to multiple entry summaries.

    Agency Affected: Department of the Treasury: United States Customs Service

  11. Status: Closed - Implemented

    Comments: Customs stated that limited profile information is available in ACS, such as bond data and year-to-date and cumulative claim amounts. Customs further stated that ACS also includes a profile on each claimant that is accessible online by Customs drawback specialists. According to Customs, the profile includes information such as whether the claimant is approved to receive accelerated drawbacks. Customs also stated that further enhancements are planned when ACE is developed to ensure that special privileges such as accelerated drawback payments are granted only to eligible claiments. However, the Treasury OIG reported for fiscal year 2000 that, with the exception of claims subject to selective processing, policies in effect for fiscal year 2000 did not require drawback specialists to (1) review all prior claims against a selected importer to determine whether, in the aggregrate, excessive amounts had been claimed against import entries and, if applicable, import entry line items or invoices or (2) systematically sample proofs of export from Export Summary Procedure claimants. In addition, supervisory review policies were not consistent among drawback offices, resulting in the use of different documentation methods and thresholds above which review was required. Because the Treasury OIG continues to report on a similar recommendation, GAO is closing the recommendation as "action taken not fully responsive" due to the lack of significant progress made by Customs over the years to address the recommendation.

    Recommendation: The Commissioner of Customs should direct the Assistant Commissioner for Commercial Operations, in conjunction with the Chief Financial Officer, to enhance ACS so that historical information on drawback claimants such as accelerated claim privileges, excessive claims previously filed, overdue receivables, and regulatory audit results are available to liquidators in a national database.

    Agency Affected: Department of the Treasury: United States Customs Service

  12. Status: Closed - Implemented

    Comments: Customs stated that limited profile information is available in ACS, such as bond data and year-to-date and cumulative claim amounts. Customs officials also stated that ACS includes a profile on each claimant that is accessible online by Customs drawback specialists. According to Customs, the profile includes information on whether the claimant is approved to receive accelerated drawbacks. Customs also stated that further enhancements are planned when ACE is developed to ensure that special privileges such as accelerated drawback payments are granted only to eligible claiments. However, in its fiscal year 2000 audit report, the Treasury OIG noted that documentation supporting the drawback specialists' basis for approval was not always complete and accurate. Because the Treasury OIG continues to report on a similar recommendation, GAO is closing the recommendation as action taken not fully responsive due to the lack of significant progress made by Customs over the years to address the recommendation.

    Recommendation: The Commissioner of Customs should direct the Assistant Commissioner for Commercial Operations, in conjunction with the Chief Financial Officer, to require that liquidators review this database to ensure that special privileges such as accelerated drawback payments are granted only to claimants who have consistently complied with Customs claim filing requirements.

    Agency Affected: Department of the Treasury: United States Customs Service

  13. Status: Closed - Implemented

    Comments: Customs stated that in fiscal year 1995, it implemented a comprehensive program of statistically valid random sampling of entries for examination to ensure that all appropriate laws and regulations are met by incoming trade, including manifest and entry requirements. A baseline was developed in that year. According to Customs, similar broad-based representative sampling has been done yearly since implementation and the related results have been reported to Congress in an annual compliance measurement report. However, the Treasury OIG reported for fiscal years 2000 and 1999 that Customs had not conducted its air carrier manifest Compliance Measurement Program (CMP) since fiscal year 1998, and as a result, Customs lacked sufficient assurance as to the reliability of cargo information reported on manifest documentation. The Treasury OIG also reported that Customs' management has indicated that it has no plans for resumption of the air carrier manifest CMP in fiscal year 2001. Because the Treasury OIG continues to report on a similar recommendation, GAO is closing the recommendation as "action taken not fully responsive" due to the lack of significant progress made by Customs over the years to address the recommendation.

    Recommendation: The Commissioner of Customs should direct the Assistant Commissioner for Inspection and Control to develop and implement, in conjunction with Customs' Chief Financial Officer, a strategy for inspecting cargo from both high- and low-risk carriers to help provide reasonable assurance that all cargo delivered is accurately and completely identified on manifests and entry documents. Carriers undergoing such inspections should be randomly selected to ensure that they are representative of all carriers.

    Agency Affected: Department of the Treasury: United States Customs Service

  14. Status: Closed - Implemented

    Comments: Customs stated that it implemented new procedures for use with the dedicated bond liability module, which was later revised to allow persons in the field to query bond usage. Customs also stated that the revised module includes warning messages when bond amounts are exceeded. According to Customs, the new procedures require that the bond amount for accelerated drawback payments match the claim amount.

    Recommendation: The Commissioner of Customs should direct the Assistant Commissioner for Commercial Operations, in conjunction with the Chief Financial Officer, to enhance the bond liability module to monitor the sufficiency of bonds posted for drawback transactions, including the ability to alert liquidators when coverage is exceeded.

    Agency Affected: Department of the Treasury: United States Customs Service

 

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