Afraid of audits? Read this.

Trade compliance audits can be scary, cumbersome and time-consuming.  Why would any company subject itself to this?  The importance of any import/export compliance audit is to avoid the dreaded “F&P” words.  These are two words that most companies don’t want to hear … or even say (unless it’s behind closed doors).

I’m talking about Fines and Penalties.  (There!  I said it out loud for everyone to hear.)

If you import or export anything, then F&P should be on your mind.  But you might have a lot of questions about how to conduct proper trade compliance audits.  Should you be the one to do it?  What should you audit?  When?  How?

Maybe this has never crossed your mind.  If it has, keep reading and we’ll help you unpack the details.

Who should conduct trade compliance audits?

This is perhaps the easiest question to answer.  Any Exporter, Importer, Customs Broker, Freight Forwarder that files an AES or Import Clearance Entry with U.S. Customs should perform an audit of their files.

Are you a self-filer for your AES transactions and Customs Entries?  Or does a Customs Broker or Freight Forwarder handle these for you?  Regardless of how the entries get filed, you should have audit procedures in place to ensure those entries are accurate.

You might be thinking:  “Who in my company should do the auditing?”  Normally, this responsibility falls to your trade compliance person or department.  Or it could be the person in your organization who is most familiar with AES filings or Customs Entries. If you are a Customs Broker or Freight Forwarder, typically it might be the Import or Export Manager, unless you have a post-entry department or even a corporate compliance department, then it could be assigned to one of those personnel.

What should we audit?

The idea of auditing every filing may seem like a daunting task.  And depending on how much you import or export, it very well could be.  For example, if your company only processes a few imports/exports each year, then auditing 100% of those filings would be a straightforward and relatively easy task.  However, if you have hundreds or thousands … or tens of thousands … of filings each year, then starting with a percentage of the total would be ideal and more practical.

Another way to tackle this auditing problem is to focus on high-risk entries.  These could be entries to (or from) new vendors, new products, changes in sourcing, high-risk destinations, or even from new Customs Brokers.

Something else to keep in mind:  Recordkeeping.  Do you have all the documents available for each filing? Have you kept them according to the recordkeeping requirements?  Are they organized and easily accessible?  Finding answers to these questions can help make your audit process go much smoother.

How often should you audit imports and exports?

Over my career, I have found that the most effective frequency of auditing is doing a monthly and a yearly audit.  This isn’t the same for every company, and each situation may be unique.  But it’s a good general rule of thumb.

For the monthly audit, you can take a small percentage of entries for the month (for example, 10%).  Then at the end of the year, take 20% of all the entries that were filed.

Keep a record of which entries you have audited, so if they come up on your yearly review you can choose another entry if one was already audited during the course of the monthly audit.

Why should you audit imports and exports?

I saved the easiest question for last.  Simply put, to ensure accuracy and avoid errors that might need to be corrected with Customs.  Errors in your AES or Customs entries can end up being costly – especially if you aren’t the one to find and report them.  It is always better for you to file a Voluntary Self Disclosure (VSD), Post Summary Correction (PSC) or Protest to correct your errors, as opposed to having U.S. Customs or the Census Bureau find the errors for you.

Having errors in your entries can result in additional fines, penalties, and duties on import entries if your classifications or values are incorrect.  It can also have an impact on your reputation.  Do you want your company’s name to show up on a Customs press release, being fined millions of dollars for your import or export violations?

Auditing is an important aspect of import/export compliance.  If you don’t have a procedure in place and follow it, then it’s time to get one!  This goes hand in hand with performing a risk assessment as well.  You want to know what needs to be fixed before you find out from the government the errors or risks you have with your shipments.

Both activities play into your role as an importer and/or exporter, and demonstration of showing reasonable care.