Are you ready for a CBP risk assessment or customs audit?
Updated: Jul 1
How to Prepare for a CBP Risk Assessment Meeting
or Customs Audit
By Stefano Rosenberg, Esq.
According to the Office of the United States Trade Representative, the U.S. is the largest importer of goods in the world, importing $2.5 trillion worth of goods in 2019. As part of an effort to ensure that all importers in the U.S. are complying with federal regulations and risk standards, U.S. Customs and Border Protection (“CBP” or “Customs”) may from time to time attempt to determine the import compliance levels of importers of record through risk assessments and customs audits. Understandably, it may sound intimidating and complex, and at times, they can also result in huge fines and consequences for importers of record that aren’t meeting risk standards. But with the proper preparation, companies can pass customs audits with flying colors.
What is a Customs Audit or Risk Assessment?
Typically, while the term “audit” or “risk assessment” usually suggests a negative connotation due to its investigative nature, audits generally do not seek to report corruption. In fact, according to CBP, audits are conducted to collect data on a company and analyze the likelihood of noncompliance. CBP’s audit procedure includes both a risk-assessment and a review of a company’s internal controls, most particularly ones responsible for intellectual property management and import compliance procedures. Customs audits will almost always include inspections of record keeping, internal controls and compliance, and a review of financial documents and import entries.
How do Customs Audits Start?
Initially, a customs audit begins with CBP selecting an importer using several selection criteria, such as the volume of the imports, use of specialized duty programs, amount of duties paid, and prior compliance history, among others. When CBP selects a company to investigate, it does not mean that CBP has determined a compliance issue. However, there may be factors, such as irregular importing behavior, previously reported issues from other CBP ports and field offices, or reoccurring missed payments that may raise suspicion or indicate a higher risk of non-compliance that will result in your company being selected.
When CBP does select an audit candidate, it first creates an extensive and detailed company profile that includes the company’s background and customs history, and is then required to provide notice to the selected importer of record that they are being selected for an audit.
CBP will then also schedule an entry conference, which will likely be the first in-person meeting with CBP. During the entry conference, CBP will discuss the audit’s purpose, scope and duration. Prior to this meeting, CBP will likely send the importer a questionnaire eliciting information about the importer’s internal procedures.
What is CBP looking for?
CBP is primarily looking for lost revenues that have resulted from non-compliance on behalf of the importer. Primarily this refers to duties and tariffs not collected when they were supposed to be. To determine this, audits primarily review whether goods are classified correctly, and are therefore taxed appropriately. A customs broker will typically guide importers in determining the correct HTS code for their specific product.
Through statistical sampling and standard auditing techniques, CBP is usually able to make their determinations. The CBP auditors review statistically selected import transactions from the company for the prior fiscal year and will compare the reported information to the company’s internal records (i.e., commercial invoices, purchase orders, payment records, etc.). The auditors also select financial transactions to determine if certain transactions or costs were properly declared.
What can I do to prepare?
There are several key things that importers of record can do to prepare for a risk assessment meeting or customs audit.
1. Review your records and responsibilities to identify any potential issues.
First it is crucial to review the Import requirements put in place by CBP and federal regulation. The most important of which is the duty of reasonable care. Customs law requires importers to exercise reasonable care to ensure that declarations made to Customs are true and correct. Considering that CBP will evaluate an importer’s internal controls and its import operations to determine the importer’s overall compliance risk, the best way to prepare for a customs audit is to strengthen your import compliance procedures and internal controls. To that end, importers should conduct internal audits and risk assessments to determine which areas pose the highest risks for non-compliance.
2. Prepare a detailed presentation.
CBP will likely request that you prepare a presentation regarding your company and its importation practices. For best practices, it is helpful to write a one-page paper explaining your company background. Make sure to include details on the overall organization structure and ownership, company history and business model, manufacturing capabilities of your supplier, and an overview of your importing process.
Presenting the company in the clearest and best light in a succinct and detailed way will help you provide the auditors with the proper context of your operations, and will assist in clarifying several crucial factors right away. You should make sure to print extra copies of your presentation for the auditor’s records.
3. Strengthen your import compliance policy procedures and internal controls.
It is important that your company has at least an official import compliance policy, and intellectual property rights policy guiding your employees in working the operations of your company. If you already have such policies, you should perform a brief review and apply any updates that are needed.
4. Identify any compliance issues and prepare a Prior Disclosure if needed.
Sometimes when performing an internal audit, importers of record will come to realize that they or their broker has made mistakes in reporting information. If this becomes the case for your business, it is always better to notify CBP of the error instead of waiting to see if they find it on their own. When a business submits what’s called a Prior Disclosure, which explains a violation of import laws and shows no malicious intent, CBP will likely hand down much softer judgements and smaller fees than if the Importer tries to cover it up.
Note that serious violations may result in CBP referring the company for a formal investigation under 19 USC §1592, or other enforcement actions. As such, if a Prior Disclosure is filed after the commencement of an investigation, or without knowledge of the commencement of an investigation, and the importer accounts and tenders the duties owed, the maximum penalty that CBP can levy is an amount equal to the interest on the unpaid duties
5. Engage with an Outside Attorney
Consider engaging a qualified outside consultant or counsel experienced in customs matters to assist the company's audit preparation. Our firm, RKF Global, has years of collective experience in dealing with trade matters. If you require legal assistance reviewing import procedures, correctly classifying goods or upholding import compliance, drafting compliance policies, or representing your company in customs audits, we can help. Our team of attorneys specializing in international trade can review your supply chain to provide cost-saving process improvements and suggestions.
We would love to help you. Feel free to contact us to get started: