Customs Audit Manual - Trade Logistics · Customs Audit Manual By EXIT – Export & Import Training ... or a Customs Clearing agent licence number. ... Such other documents relating

EXIT – Export & Import Training [email protected]

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Customs Audit Manual By EXIT – Export & Import Training

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Index

Introduction. Page 2

The Customs Act. Page 6

Documents for the Customs Declaration Page 8

What do Customs look for in an Audit? Page 12

Setting up a Customs Friendly System. Page 19

Implementing the Customs system Page 22


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Introduction

The following information needs to be considered for preparing a company to be able

to handle the event of a real Customs audit which could have serious negative

consequences to any business involved in some way with the Export & Import Trade

industry.

We make go through our whole life without a car accident, but yet we drive with a

seatbelt in case we do have one. Without the seatbelt, even some non-serious

accident may leave us with a serious injury and a lifelong discomfort.

The people that are involved in the racing business prepare themselves very well for

an accident, because that is their line of business.

In the same way, we that are involved in some way with the international trade

industry, may be lucky enough not to be audited by Customs, but if Customs do

come and do an audit on us, how well will we do?

The main difference between our type of company and any other type of company is

that we deal with Customs, and if we intentionally want to do what is right but it is

found to be insufficient to the Act and Customs standards, then we are in trouble.


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Paying fines would be seen as throwing money away? All businesses are about the

MR’s, Maximising Revenues and Minimising Risks, there are always some people

appointed in a company to cover the MR’s.

One Customs fine could be more than a 1000 traffic fines. You will only have some

idea of what fines you could have had, when you look at the way you do things now

against the standard of this manual.

Any company that is involved in some way with international trade would need to

study the risks that they have with the Customs Act and their officers that carry out

the Customs duties.

From our experience, Customs are not as thorough as what they could be and we

may even unknowingly get away with infringements of the Act due to the lack of

knowledge of the Customs auditor at that time, but Customs are becoming wiser by

the day. This is good for the good companies and bad for the bad companies.

The biggest fine that we experienced with one of our clients in such an audit was 1.8

million Rand, which was reduced to 1.2 million after much negotiation with Customs.

Unfortunately we only got involved with training the staff after the fine was paid.

When Customs do an audit at a Company

When Customs do an audit on a company, they would look at the information they

got from their own computers, of all the activity against the company’s Customs

license number for the past 2 years. This would either be the trader’s licence number

or a Customs Clearing agent licence number.


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This Information that Customs would have would be printed in the date order of all

the Customs Bill of Entry numbers issued country wide from the various Customs

Offices against your company’s Customs license number (trader or agent).

When Customs are at your office and start requesting for records, the first thing that

they will do is call out a Bill of Entry (Customs Declaration) number.

Most companies at that point would look at each other and not know where to start,

as we file things in shipment files, of which the Customs Declaration is just one of

many documents.

If you look at the Bill of Entry number, it has a date built into it, but that still does not

help us who open up files according to shipping orders we give or get.

However to maintain your Customs license and a good relationship with Customs,

you will need to be able to draw the shipping documents on any shipment that

Customs may want to check on and when you are able to do that, what will Customs

be looking for?

The purpose of this manual and then audit is going to be twofold, one is to find any

mistakes that could be contravening the Customs Act and the other is to set up a

system as each shipment is completed, into a Customs favourable filing system.

If you have a Customs licence number (TIN), then you need to run your filing system

according to Customs requirements. When Customs ask for documents, you need to

get them fast to get Customs fast out of your place.


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So besides fixing the mistakes for them not to happen again, your company can

continue in the way you operate, but that each person working on these documents

just does something small at the end of each shipping file to be Customs Compliant.

Like clicking in your seatbelt in the beginning of a trip, is a small job that could save a

lot of possible negative consequences, so to, we that are involved in some way with

international trade, we do something at the end of the shipment to save a lot of

possible negative consequences with Customs.

You also don’t want Customs looking at the way you do your business by going

through all the unnecessary documents in your shipping files, so you will be creating

a “stand alone” Customs system that will not give away unnecessary and confidential

information of your business to Customs.


