Civil Fines and Penalties Debt:

Review of U.S. Customs Service's Management and Collection Processes

GAO-02-655: Published: May 31, 2002. Publicly Released: Jul 1, 2002.

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GAO reviewed the Customs Service's management of and practices for collecting civil fines and penalties (CFP) debt. GAO found that Customs' gross CFP debt more than tripled from the start of fiscal year 1997 to the end of fiscal year 2000, rising from $218.1 million as of October 1, 1996, to $773.6 million as of September 20, 2000. During the same period, Customs annually reserved from 75 to 87 percent of its reported CFP receivables in an allowance for uncollectible accounts. The primary reason for the growth in Customs' reported uncollected CFP debt from fiscal year 1997 through fiscal year 2000 was the bankruptcy of a Customs broker in fiscal year 2000. The broker's bankruptcy resulted in Customs assessing 422 claims for $566 million and recording CFP receivables totaling $484 million during fiscal years 1999 and 2000. The remaining $82 million of assessed amounts was eliminated through the CFP mitigation process, and accordingly these amounts were not recorded as receivables. Customs can strengthen some of its CFP debt collection policies and procedures both by enhancing them and better adhering to them. The Office of Management and Budget stated that it had broad oversight responsibility for monitoring and evaluating governmentwide debt collection activities, but that it is the specific responsibility of the agency's office of inspector general to provide oversight through audits of the agency's debt collection activities. In addition, the Financial Management Service (FMS) officials stated that they rely on agencies to determine what debt should be referred to FMS for collection and offset as required by the Debt Collection Improvement Act of 1996, and Customs refers certain delinquent CFP debts to FMS for collection action.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: On July 10, 2003, Customs provided documentation to support the reiteration and reinforcement of the agency policy to the four field offices regarding the timely issuance of Notices of Penalty or Liquidated Damages Incurred and Demand for Payment within 10 days of Customs' opening a case in the CFP tracking system. In a memo to field offices dated August 12, 2002, Customs reiterated the procedures for issuing Notices of Penalty or Liquidated Damages Incurred (Customs Form 5955A) in penalty and liquidated damages cases within 10 days of the creation of the automated case record in the Seized Asset and Case Tracking System, unless the violation requires additional investigation or verification or requires the issuance of a pre-penalty notice. In addition, Customs incorporated the policies and procedures into its Fraud and Advanced Fraud training classes that were provided to agents, inspectors, import specialists, and regulatory auditors during the weeks of January 7, and July 8, 2003.

    Recommendation: The Commissioner of the U.S. Customs Service should direct the Assistant Commissioner, Office of Field Operations, to reinforce and monitor the four selected Fines, Penalties, and Forfeitures offices' compliance with certain existing CFP debt collection policies and procedures, where applicable, to help ensure that Notices of Penalty or Liquidated Damages Incurred and Demand for Payment are issued to importers within 10 days of Customs' opening a case in the CFP tracking system.

    Agency Affected: Department of Homeland Security: Directorate of Border and Transportation Security

  2. Status: Closed - Implemented

    Comments: On July 10, 2003, Customs provided documentation to support the reiteration and reinforcement of the agency policy to the four field offices regarding the timely request of statute of limitation waivers. In a memo to field offices dated December 5, 2002, Customs reiterated the procedures for requesting statute of limitations waivers. In addition, Customs incorporated the policies and procedures into its Fraud and Advanced Fraud training classes that were provided to agents, inspectors, import specialists, and regulatory auditors during the weeks of January 7, and July 8, 2003.

    Recommendation: The Commissioner of the U.S. Customs Service should direct the Assistant Commissioner, Office of Field Operations, to reinforce and monitor the four selected Fines, Penalties, and Forfeitures offices' compliance with certain existing CFP debt collection policies and procedures, where applicable, to help ensure that statute of limitations waivers are requested when less than two years remain before the expiration date and waivers are obtained before the statue of limitations expires to allow adequate time for actions to be taken against violators by Customs, the Department of Justice, and the Court of International Trade.

