FJP Sierra Leone - HumanitarianResponse...10 November 2011 Dear Sir, Discussion Draft: Systems & Processes Review of the Customs & Excise Department of the NRA Greetings. We are pleased

Financial Management Capacity Building Development & Strategy

Development & Management Consultants 62 Liverpool Street, Freetown, Sierra Leone. West Africa (Tel) +232 33 604438 (E-Mail) [email protected] (Web) www.fjp-consulting.com

Anti-Corruption Commission

Discussion Draft November 2011

Systems and Processes Review of the Customs & Excise Department of the National Revenue Authority of Sierra Leone


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Mr Joseph Fitzgerald Kamara Commissioner Anti-Corruption Commission Freetown.

62 Liverpool Street, Freetown, SIERRA LEONE Web: www.fjp-consulting.com

10 November 2011 Dear Sir,

Discussion Draft: Systems & Processes Review of the Customs & Excise Department of the NRA Greetings. We are pleased to submit our draft report on this important assignment. We take the opportunity to extend our thanks to you and your team for the support received in facilitating our work. Our gratitude is also extended to the Commissioner of the NRA and her team for the cooperation received. Comments received on this draft will be incorporated into a final report. Thank you for your investment in our services. Yours faithfully,

Omodele R. N. Jones MSc (strategy) BA ACA FCA(SL) MCMI Chief Executive Officer FJP Development & Management Consultants [email protected] Enclosures

Anti -Corruption Commission Discussion Draft

Systems & Processes Review of the Customs & Excise Dept

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Contents

LIST OF ACRONYMS ...................................................................................................................... 4

RISK ASSESSMENT TERMINOLOGY & RATINGS USED WITHIN THIS REPORT ...................................... 6

1. EXECUTIVE SUMMARY ........................................................................................................ 8

2. INTRODUCTION & OUR APPROACH TO THE SYSTEMS & PROCESSES REVIEW........................ 10

2.1 Introduction ..................................................................................................................... 10

2.2 Objectives & Scope of Activities......................................................................................... 10

3. OUR FINDINGS, THEIR IMPLICATIONS & OUR RECOMMENDATIONS..................................... 13

3.1 Administrative Procedures and Systems............................................................................. 13 3.1.1 Introduction: the Role of Internal & External Partners.................................................. 13 3.1.2 Ministry of Finance & Economic Development (MOFED) .............................................. 13 3.1.3 Bollore ...................................................................................................................... 13 3.1.4 National Revenue Authority ....................................................................................... 14 3.1.5 Sierra Leone Ports Authority (SLPA) ............................................................................ 20 3.1.6 Sierra Leone Airports Authority (SLAA) ........................................................................ 21 3.1.7 Clearing & Forwarding (C&F) ...................................................................................... 22 3.1.8 Banks ........................................................................................................................ 23

3.2 Other Customs Facilities & Activities .................................................................................. 24 3.2.1 Bonded Warehouse ................................................................................................... 24 3.2.2 Valuation................................................................................................................... 25 3.2.3 Anti Smuggling........................................................................................................... 26 3.2.4 Legal provision and statutes ....................................................................................... 27 3.2.5 Effectiveness of the Internal Audit team...................................................................... 29 3.2.6 ASYCUDA System Management .................................................................................. 32 3.2.7 External Auditing ....................................................................................................... 33 3.2.8 Implementation of recommendations to improve on the structural vulnerabilities of the Lungi International Airport....................................................................................................... 34 3.2.9 Duty Waiver .............................................................................................................. 38

APPENDIX .................................................................................................................................. 39



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List of Acronyms ACC Anti-Corruption Commission

ACV Agreement on Customs Valuation

AML Anti-Money Laundering

AORC Airport Operations Review Committee

ASSL Audit Service of Sierra Leone

ASYCUDA Automated Systems for Customs Data

BL Bill of Lading

BoD Board of Directors

C&F Clearing and Forwarding

CED Customs & Excise Department

CFL Counter effort against Financing Terrorism

CG Commissioner General

CICA Convention on International Civil Aviation

CIF Cost Insurance and Freight

DFID Department for International Development

DO Delivery Order

EO Examining officer

FCL Full Container Load

FIA Freetown International Airport

HS Harmonised System

ICA Internal Control and Audit

LCL Less than Container Load

MATRA Multi Agency Threat and Risk Assessment



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MDAs Ministries, Department and Agencies

MOFED Ministry of Finance & Economic Development

MOH Ministry of Health

MRP Monitoring Research and Planning

NRA National Revenue Authority

PCA Post Clearance Audit

PR Public Relations

SLAA Sierra Leone Airport Authority

SLJDITF Sierra Leone Joint Drug Interdiction Task Force

SLPA Sierra Leone Ports Authority

SOP Standard Operating Procedure

WCO World Customs Organisation



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Risk Assessment Terminology & Ratings used within this report Risk can be defined as the possibility of something happening that impacts on your objectives. It is the chance to either make a gain or a loss; and is measured in terms of likelihood and consequence of its occurrence. It can also be seen as the uncertainty (positive and negative) that surrounds future events and outcomes. Systems and processes, the subject of this assignment, carry ri sk. Our assignment identifies and classifies those risks and proposes actions to mitigate them. Terminologies used within this report include: 1. Risk Class. CED risks are allocated to a category that indicates the extent to which the risk can

affect the objectives of the NRA.

