Friday, March 19, 2010
General In-Bond Process
An in-bond entry occurs when an importer brings an item through one port; however, the item generally does not officially enter U.S. commerce until it reaches the intended port of destination. An in-bond also allows foreign merchandise arriving at one U.S. port to be transported through the U.S. and be exported from another U.S. port without the payment of duty.
Compliance Audit and In-Bond
In 1998, CBP implemented an audit system within the Automated Commercial System (ACS). It serves as a compliance measurement system, which utilizes random examinations and port audit reviews to ensure compliance. This audit system was designed to ensure bonded carrier compliance with their bond obligations.
EXHIBIT II perform physical examinations at the time of arrival and departure and to perform post audit reviews of carrier activity. Once each week, ports throughout the U.S. are assigned post audits and physical examinations to perform based on a GAO-approved algorithm.
In-Bond Shipments Overdue for Export (M02) Report
The M02 report is a monthly list of in-bond shipments overdue for export. Items on this report are in-bond movements transmitted by importers or brokers via Automated Manifest System (AMS), Automated Broker Interface (ABI), or paper not yet exported in the required time limit. Review of the M02 report is designed to identify cargo that has not been exported and therefore may have physically, but not formally entered into U.S. commerce, thus circumventing the assessment and payment of duties and fees.
Monthly List of In-Bond Shipments Overdue (M07) Report
On a bi-monthly basis, each port is required to review and reconcile a list of In-Bond Shipments Overdue included in the M07 report. Data on paperless and conventional in-bond movements transmitted by AMS participants, as well as in-bond information input via INBE appears in this report. In-bonds are considered overdue if they have not arrived at the destination port within 30 days from departure. Review of the M07 report is designed to identify cargo that has not been entered into the U.S. at the original port of entry communicated to CBP, thus possibly entering the U.S. commerce and circumventing the assessment and payment of duties and fees.
We noted the following weaknesses exist over the in-bond program:
Ports are required to submit a summary of post audits conducted and the associated results to HQ; however, due to ACS system limitations, HQ cannot prepare an oversight report to determine if ports have completed all required audits. The SINS function code generates a report that is designed to provide this information, but it currently does not accurately list the history of all in-bonds selected for audit and is not consistent with the listing of incomplete TINMAN audits on the INES report.
The M02 report does not track air in-bonds. CBP is currently creating the M19 report to track air in-bonds, but the M19 report was not available in fiscal year 2009.
The requirement for ports to review the M07 report (pertaining to Immediate Transport in-bonds) was not issued until February 2009, and was therefore not in operation for all of the fiscal year.
There is no formal requirement for ports to maintain documentation evidencing the performance of and results from post-audits and physical examinations.
There is no formal requirement for ports to document the resolution of items on the M02 and M07 reports. Documentation evidences that the resolution was appropriate and allows for proper oversight of the completion of these reports.
CBP does not perform a formal analysis to ensure there is not a potentially significant loss of revenue through the in-bond process, as a result of goods entering the commerce of the U.S. without formal entry.
CBP did not consistently monitor and document its review of the M02 and M07 reports and query ACS and document completion of TINMAN audits on a timely basis.
According to Title 19 Section 18.2(d) of the Code of Federal Regulations (CFR), the carrier’s “failure to surrender the in-bond manifest or report the arrival of bonded merchandise within the prescribed period shall constitute an irregular delivery and the initial bonded carrier shall be subject to applicable penalties.”
The Office of Management and Budget (OMB) Circular No. A-123, Management’s Responsibility for Internal Control, states that “management is responsible for establishing and maintaining internal controls to achieve the objectives of effective and efficient operations, reliable financial reporting, and compliance with applicable laws and regulations.”
In recent years, the in-bond program has implemented several new directives and a new handbook to address the performance of the program at the port level; however, there is not a documentation requirement at the national level related to the M02 and M07 reports. Additionally, ports are not completely or properly monitoring the post audit in-bond process due to staffing levels at the port level and an increased focus on other CBP programs. Current ACS system limitations also limit the ability of CBP to accurately monitor the in-bond process, both at the headquarters and port levels.
The inability to effectively monitor the in-bond process and verify the arrival of in-bond merchandise at the port level leads to a potential loss in revenue. In addition, the lack of an automatic compilation and analysis of audit results at the national level makes it difficult for CBP to efficiently and fully determine the effectiveness of in-bond audits, common in-bond errors, and weaknesses in the overall in-bond process.
We recommend that CBP:
1. Ensure that the following functionalities are included in CBP’s information systems:
a. Consistent information to track the status of TINMAN audits;
b. A robust M19 report to track air in-bonds;
c. Compilation of the results of all TINMAN audits performed during the year;
d. An analysis function to evaluate importers’ compliance with regulations and overall effectiveness of the in-bond process;
2. Increase HQ oversight of the in-bond process by:
a. Analyzing the summary of post-audits conducted and associated results;
b. Providing increased training to port personnel on the in-bond process, to include performing TINMAN audits and working monitoring reports;
3. Ensure all ports perform TINMAN audits timely, as required;
a. Develop or re-emphasize formal requirements for all ports to:
Continue to run and work the M07 report throughout the year to track overdue Immediate Transportation in-bonds; Run and work the M19 report to track open air in-bonds, once implemented; Maintain documentation evidencing the performance of and results from post-audits and physical examinations; Maintain documentation related to the resolution of items on the M02, M07, and, once implemented, M19 reports. Documentation of these items will allow for effective management oversight of the use of these tools; 5. Annually analyze the in-bond program to ensure there is not a significant potential loss of revenue relating to in-bonds.