Usually, the import and export process runs smoothly for most enterprises—until they receive a customs compliance audit notice in the mail! But what triggers these investigations from the government? Understanding why the U.S. Customs and Border Protection (CBP) might want to examine your business identifies potential risks when trading abroad and helps you avoid fines for non-compliance. Learn more below.
High-Risk Industries For Customs Compliance Audits
CBP has identified specific sectors that are more likely to receive a customs compliance audit than others. These industries include:
- Agriculture
- Textiles/apparel
- Industries selling goods subject to anti-dumping and/or countervailing duties
- Industries selling goods that are often counterfeited or pirated
According to CBP, these sectors could cause significant revenue loss, threaten the safety and health of the American people, or damage the U.S. economy. As a result, the agency is more likely to select businesses in these areas as "audit candidates."
If you operate in any of the industries above, you need an effective customs compliance program, which a customs brokerage can help you create. Doing so ensures you comply with relevant laws and regulations and reduces your chances of an audit.
9 Factors That Trigger Customs Audits
According to the Trade Law Counsel, nine factors might lead to an audit of your customs procedures:
1. Routine Audit Placement
CBP conducts routine audits of companies to ensure they pay the right amount of tax. The agency has the authority to investigate any business activities related to customs, including importing, exporting, manufacturing, and drawbacks. A routine audit might turn into a full investigation if CBP suspects wrongdoing.
2. Series of Classification Errors
All importers must ensure they correctly classify goods to avoid an investigation by CBP. To reduce your chances of an audit, make sure you:
- Apply the right HS (Harmonized System) code to each product
- Fill out the correct customs documents
- Declare all goods you plan to import
- Determine the proper valuation of goods
Making classification errors and other mistakes can lead to penalties, which might jeopardize your business reputation.
3. Anti-Dumping and Countervailing Duty Compliance
Anti-dumping and countervailing duties protect American businesses from unfair trading activity abroad. So, make sure you comply with all regulations if you want to prevent a lengthy audit. CBP has various resources that explain anti-dumping and countervailing duties in more detail, including this list of frequently asked questions.
4. Reconciliation Problem
The Reconciliation Prototype lets importers electronically flag estimated elements when filing entry summaries—as long as CBP receives the correct information in the future. Problems can occur during this process, such as choosing the wrong reconciliation method or failing to provide updated information. When this happens, CBP might trigger an audit.
5. Eligibility Issues in CF 29 Rate Advances
Receiving a CF 29 form means CBP is proposing or acting against a current shipment, perhaps due to an incorrectly classified product. CBP might start the audit process if you incorrectly claim eligibility for a rate advance, so you'll want to consult with a qualified customs broker if you get one of these forms.
6. Incorrect Utilization of FTAs
Free trade agreements (FTAs) reduce the complexities of imports and exports between two or more countries. Failing to comply with an FTA and its terms when trading can lead to a CBP audit.
7. Valuation and Assist Concerns
Not valuing imported goods correctly or failing to declare assists—items that your buyers provide free of charge or at a reduced cost—could land you in trouble with CBP.
8. Late and Inaccurate Customs Entries
This one's pretty self-explanatory. Submitting late or inaccurate customs entries often results in an audit, especially if it seems like you're hiding information from the authorities.
9. Evasion, Transshipment, and Supplier Issues
CBP monitors businesses like yours for evasive practices such as transshipping goods through third countries and not declaring suppliers. This activity could increase your chances of an audit.
How To Deal With a Customs Compliance Audit Notice
Finding out that CBP plans to investigate your business may worry you. However, it's best to stay calm and plan ahead. Here are some customs audit compliance tips if you find yourself in this situation:
- Understand your audit notice: Find out what CBP plans to do and what parts of your business it wants to investigate. You can verify your notice by contacting the agency directly.
- Prepare your documents: CBP will want to see evidence of your company's transactions and other information. Collect bills of lading, entry summaries, invoices, and additional paperwork.
- Measure your compliance level: Carrying out an internal audit will help you determine how well you've compiled with customs laws and regulations in the past. This can help you identify inefficiencies in your processes and document any deviations before CBP discovers them, giving you time to justify your actions.
Whatever you do, stay organized, provide accurate information, and maintain transparency with the authorities at all times. You'll want to cooperate with CBP to ensure a quick customs compliance audit process.
Audit Done, What's Next?
Review the CBP's findings once your audit is over and learn from any mistakes. Working with a customs compliance expert in the future can help you adhere to all laws and regulations.
Navigating a CPB compliance audit can be stressful, but you don’t have to face it alone. As one of the largest, privately-held customs broker in the United States, Deringer offers specialized expertise and unmatched accuracy to transform your supply chain workflows. Simplify customs compliance, duty drawback, reconciliations and more by Partnering with Deringer today!