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The Customs Act

Let’s start with the wording in the Customs Act, by which Customs are (supposed to

be) guided to carry out the responsibilities.

In Section 40 of the Customs Act describes when a Bill of Entry becomes invalid

after Customs have cleared a shipment.

Why is this allowed?

Customs don’t have the resources to check every single shipment, they could only

check a small percentage of shipments, and therefore this rule is written into the Act

so that the Customs officers will know that they have 2 years to check on the

declarations that they have released to you on any International Trade transaction.

Without this section of the Customs Act, Customs would be under a lot of pressure to

check carefully every Customs Declaration made and would have to employ a lot

more trained staff for this purpose, this way without section 40, if they missed

something, it would be your good luck and their bad luck.

If this was the case (no section 40), then a lot more people would be trying their luck

with Customs or bribing the officers to overlook something for now.


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With section 40, Customs feel a lot more at ease to release a shipment, as when

they do pick up something irregular, they can then inspect the previous shipments as

well, which will form a case against the trader and/or their agent.

When Customs do their audit on all these released shipments, what do they look at

in these documents in your file?

Customs position on documents is that should there not be sufficient proof that the

Customs Declaration was done correctly, then their cargo release to you (the one in

your file) becomes invalid.

Customs would then make a ruling on what the declaration should be and make the

company pass a VOC (Voucher of Correction) and pay a fine.

This means that in their audit , should Customs not be satisfied with what we have in

our records as to what we said on the Bill of Entry, Customs would make us redo

those Bills of Entry to what they say it should be and pay fines on these shipments.

The 3P’s

The 3 things that all Customs look at everywhere in the world is the Products,

Papers and Payments. On our delivery of the declaration, Customs are more

focused on the products as they can check the paperwork and the correct payments

at a later stage, even when the products are no longer available.

Even when Customs call for papers before their release, it mainly has to do with

products been supported by the correct papers.


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So the purpose of Customs systematically auditing companies after their release to

you is then to focus on the Paperwork and the right Payments made, the 2 P’s.

In Section 39 of the Customs Act covers the document requirements for the support

of a Bill of Entry. Exporter & Importer (or agents) to produce certain Documents.

39 (1) C.

The said person (trader/agent) shall further produce documents supporting the

Customs Declaration.

1) Carrier Documents.

2) Invoices / Copy of the confirmation of sale or other contract of purchase and sale.

3) Shippers statement of expenses.

4) Importer’s written clearing instructions.

5) Such other documents relating to such goods as Customs may require.

End of quoted from Customs Act.

So we need to make sure we all understand these 5 types of documents required in

a Customs Act.

Documents supporting the Customs Declaration


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1) Carrier Documents.

This is your receipt from the shipping company showing that they are taking or have

taken the cargo from one country to another. By sea it would be the Bill of Lading, by

air it would be the Airway Bill and by land it would be the Waybill.

2) Invoices / Copy of the confirmation of sale or other contract of purchase.

On exports, this is the supplier’s invoices from a company registered inside the

country of export to a company outside the country of export.

On imports, this is the supplier’s invoice made up by a company that is on the

outside the country of Import, to a company inside the country of Import.

The reason for such wording above is that there are traders that are not based inside

the country of export or import, but seen “high seas” traders but they still have to

make up an invoice.

Customs my also require any correspondence used to form the contract (not in

agent’s audit). This could be a Quote, Purchase Order and/or a Proforma Invoice.

3) Shippers statement of expenses (Imports).

This letter is done on the company’s letter head with the heading “Shippers

Statement of Expenses” and signed by an authorized person. This is a statement of

financial facts relating to a shipment of a Customs Declaration.

At times the invoice may not carry the same value point as the Customs Value point

for Tax Value purposes which is in Box 22 on the SAD500.

As an example, South Africa’s Customs Value tax point on imports is FOB.


