What Is a Trade Compliance Audit and Why Conduct One?

What Is a Trade Compliance Audit and Why Should I Conduct One?

As you walk through the doors, you overhear this, “I’m going to need to see your bill of lading for every import on December 23, 2010. Also, I need to look over your payment receipts for duties on all transactions that took place from November 1, 2011 to November 5, 2012.”

Your heart sinks as you come to the realization of what is taking place; your company is being audited by the Office of Export Enforcement, which is practically a division of the US Customs and Border Protection. Also, you recently moved offices, so all of your documentation is currently located in unlabeled boxes in the basements. What are you going to do? How will you answer these questions when you do not even remember what the activities of November and December 2015 involved? What happens if you can’t produce the requested documents?

Believe it or not, this scenario happens more often than you might think. If you cannot produce the requested documentation during a trade compliance audit, you are going to incur penalties, fines, and even harsher punishments. You could even face incarceration, and the years of corporate penalties have changed. Now, you could be personally liable for all of the potential, illicit trade practices. However, you could have avoided all of these problems with a trade compliance audit and program.

What Is a Trade Compliance Audit?

A trade compliance audit (TCA) is a review of your current, internal and external communications, processes, and actions in international trade for adherence to regulatory measures. A TCA sounds extensive, dramatic, and costly; however, a TCA will help you identify if your organization follows your own internal and external policies.

If you have existing weaknesses in your trade compliance program, a trade compliance audit will highlight the problems, and you can figure out what changes to implement to increase adherence to compliance measures. Essentially, a TCA reduces risk from violations of compliance measures when engaging in international trade.

What Is Included in a Trade Compliance Audit?

Since your trade compliance audit can be outsourced or conducted internally by your own staff, you must understand the role of maintaining ethics throughout the TCA. If you were conduct a TCA internally, without outside perspective, such as that of a third-party logisitics provider, some staff members may be inclined to make potential violations out to be minimal. In reality, a minor infraction could easily add up to thousands of dollars in lost revenue, penalties, fines, unpaid duties, and more.

Why Should I Conduct a TCA? How Does It Show What Needs to Be Addressed?

A typical trade compliance audit should include a comprehensive review of all of your export and import actions. Seemingly overwhelming, a TCA can be broken down into the following categories for review:

Organizational Policies and Procedures – What do your current internal policies prescribe for import and export transactions? Your employees should understand how to handle trade according to your organizational policies. If employees do not understand what to do, you need to increase training. Furthermore, do your policies and procedures meet the constantly changing rules of regulatory measures by differing countries?
Documentation of Imports and Exports – Your exporter of record and importer of record are critical to ensuring the appropriate filing and recordkeeping of documentation in international trade for your organization. These individuals should always be considered a part of the document review during a trade compliance audit.
Licensing and Country of Origin Certificates – Depending on import or export status, you may need to obtain a Country of Origin Certificate. Furthermore, certain items must be accompanied by a license to ensure compliance. Do you have all of the appropriate documentation and review of these licenses, and can you prove that your organization used them correctly? Additionally, you will need to file electronic export information (EEI) with the Automated Export System (AES) if you do not plan on tracking exports manually.
Duties, Tariffs, and Fees – How does your organization ensure the appropriate, timely, and accurate assessment and payment of duties, fees, or other taxes on your imports and exports? Do you use a harmonized tariff schedule? These questions need to be considered, and you need to ensure all appropriate payments have been made. If you do not follow this recommendation, you could actually end up paying more through oblivious review of free trade agreements, i.e. your organization is paying duties when you do not necessarily have to.

Final Thoughts.

A trade compliance audit is the most important measure you must undertake in international trade. If you focus on the financial aspects, the TCA can save your organization money by reducing penalties, increasing accuracy in duty payments, and increasing the efficiency within your organization. A TCA needs to reflect the scrutiny of an actual audit, so when the time comes for the Office of Export Enforce to come knocking, you will see it as another mundane day at the office. If you know everything is in place and has been verified by continual auditing and improvements before the enforcement officers arrive, what do you have to worry about in the first place?