15 March 2000

New rules for importer audits will go into effect by October 1

The following article is excerpted from "The Journal of Commerce" edition of 15 March 2000.

U.S. Customs says it will implement long-awaited regulations by October 1 to make its audits less burdensome for importers.

Importers, who have increasingly complained that the audits are too harsh and punitive, said they welcome the changes and are hoping for still further improvements.

The modifications, announced Monday, represent the second recent ones by Customs. A new business group, the Business Alliance for Customs Modernization, began pushing for changes late last year.

"These changes reward importers who are complying with U.S. import laws with fewer cargo examinations," said Customs Commissioner Raymond W. Kelly. "It also provides cooperative importers a conditional six months to correct problems before being placed into a higher compliance risk category."
A higher compliance risk category is where Customs puts importers who perform poorly in audits. They are subjected to more frequent cargo inspections and audits.

Some of the latest audit rule changes include the following:

- It will take more errors to fail an audit. Previously, an importer could fail if just one out of 100 items of data were incorrect. Now, it will take five errors out of 100 to fail.

- "Materiality" criteria will be easier. These are the criteria Customs uses to distinguish significant errors from "letter-of-the-law" violations.

- Errors in which an importer incorrectly classifies a product will no longer lead to failure if their financial implications are insignificant.

- "Risk categories," the different grades an importer can get in an audit, have been increased from three to five. The two new categories — minimal and standard — require fewer cargo examinations than the other three.

Some importers said that while they welcome the changes, these amount to technical improvements. They still would like to see intangible changes that would inject more reasonableness and judgement into the process.

"It certainly is a step in the right direction ... Customs has put together a good-faith effort," said Jim Brown, manager, U.S. customs compliance and operations for Ford Motor Co., although he said it "deals more with technicals than intangibles."

This "will greatly help both companies and customs with the expense of these compliance assessments," or audits, said Jim Finnegan, chairman of the Business Alliance for Customs Modernization and manager of international trade and compliance at Sony Electronics Inc.

The alliance, a group of 20 large importers, helped bring about the modifications through several discussions with Customs.

Importers will continue talking with Customs about further changes, including ways Customs "can become an advocate for true quality change" within a company....

Finnegan said he'd like Customs to get involved in continuous quality improvement processes that companies have implemented.

These programs identify problems in a company's compliance process, improve the compliance program overall and head off violations before they occur, he explained....