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If the importer bought EXW, FCA or FAS, (Look at Box 20 on the SAD500) then

Customs want to see a “Shipper’s Statement of Expenses” showing the cost

between say EXW, the factory, and FOB, when cargo was place onto a carrier,

which then is added to the amount on the Commercial Invoice to make up the correct

Customs Tax Value (CTV) for calculating import taxes.

If the importer purchased, say CIF, then Customs want to see a “Shipper’s

Statement of Expenses” showing the cost between FOB and CIF, like the freight

and insurance at sea, which then is correctly subtracted from the amount on the

Commercial Invoice to make up a Customs Tax Value (CTV).

The Shipper’s Statement of Expenses should be dated on or before the date of the

Customs Bill of Entry.

This document needs to be in the file when Customs do an audit. Don’t hope that

you will get a Customs officer that does not know all that they need to know.


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4) Importer’s written clearing instructions.

When the importer is using a Customs Clearing agent, then the importer needs to

write a letter to the agent giving a statement of facts relating to the shipment

covering financial values and a description of the cargo with the Customs

Harmonized number.

Most agents have made up their own “form” to help the importer think of what they

need to tell the agent.

Customs do not allow the importer just to give a set of documents to the agent to

pass the Customs Declaration at their own discretion.

5) Such other documents relating to such goods as Customs may require.

Some of these documents are as follows.

Statuary Certificates of Origin that the importer must produce if they are claiming a

discount allowed of import duties due to country trade agreements.

Import permits required on certain types of cargo.

Health certificates on certain types of cargo.

Supplier’s literature, covering what the cargo is.

There are more such documents, but the above are the basics.


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What are Customs looking for in any Audit?

The easiest way to remember what Customs will look for (how they think) in the audit

is to think of the letter C, which is also used in the word Customs (Cargo Cops)

covering the 4 steps of any Export & Import Trade, this is the same in every country

and they are as follows.

1) The Contract Formation (only commercial invoice is checked in agent’s audit)

2) The Carrier Receipt

3) The Currency Payments (only checked in the trader’s audit)

4) The Customs Declaration

1) The Contract Formation

With trade it is not always convenient for traders to both sign one set of documents,

it is not always practical for a seller to wait for the buyer to sign the document and

send it back to the seller, and so what would Customs look for?

In law, this is called a Counterpart Contract, meaning that each party is holding a

part that makes up a contract. The seller has a document from the buyer and the

buyer has a document from the seller.

If you did not have the luxury of a sales contract it place, which is nowadays not

used much, due to the speed of change in exchange rate values; a Purchase Order


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backed by a Pro-forma Invoice is sufficient legal evidence that a contract was

formed.

The carrying out of the already formed contract would be the Commercial Invoice

which should have the name of the carrier on which the cargo was placed.

2) The Carrier Receipt

This is your receipt from the shipping company showing that they are taking (or have

taken) the cargo from one country to another. By sea it would be the Bill of Lading,

by air it would be the Airway Bill and by land it would be the Waybill. These Carriers

Receipts showing a place of receipt and a place of delivery, which should conform

with the invoice.

3) The Currency Payments

This is just the proof that you were paid the correct amount for exports (Invoice) and

did you pay the correct amount for imports (Invoice). Here Customs would be looking

for bank records on a shipment that they are auditing.

This is not checked at the Exporter or Importer’s agents Customs Audit, but only with

the International trader’s Customs audit.


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4) The Customs Declarations

Nowadays we have electronic Customs Releases, and no documents are submitted

to Customs, but Customs have 2 years to check on what they have released to you

on Export & Import Trade.

Although as a trader, you may have given all your documents to your Clearing &

Forwarding Company (which is in Box 14 on your SAD500), who do the Customs

Declaration with your Customs licence number, Customs still want to do some

checks afterwards in an audit with the trader or the Clearing Company.

Just keep in mind that at this stage, it is no longer the products that are audited, you

don’t have something to show to Customs, you only have documents that must be

produced at the time of the audit, not the next day, as that may give you time to

fabricate documents.

Before the electronic Customs Release was introduced, all the declarations to

Customs had a full set of documents in each file. This way Customs had to open

every file to “stamp” the Customs Declaration documents (SAD500).

