Home » Across Borders » Customs Starts Compliance Audit of Importers, Customs Brokers
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In the last three weeks, the Post Entry Audit (PEA) Group of the Bureau of Customs (BoC) has reportedly issued numerous Audit Notification Letters (ANLs) addressed to major importers in various industries (e.g. garments and textile, automotive, pharmaceutical, food, steel, consumer goods and other major importing industries).It will be remembered that the law on Post Entry Audit or Republic Act No. 9135 was enacted as early as June 2001.

Prior to the issuance of ANLs, customs has not conducted a customs compliance audit on any company. The main reason for this is that the necessary infrastructure to implement the law was only completed late last year.

Specifically, the members of the PEA group, appointed during the last quarter of 2003, had to undergo various technical training here and abroad.

During the first quarter of 2004, PEAG members started profiling of prospective auditees. Obviously, the group has finalized its short list of auditees and has now issued the corresponding ANLs for the unlucky importers and customs brokers. Post Entry Audit – A Review. Republic Act No. 9135 (RA 9135) took effect on June 2, 2001. Thereafter, the Department of Finance (DoF) issued the rules and regulations (Customs Administrative Order No. 5-2001) to effectively implement RA 9135. CAO 5-2001 took effect on December 14, 2001. The Post Entry Audit (PEA) system is an international best practice aimed at increasing trade facilitation, encouraging voluntary disclosures, reducing incidence of fraud and protecting government revenues. Also known as the Customs Compliance Audit, it provides a control mechanism for customs to verify the correct payment of taxes and duties after the goods are cleared from customs.

Under the law, customs may visit the company and conduct an audit of the import and business records kept. A finding of underpayment of taxes and duties arising from negligence or fraud will likely result in very stiff administrative fines and/or criminal prosecution. In addition, the law and implementing rules require that specific information and business process documents relating to the import activities be kept at the companies’ premises within a period of 3 years from the date of the filing of the import entry. Failure to keep records or to give customs access to said records would result in separate administrative fines and/or criminal prosecution.

What Happens in a Customs Audit? The implementing guidelines issued by the BoC, specifically Customs Memorandum Order No. 2002, provide the following operational process in the conduct of a customs compliance audit:

  1. Audit Selection using a Risk Management Approach
  2. Profiling and Information Analysis
  3. Audit Notification
  4. Audit Preparation / Audit Plan
  5. Pre-Audit Conference with Auditee
  6. Conduct of Audit Proper – Field Audit
  7. Exit Conference
  8. Audit Reporting
  9. Audit Monitoring and Implementation

The issuance of an ANL will generally involve the receipt of the following documents:

  1. A Letter from the Customs Commissioner informing the importer of the conduct of a customs compliance audit and the date of the pre-audit conference;
  2. Demand Letter for Submission of Records together with an attached List of Records and Documents to be presented to customs (Note: Failure to present the documents upon second demand will make the import subject to penalties under Section 3610, TCCP, as amended by RA 9135); and
  3. General Customs Questionnaire

Possible Audit Issues – What to Expect. The general issues that may be looked at during the audit will initially involve the following:

  1. Audit readiness of company records;
  2. Consistency of import VAT payments with BIR VAT declarations; and
  3. Beneficial ownership of locally purchased imported goods.

Once a general sampling is made on the company’s records, the customs auditors will likely review the following specific concerns:

  1. Customs Declaration Process / Customs Broker Practices;
  2. Customs Value Information
  3. Customs Classification and Product Description
  4. Quantity and Inventory Flow
  5. Licensing, Marking and Country of Origin

This is the first time that customs will be conducting customs compliance audits and many companies are nervously awaiting the conduct of the audits. Based on the practices of many companies and considering that customs management has normally been outsourced to customs brokers, most importers have no idea as to their level of compliance. For those companies that have not conducted a due diligence review of trading activities prior to the audit, they will be facing in the next months the uncertainty of customs possibly finding non-compliant issues in their business operations.

An international trade and customs consultant and licensed customs broker, the author is a Fellow at WTI.PH and a Partner of DLUGMS Law Office. Please contact aouvero@dlugms.com or (632) 4050021 / 29 for your comments.

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