    Agency Affected: Department of Homeland Security: Directorate of Border and Transportation Security

  3. Status: Closed - Implemented

    Comments: In July 2002, Customs' Office of Information and Technology provided its action plan that states bond sufficiency concerns will be addressed with the development and implementation of the new Automated Commercial Environment (ACE) system. The action plan describes the ACE system requirements document that includes user requirements being developed from bond processing capabilities and bond management functionality that provides the capability to process and verify bond applications as well as correlate the bond with an account profile. In September 2004, CBP revised its ACE requirement recommendations by including eBond System Description and Requirements. This revision provides the functionality to address our bond sufficiency concerns, including bond filing, acceptance, and monitoring. These requirements, which are scheduled to be implemented by July 2008, will help CBP improve the capabilities of its system and the ability to track the sufficiency of bonds and administer Customs laws.

    Recommendation: The Commissioner of the U.S. Customs Service should direct the Assistant Commissioner, Office of Information and Technology, to help ensure that the development and implementation of Customs' new Automated Commercial Environment system addresses bond sufficiency concerns cited in this report and in GAO's 1993 report.

    Agency Affected: Department of Homeland Security: Directorate of Border and Transportation Security

  4. Status: Closed - Implemented

    Comments: A response from Customs on July 10, 2003, stated that comments have been analyzed and a draft Final Rule has been prepared. Customs also stated that after its review, the document will have to go to Customs and Border Protection (CBP), Treasury, and the Department of Homeland Security for signatures. On January 31, 2007, the final rule was published in the Federal Register and amended CBP regulations, including a provision for a specific conditional release period of 30 days for any food, drug, device, or cosmetic which has been released under bond and for which admissibility is to be determined under the provisions of the Food, Drug and Cosmetic Act. As a result of this amendment, the time to issue a Redelivery Notice was clearly defined, and Customs improved its ability to enforce importation and entry bonds, as well as, collect liquidated damages against importers' surety bonds.

    Recommendation: The Commissioner of the U.S. Customs Service should direct the Assistant Commissioner, Office of Regulations and Rulings, to expeditiously establish conditional release periods for products regulated under the Food, Drug, and Cosmetic Act.

    Agency Affected: Department of Homeland Security: Directorate of Border and Transportation Security

  5. Status: Closed - Implemented

    Comments: A response from Customs on July 10, 2003, stated that a directive on promissory notes was drafted and is circulating for comments, approvals, and sign-off. In March 2005, Customs and Border Protection responded that the directive was rewritten to reflect the new organizational structure in the Office of Finance. On August 24, 2005, CBP issued a directive on promissory notes that requires collateral in the form of a security bond, letter of credit, or marketable securities be obtained in cases where the amount is greater than $2,000, whenever the Revenue Division Director determines the debtor has significant assets. This requirement will help CBP be in a better position to collect all unpaid CFP amounts.

    Recommendation: The Commissioner of the U.S. Customs Service should direct the Assistant Commissioner, Office of Finance, to develop and implement detailed CFP debt collection policies and procedures to obtain secured promissory notes from CFP debtors when evidence shows that they have significant assets to secure their CFP debts.

    Agency Affected: Department of Homeland Security: Directorate of Border and Transportation Security

  6. Status: Closed - Implemented

    Comments: On July 10, 2003, Customs provided documentation to support the reiteration and reinforcement of the agency policy to the four field offices to ensure that responses to petitions for relief are made to violators within 90 days of Customs' receipt of a petition from a violator. In a memo to field offices dated August 12, 2002, Customs reiterated the procedures to attempt to issue petition decision letters within 90 days of the receipt of a petition, when the facts of the case do not require the referral of the petition to another Customs office or outside technical expert for comment or investigation. In addition, Customs incorporated the policies and procedures into its Fraud and Advanced Fraud training classes that were provided to agents, inspectors, import specialists, and regulatory auditors during the weeks of January 7, and July 8, 2003.

    Recommendation: The Commissioner of the U.S. Customs Service should direct the Assistant Commissioner, Office of Field Operations, to reinforce and monitor the four selected Fines, Penalties, and Forfeitures offices' compliance with certain existing CFP debt collection policies and procedures, where applicable, to help ensure that responses to petitions for relief are made to violators within 90 days of Customs' receipt of a petition form a violator.

    Agency Affected: Department of Homeland Security: Directorate of Border and Transportation Security

 

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