Duty Refund Newsletter - March 2010
Audit Report on CBP's Drawback Process
The Department of Homeland Security Office of Inspector General (OIG) has the daunting responsibility to oversee the department's efforts to promote economy, efficiency, and effectiveness. As part of that function the OIG contracts with the independent public accounting firm KPMG LLP to perform an audit of Customs and Border Protection's (CBP) annual financial statements. This resulted in the recent publication of the audit report for FY 2009. If you want to review the report in its entirety, just Google OIG-10-51.
As has happened in the past, this report is highly critical of CBP in that the current drawback process is extremely labor-intensive and the automated functionality available in the existing CBP computer system is severely lacking. As stated in Item C of the report:
Condition:
We noted the following weaknesses related to internal controls over drawback of duties, taxes, and fees paid by the importer:
· The Automated Commercial System (ACS) lacked automated controls to detect and prevent excessive drawback claims and payments, necessitating inefficient manual processes that do not effectively compensate for the lack of automated controls. ACS did not have the capability to compare, verify, and track essential information on drawback claims to the related underlying consumption entries or export documentation upon which the drawback claim was based. For example, ACS did not contain electronic edit checks that would identify duplicate claims for export of the same merchandise;
· ACS lacked controls to prevent the overpayment of drawback claims at the summary line level;
· Drawback review policies did not require drawback specialists to review all or a statistically valid sample of prior drawback claims against the underlying consumption entries (UCE) to determine whether, in the aggregate, an excessive amount was claimed. CBP does not have absolute assurance that a selected import entry is not being over claimed by different drawback claims;
· Drawback review policy and procedures allow drawback specialists, with supervisory approval, to judgmentally decrease the number of ACS selected UCEs randomly selected for review, thus decreasing the review's effectiveness. Further, CBP's sampling methodology for selecting UCEs is not considered to be statistically valid; and
· The period for document retention related to a drawback claim is only three years from the date of payment. However, there are several situations that could extend the life of the drawback claim well beyond three years.
Cause/Effect:
Much of the drawback process is manual, placing an added burden on limited resources. CBP uses a sampling approach to compare, verify, and match consumption entry and export documentation to drawback claims submitted by importers. However, system and procedural limitations decrease the effectiveness of this approach. The inherent risk of fraudulent claims or claims made in error is high, which increase the risk of erroneous payments.
The report then makes a pitch for the new Automated Commercial Environment (ACE) computer system long in development and suggests ways that this new software could address these various deficiencies:
Recommendations:
We recommend that CBP:
1. Implement effective internal controls over drawback claims as part of any new system initiatives, including the ability to compare, verify, and track essential information on drawback claims to the related underlying consumption entries and export documentation for which the drawback claim is based, and identify duplicate or excessive drawback claims;
2. Implement automated controls to prevent overpayment of a drawback claim; and
3. Develop a system or process to eliminate the need for statistical sampling of UCE and prior related drawback claims. In addition, until this system or process is implemented, we recommend that CBP explore other statistical approaches for selecting UCEs and prior related drawback claims under the current ACS environment.
These recommendations are not just a pipe dream. There has been a joint CBP/industry effort spanning the last 8 years to reinvent the drawback concept and to design and program a new drawback module that will drastically change how drawback is authorized, calculated, and administered. Legislation has been introduced in the Senate (S.1631) and the House is currently drafting their version of the legislation. Congress hopes to pass the bill this year with implementation shortly thereafter.
Our next newsletter will discuss some of these proposed changes and what effect those changes may have on current drawback campaigns.
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