Customs then had all the supporting documents at the “finger tips”, if they wanted to

check anything before they “stamped” the SAD500.

Now customs are only receiving what is like a big email from the trader or their agent

and now Customs are “electronically” stamping only the SAD500 without seen any of

the documents.

This means now more than ever before, Customs would want to do audits on Export

& Import Trades. Since the electronic Customs Release, Customs now have a bigger

need to do such audits on past shipments.

The main Boxes Customs look at on the Export SAD500

BOX 2

Is this still the correct physical address of the exporter, they place where the exporter

keeps all their shipping documents, their export office of trade.

Box 6

Is the total amount that is in Box 6 the same amount of packages as what is on the

commercial invoice? Often when we are exporting container loads, we put in the

number of containers use into Box 6; this is a mistake as the container belongs to

the shipping line.


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The only time that this is allowed with Customs is when shipping out in bulk, but then

we will have a code one in Box 19. For any other code used, from 2 and up, we are

not allowed to enter the amount of the shipping lines containers.

In short, Customs want to see that the total number of packages given on the

commercial invoice is the same as the total in Box 6.

Often how Customs pick up this mistake is when we are putting the total number of

packages into Box 31 that is reserved for the description only.

Box 8

Is the name of the Buyer on the commercial invoice the same name as here in box

8? If it is not so, then what is the reason that it is different. This is specially looked at

with road cross border trade.

Box 18

Is the carrier’s details the same as what is here and what is on the carrier receipt on

the file? If it is not so, then why, this is specially looked at with the road cross border

trade.

The carrier that is taking the cargo out of the country is also making a declaration to

Customs called a “manifest”, giving details of the cargo receipts that they gave out

on picking up this cargo.

The manifest and the carrier’s receipt should confirm with what is in box 18.

Box 20

Although this box is not covered in the Customs SAD500 manual given out by

SARS, we have had clients that have got fines for not putting in the details, and if

you know Customs, it does not help having a heated debate with them.

The box should have the Incoterms code with the handover address from the seller

to the buyer. This is most often not the same address as what is in box 2 or box 8.

Box 22

If the value in Box 28 was smaller than the value in Box 22, then are there any

charges on the Clearing and Forwarding Company’s account for any amounts

outside the country of exports.


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If the value in Box 28 was bigger than the value in Box 22, then are there any

charges on the Clearing and Forwarding Company’s account that are more than the

difference between the Box 28 and Box 22.

Box 28

Is the currency used in Box 28 the same currency used on the commercial invoice?

This is a common mistake when a Rand value is used in Box 28 and a foreign

currency is use on the commercial invoice.

Box 31D

Is the description on the commercial invoice the same as what is here in 31D?

The main Boxes Customs look at on the Import SAD500

Box 6

Is the total amount that is in Box 6 that same amount of packages as what is on the

commercial invoice? Often when we are importing container loads, we put in the

number of containers use into Box 6; this is a mistake as the container belongs to

the shipping line and not to the importer.

The only time that this is allowed with customs is when importing in bulk, but then we

will have a code one in Box 19. For any other code used, from 2 and up, we are not

allowed to enter the amount of shipping lines containers.

In short, Customs want to see that the total number of packages given on the

commercial invoice is the same as the total in Box 6.

Often how Customs pick up this mistake is when we are putting the total number of

packages into Box 31 that is reserved for the description only.

Box 8

Is the name of the Buyer on the commercial invoice the same name as here in box

8? If it is not so, then what is the reason that it is different. This is specially looked at

with road cross border trade.


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Is this still the same physical address as to what is on the importer’s Customs

licence?

Box 18

Is the carrier’s details the same as what is here and what is on the carrier receipt in

the file? If it is not so, then why, this is specially looked at with the road cross border

trade.

The carrier that is brining the cargo into of the country is also making a declaration to

Customs called a “manifest”, giving details of the cargo receipts that they gave out

on picking up this cargo. Sometimes the carrier issues the receipt as place and date

of issue and not as the date loaded, this is picked up by customs from the manifest.

