5 August 1999

US Customs Audits

The following article is excerpted from "The Journal of Commerce" edition of 5 August 1999.

Accounting firms have developed an active business helping importers perform self-audits that can substitute for [US] Customs Service audits.

They say the program helps companies avoid fines and cargo delays that may result from traditional audits -- a process dreaded by many importers.

But companies deciding whether to do a self-audit must consider whether it's worth hiring an accounting firm, which is often, though not always, needed.

Such a firm's fee typically is $100,000 to $250,000, depending on the scope of the audit, said an official at one accounting firm.

He added that the price will fall soon because Customs has changed requirements to allow shorter audits.

It is sometimes, but not always, the accounting firms' management consulting units that work directly with importers on self-audits.

Several accounting firms are expanding their consulting practices into customs and logistics, assisting companies in a variety of ways to improve their import processes.

Customs developed the self-audit program over the past 18 months, and issued written procedures for it in March. The program is called Compliance Assessment Methodology, or CAM.

Customs regularly audits companies that import more than $10 million to make sure they're complying with import rules and paying all duties. Importers have complained that the process is too long and intrusive, and that Customs is too strict, sometimes assessing penalties for small errors.

In the CAM, a company audits itself, usually with the help of an outside consultant, subject to Customs' supervision and verification.

Some companies find it preferable to waiting for a possible Customs audit.

For many companies, "getting a customs audit is your worst nightmare," said Arthur Litman, Los Angeles-based vice president of regulatory affairs for freight forwarder Tower Group International Inc.

"Anything that will allow you to have a semblance of control over the process is certainly worth looking at," Litman said. "I know of some importers who say that any cost would be better than having to go through a Customs audit."

In a self-audit, Customs and an importer choose a sample of information from the importer's paperwork to be tested for accuracy. The importer and consultant then study the documents and present a detailed report with spreadsheets to Customs, which can verify the data.

If a company finds mistakes in its own paperwork, it can take advantage of "prior disclosure" rules that let it avoid fines by acknowledging the errors.

The company also can reduce its chance of failing the audit and suffering increased cargo delays, accountancy firm officials said.

"It changes the whole tone of things," compared with a traditional audit, said Kenneth Carlstedt, supervising senior consultant with the trade and customs practice of KPMG LLP in New York.

"While Customs still gets to make the ultimate determinations whether something is right or wrong, the importer does the fact-gathering," said Richard Wulwick, an attorney with KPMG.

Wulwick said Customs officials trust the accounting firms to do a thorough job. "They know it's our reputation on the line too, if we were to cover up something for the client," Carlstedt added.

Most important, if the company and accounting firm find violations, they decide how to present them to Customs, he said.

"It's not that the company is whitewashing everything, but presentation is everything. If you present a small problem in an incompetent way, any official will react extremely negatively. If you take a serious issue and present it in a competent way, you will gain credibility," Carlstedt explained.

KPMG has helped about 10 companies through self-audits, and none has received a Customs fine, Carlstedt and Wulwick said. In contrast, they said, the majority of companies that undergo traditional audits get fined, though they are no less compliant on average....

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