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New Customs Positions. Last June 15, 2003, the Bureau of Customs (BoC) advertised in major newspapers a list of vacancies under the Post Entry Audit (PEA) group. Of the 65 positions available, more than two-thirds referred to technical positions. For most trading companies, including those in the customs brokerage and freight forwarding business, the question now is what is the implication of this latest development in the PEA system.

The succeeding discussion provides some updates on the Customs Compliance Audit system (also known as the PEA system), particularly, in regards to the preparations being made by the BoC prior to full implementation of the system.

Recent Issuances. There had been several related issuances, both by the Office of the President and the Bureau of Customs, in regards to the PEA system, including:

  1. Executive Order No. 160 entitled: “Creating the Post Entry Audit Group in the Bureau of Customs”
  2. Customs Memorandum Order No. 11 – 2003 “Policies, Rules, Regulations and Procedures in the Selection and Appointment of Personnel to the Post Entry Audit Group”

To further enhance the PEA system, which was established under Republic Act No. 9135, EO 160 was issued on January 6, 2003. Among the notable features of EO 160 are:

  1. Creation of a new office know as the Post Entry Audit Group (PEAG);
  2. Appointment of an Assistant Commissioner as head of PEAG; and
  3. Creation of two operating units under PEAG, namely: Trade Information and Risk Analysis Office (TIRAO) and Compliance Assessment Office (CAO).

PEA System – A Review. The 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, the system provides a control mechanism for the BoC to verify the correct payment of taxes and duties after the goods have been released from custom custody.

Within a period of 3 years from date of final payment of taxes and duties, the BoC may visit a company and conduct an audit of the 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.

Previous Articles on the PEA system. For more information on the PEA and Record Keeping systems, reference can be made on the following previous articles:

  1. Why should importers prepare for customs audit (September 23, 2002)
  2. How can importers can prepare for customs audit (October 21, 2002)
  3. How to conduct a customs compliance self-assessment (November 4, 2002)
  4. Assistant Commissioner for Customs Audit: Powers and Functions (January 27, 2003)

What will happen in a Customs Audit? Based on similar experiences in other countries, the selection of companies for custom audit will likely be focused initially on the top 1,000 importers based on such factors as:

  1. Track record of the importer and its customs broker;
  2. Statistical data from the computer-aided risk management system;
  3. Risk assessment of the company; or
  4. Previous records of errors in the import declaration.

Once an audit notice has been sent to an importer, the audit team will meet with company officials to discuss and agree on the purpose and scope of the audit, and the records to be reviewed. While conducting the audit in the company’s premises, the audit team will, among others, verify the following issues as against the company’s business records:

  1. Valuation method used
  2. Correct declaration of customs values
  3. Product description and classification
  4. Country of origin certificate (e.g. AFTA Form D)
  5. Special or preferential tariffs (e.g. AFMA)
  6. Inventory records

Customs Auditors. After conducting qualifying examinations a month ago, the BoC is reportedly in the process of selecting, from hundreds of applicants, the qualified members of the PEA group. CMO 11-2003 specifically provides the guidelines in the selection and appointment of personnel to the audit group. Once the customs auditors are selected and appointed, the BoC will likely conduct additional technical trainings for the successful applicants.

Given these developments, it would be reasonable to expect that by the first quarter of next year, several companies will be the subject of compliance audits to be conducted by the new customs auditors. In addition to regular BIR audits, these companies will also be audited for compliance with customs laws and regulations.

The author is an international trade and customs specialist, and a licensed customs broker. He is also a partner of the law firm of David Leabres Uvero Gaticales Sto. Tomas. For your comments, he may be contacted at agaton.uvero@wtiphils.com or at (632) 4002145 / 4050021.

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