Was the correct date used to calculate the exchange rate which is indicated on the

carrier’s manifest? Sometimes the carrier’s receipt is dated differently to the

manifest.

The manifest and the carrier’s receipt should confirm with what is in box 18.

Box 20

Although this box is not covered in the Customs manual given out by SARS, we

have had clients that have got fines for not putting in the details, and if you know

Customs, it does not help having a heated debate with them.

The box should have the Incoterms code with the handover address from the seller

to the buyer. This is most often not the same address as what is in box 2 or box 8.

Box 22

If the value on the commercial invoice was smaller than the value in Box 22, then are

there any charges on the Clearing and Forwarding Company’s account showing this

as chargers inside the country of exports with the same amount, was there an

undervalue declared here?

In this case, has the importer made up a “Shipper’s Statement of Expenses” adding

those charges correctly for the value that was declared in Box 22, was there an

under value declared here.?

If the value on the commercial invoice is that same as Box 22, then are there any

charges on the Clearing and Forwarding Company’s account for any amounts inside

the country of exports, if so then why?


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If it was found that there are charges on the Clearing and Forwarding Company’s

account for charges inside the country of exports, why was there not a “Shipper’s

Statement of Expenses” covering those charges to make the value higher for the

correct FOB value for razing import taxes and VAT.

Box 31D

Is the description on the commercial invoice the same as what is here in 31D

Box 42

When more than one type of product is imported, then the SAD501 is used. Was the

correct FOB values used in all the Box 42’s in relation to the commercial invoice?

Was one line with no or lesser import duties shown as a bigger amount while another

line with a higher import duty shown as a lesser amount?

Box 43

If the code “N” was declared, then does that fall outside the definition for “R”, is there

a relationship between the seller and buyer according to Customs definition.

Games is a serious business and business is a serious game,

one is measured in points and the other is measured in profits.

Quote by Joseph Cubby


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Setting up a Customs favourable System

If you want to do as little as possible and do have confidence that all the documents

are in the file then at least record all the Customs Bill of Entry numbers in such a way

that you could have them saved in date order.

Then link that information to your existing filling information system. This way, if

Customs want information to a declaration done by your company, your list of Bill of

Entry numbers would guide you to your own filing system.

This way you would need to be confident that all your staff are doing everything right

and they do have all the documents on file that Customs may want to see in an

audit. Not have to go and ask someone to email you a missing document.

From our experience, no one is perfect and people don’t do everything that you

expect as a manager but only things that you inspect. So if the staff knows that

someone is going to go through their files to prepare for the possibility of a Customs

audit, then they would put in much more effort to keep some standard.

The staff could be required to keep the various documents that Customs may require

at the top of the file for easy retrieval in the event of the need of removing the right

documents for auditing purposes or scanning into a Customs electronic filing system,

or placing it into a separate hard copy Customs filling system.

A filing system needs to be created as each shipment is completed. This is for what

we want Customs to see in an audit, they don’t need to know your full business. You

don’t want a corrupt Customs officer selling information to your competitors as they

have a right to make copies of anything they want.

To recap what the Customs officers are trained to look for are as follows.

1) Contract Formation (Agent only needs commercial invoice in their audit)

2) Carrier Receipt

3) Currency Payments (only done in the trader’s audit)

4) Customs Declaration

The most efficient way is to set up a scanning system that each person then just

scans in the relevant documents that Customs may need in an audit, saved in Bill of

Entry date order.

If you are not going to use the scanning method to make an electronic record then

just make copies of the documents needed by Customs and make a separate

Customs “stand alone” file, which is placed in Bill of Entry date order.

This way you can then keep Customs from going into your files randomly when you

are taking too long to find the information they are looking for.


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Setting up the record or hard copy record.

Start with the date of the of the SAD500 number which is the MRN number. The first

3 letters are the Customs office code, which you can skip and is followed by the

date.

MRN number for Johannesburg would be, JHB201311220001234

So the first 8 numerals after the Customs office code is what we are going to work

with in setting up this Customs License Record (CLR).

