Would you prefer to audit your own imports rather than have Customs perform the audit? If so, the “Importer Self-Assessment” (ISA) program may be right for you. Introduced in 2002, the ISA program removes participants from Customs’ general audit pool (though members can still be the subject of certain limited types of audits) and saving them from dedicating hundreds of hours to Customs during a Focused Assessment-type audit of the company.
Specifically, ISA members enjoy a privilege not enjoyed by other importers if a customs violation is discovered: groundbreaking “enhanced prior-disclosure” benefits. That is, regular importers often are precluded from filing a prior-disclosure statement to correct any past violations that Customs brings to the importer’s attention because under prior-disclosure laws and regulations, such notice to the importer often constitutes knowledge of the commencement of an investigation. The result is that the importer may face significant penalties for the past violations.
By contrast, ISA members enjoy a 30-day grace period in which they can file a prior-disclosure statement and enjoy the reduced penalties (typically just interest) afforded to importers who file the prior disclosure, even though Customs brought the issue to the importer’s attention.
The following 10 tips are presented in a step-by-step manner to help you determine if your company is ready to apply for the ISA program.
1. Become a C-TPAT Member.
Unfortunately, the ISA program is only open to members of the Customs-Trade Partnership Against Terrorism. Thus, as a first step, you should ensure that your company is a member of this program. While trade security is not directly related to trade compliance, Customs has limited ISA benefits to companies that participate in C-TPAT in an effort to get more companies to improve trade security.
2. Document your procedures related to imports.
Document. Document. Document. A cornerstone of the ISA program is that the importer not just have adequate procedures (or internal controls) related to imports, but also that the procedures and controls be documented. If you have all the controls “in your head,” so to speak, such that if you win the lottery tomorrow no one else will know how to process import transactions with Customs, then you are not ISA-ready! Off-the-shelf customs manuals and procedures should be avoided. Instead, ask yourself, “If I won the lottery tomorrow, is there an instruction sheet or document that would tell my successor what to do?”
3. Identify your risk areas.
Have you identified where things could go wrong with your company’s imports in terms of customs compliance? Have you assessed where there is the potential for non-compliance? Typical risk areas for all importers include classification and valuation, but other risk areas might include special duty programs (such as use of North American Free Trade Agreement, Generalized System of Preferences and other benefits), transshipment, antidumping and countervailing duties. Importantly, identification of risk does not equate to a confession of non-compliance to Customs. Rather, it means you know the areas that need written internal controls so that your company can avoid a violation.
4. Create and maintain a classification database.
Does your broker classify your imports based solely on the description of the goods, or even the tariff number, placed on the foreign shipper’s invoice? If so, you are not ISA-ready! Customs expects that ISA members will create and maintain a “master list,” “spreadsheet,” or “database” of each part number or product imported and its associated classification. The database should be a living document that is updated and maintained regularly when new parts are created or imported and should be shared with your customs broker.
5. Issue written instructions to your customs broker.
Speaking of tariff classification databases, how does your broker know how to report your company’s imports to Customs? It should have a written set of instructions as to how it should classify your goods (see No. 3, above!), what to do when confronted with imported items that are not shown on the classification database, when it should claim duty preference programs, how it should report the origin of your goods, etc. If you have not provided clear, written instructions to your broker, then you may not be ISA-ready.
6. Know the value of your goods reported to Customs.
Valuation is always a risk area for non-compliance because there are often financial and other transactions that relate to imported goods but are invoiced and paid for separate and apart from the invoice that accompanies a shipment. Without a strong set of written internal controls, there is a risk that reporting of these other transactions may not make it to your import department and to Customs. If your import department never confirms that the amounts reported to Customs account for all such payments, such as by reviewing the company’s general ledger activity, you may not be ISA-ready. By contrast, if your import department has regular contact with, and receives regular reports from, personnel in other departments related to payment of money, such as accounts payable, you are headed in the right direction.
7. Conduct other audits of your entries.
While it is great to have written instructions issued to your customs broker, Customs expects that you also double-check your broker’s work. After all, it is conceivable that your instructions are not being followed! Thus, a company applying for ISA should, at a minimum, have some plan for reviewing customs entries after (and, if possible, before) they are filed to be sure the broker follows the company’s written instructions. Importantly, the audit should not consist simply of making sure the total amount of duties the company’s expected to owe is correct, but should focus on ensuring that fields on the customs documents relating to value, classification and origin (among others) are correct.
8. Have an independent party periodically review the company’s imports.
Sometimes a second set of eyes can see things that we often can’t see ourselves when we are directly involved in a matter. Thus, being ISA-ready should include providing for the periodic review of the company’s imports, identified risk areas, written procedures, etc. by a person or group other than the import department that designed them. There is no set rule on the frequency, type of person required, etc. It could be your outside customs attorney, accounting firm or consultant, although if an attorney isn’t used, the company should be mindful that the attorney-client privilege will not apply to any non-compliance ultimately discovered by Customs.
9. Obtain management support.
Customs expects ISA members to have an import compliance program that enjoys the full support of upper management. This means more than a generic “our company takes import compliance seriously” kind of statement. Some signs that you have upper management support include: upper management signs off on, and approves, key internal control procedures, your import department is adequately funded/staffed and non-compliant or intransigent groups/individuals suffer the wrath of upper management if they do not follow procedures. If your company’s management views the import department as more of a hindrance or “speed bump” along the import highway, then you are not ISA-ready.
10. Ensure you have interaction and reporting between the import department and other company personnel.
The import department cannot do its job operating in a vacuum. It depends upon information from multiple departments, including engineering, new product development, accounts payable, shipping/receiving, tax and legal. The import department should be able to show regular communication and reporting with these groups related to customs information.