AUDITS
CAT AUDIT MATERIALITY DEFINED
4/98
Another area of fruitful disagreement
between importers and Customs has been when does an error become material rather
than something clerical in nature? Customs has now issued information to its
personnel about how to decide this question.
Auditors will make note of all errors found in the areas of
classification, quantity and value. If the level of compliance is below a
specific percentage, a materiality compliance rate will be calculated. In the
classification context, errors in the 9th or 10th digit will be counted only if
there is a loss of revenue. Errors through the 8th digit are considered
material. If the resulting compliance rate is at least 95%, nothing further will
be done unless internal controls are lacking, in which case the company becomes
a moderate or high risk, depending on other factors.
With quantity problems, small errors addressed through local
port procedures will be honored. In the quantity and value context, the value of
the discrepancies is calculated into a percentage. So long as the compliance
rate is 95%, nothing further will be done. However, anything lower may lead to
higher examination rates and written improvement plans.
MORE TEXTILE
PROBLEMS
As part of its continuing effort to insure accuracy of import
declarations, Customs has extended its audits of major importers to include
transhipment issues. As a result, 18 importers of textiles and wearing apparel
which are large in size and import from Macao and Hong Kong are rumored to be
selected for Customs audits. It is understood that Customs will include in its
audit questions about whether the importer has visited the factory. If so, how
often? What special training regarding textile rules of origin does the importer
provide to its employees? Another area of inquiry has to do with agents. How are
agent payments handled? What sort of background and factory investigations are
conducted? Is there a written agency agreement? Does it include language
prohibiting transhipment?
Can importing textiles or wearing apparel get any more
difficult?
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