Following list of documents is what is required in the Customs Audit.

CD : Customs Declaration SAD500/01and letters.

CR : Carrier’s Receipt (Bill of Lading / Airway bill)

CP : Currency Payment (bank record of payment) (not for agents)

CF : Contract Formation (Commercial invoice & Purchase order)

Because there could be more than one document in each of the 4 steps above, what

we have found working efficiently are as follows.

After the date, add the code (one of the 4) (agents only have 3) for the type of

document, followed by the numbering of the documents of the one type of

documents.

When Customs request the documents for a particular shipment, then you just print

out everything relating to that date, which would then automatically give Customs all

the documents they need.


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This way you won’t be looking for files and then look for documents in those files.

Your system would be very efficient and impress Customs. Customs don’t like to

hang around efficient companies, it is boring for them, and Customs would rather go

intimidate other inferior companies.

With a proper setup for a Customs audit, they would be in and out your company and

may never return to your company because you are so efficient.

Only about 1% of Companies would pass a Customs Audit.

Following is an example of scanning the documents into a system. The example

date we are using is the year 2013, the month of November, dated 22nd.

Customs Declaration (CD)

20131122CD1

20131122CD2

20131122CD3

20131122CD4

20131122CD5

This is showing you that you have 5 documents under the Customs Declaration. This

could be SAD500, SAD501, SAD507, Shippers Statement of Expenses and Agents

Clearing Instruction.

Carrier’s Receipt (CR)

20131122CR1

This is showing you that you have only one document under Carrier Receipt.

Currency Payments (CP) (not for agents)

20131122CP1

20131122CP2

This is showing you that you have two documents under Currency Payments.


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Contract Formation (CF)

20131122CF1

20131122CF2

20131122CF3

This is showing you that you have three documents under Contract Formation. This

could be a Commercial Invoice, a Purchase Order and a Quote.

From this format you see that it is very simple to set up and just requires a little

discipline to maintain, that would save you a lot of trouble during a real Customs

Audit.

Implementing the System

The best way to implement this is to start on a future set date after all the staff are

briefed on how this is to be done and why this it is to be done.

Should it happen that you get a Customs Audit before you have built a 2 year record

in this format, it would then be easy enough to find the papers in the older files as the

staff would be familiar with what Customs need.

Many companies (traders & Agents) get at least one Customs audit and then run

around not really understanding what Customs are looking for and they way they

think. How can you know is Customs is just abusing your company if you don’t know

what they are meant to look for?

This is because Customs sometimes just ask for a particular shipment file, and the

staff doesn’t know what Customs are checking for in those files, sometimes Customs

don’t even know themselves all what they should be looking for.

We suggest they your company appoints one or two staff members as a Customs

Compliance officer to do random checks on your system, maybe once every 6

months. This could be an internal appointment or an external contractor.

The Customs Compliance officer would take at least one completed shipping file

from each department and check that the documents were scanned correctly into

you system or if you had a manual system, that the correct documents were copied

for your Customs Files.

An old saying is “People often don’t do all the things you expect but they often do all

the things we inspect”, that is just the way busy people are. We don’t want that

inspector to be a Customs officer; it is much safer to have your own person (staff or

contractor) keeping you Customs compliant.


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A final note is Customs would ask for the totals of shipments over the period that

they are auditing as to how many shipments were done each by land, sea and air.

If you follow this simple system diligently, then you will never need to fear the day a

group of Customs offices walk into your company.

The worst day is when Customs do come do an audit and you have done nothing to

prepare for it. Then we get the “call”, but at a much high fee because of all the work.

A mistake or bad luck is caused by an insufficient system that only takes one person

or event to reveal the weak spot (quote by Joseph Cubby).

It is better to call us before you get your notice of audit from Customs.

Thanking you for the opportunity for us to serve you company.

Jim Merrington

EXIT – Export & Import Training

083 738 6867

[email protected]

www.exit.bz

A successful person is an average person that at

some point became and stayed focused.

Quote By Joseph Cubby