(a) Strategic – This risk class identifies systems or processes that may significantly affect the attainment of the long term mission and vision of the CED & the NRA.

(b) Operational – This identifies risks that impact on the short term business operations of the CED.

(c) Safeguarding assets – This risk class identifies risks that impact on the CED’s ability to protect the resources available to the organisation and, thus, prevent loss, theft (Loss Prevention), management overriding of laid down controls, waste of organization resources, inefficient use of assets and poor decision making.

(d) Reporting – This groups risks that affect the reliability of internal and external reporting which provide information for decision making, control and the assessment of management’s stewardship of resources.

(e) Compliance – This includes risks that affect the level of compliance with applicable regulations, laws and procedures which are intended to enhance the efficiency and effectiveness of the organisation.

2. Risk rating – Each risk identified above must be further analysed, through informed judgement,

with a risk rating. There are two types of risk rating in assessing the vulnerability of any

occurrence of any risk.

Risk Analysis – This rating gives a detailed assessment of the risk identified. These ratings are Likelihood and Impact.

i. Likelihood: Provides an assessment on how likely it is that this risk will occur. (Low –Once in ten years, the frequency of occurrence is low compared to others), (Medium – Once in three years, the level of occurrence is more frequent than the earlier likelihood) and (High – the risk can occur within a year).

ii. Impact: Provides an assessment of the severity of effect that the occurrence of

this risk would have on the CED. (Low – a nuisance that is no more and as well

limited to a single unit with no significant effect), (Medium – affects more than

one unit but can still be managed internally by the stakeholders), (High – affects

the entire organization and can negatively affect the long term viability of the

organisation).

Overall rating of risk assessment – This provides a conclusion on the overall seriousness of

the risk for the NRA. The following ratings are used in overall risk rating:



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i. Fatal (F) – concludes that the risk identified can seriously undermine the credibility

and existence of the organisation. It needs urgent action.

ii. Weak (W) – A risk that is not fatal but may develop into fatal threat if it not quickly

arrested. It requires a timely defensive action from the CED. It is significant in

nature.

iii. Neutral (N) – Threats or opportunities that do not pose any significant risk to the

CED’s goals and operations.

iv. Challenge(C) – Events that are likely to drive an increase in the demand for the

CED’s services but which will require an increase in the organisation’s effectiveness

in order to cope with the increased demand. It is significant.

v. Strong (S) – It is an opportunity that can lead to an increase in demand for the CED’s

services and which the organisation is in a strong position to manage. The CED

already has the required capacity for the envisaged increase in demand.



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1. Executive Summary The systems and processes of the CED are exposed to pervasive risks of dysfunctional performance. As a whole, these risks pose a major threat to the credibility of the organisation and to its ability to contribute to the national development of the country.

Our work was significantly limited by our inability to access information on the outputs, resources, systems and processes of the internal and external audit functions. Internal audit is a key tool for providing assurance of the proper functioning of the wider systems and processes of the CED. It is vital that steps be taken to increase the professional independence, authority, quality of human resources, quality of auditing strategies and systems and the salary scale of the NRA’s internal audit function. The reforms should include the possibility of outsourcing the work of the unit. Its authority and independence can also be improved by the establishment of formal planning and reporting links with other complementary entities such as the investigations unit of the ACC, the Audit Service of Sierra Leone (ASSL) and the Internal Audit unit of the central government. These reforms would enhance the ability of the Internal Audit unit to deliver services that assist the management of the NRA to receive information that enables it to direct and control the resources of the NRA to achieve its strategic goals with efficiency, economy and effectiveness. There appears to be an elevated risk that the current structures and systems of the Internal Audit function would significantly underperform these objectives.

Risks can be opportunities as well as weaknesses. Whilst a few opportunities were identified, the majority of risks were weaknesses, for which appropriate recommendations have been made. The importance of each recommendation has been indicated using our risk analysis and risk rating terminology defined in the previous section of this report. The most pressing weaknesses are those with a potentially “fatal” rating. They demand immediate action. Weaknesses rated as “weak” and of high likelihood and high impact are the next priority and of pressing in nature. Those rated “weak” and of low impact are of a lower priority.

Identified risks cover all risk classes i.e. strategic, operational, safeguarding assets, reporting and compliance. The risks posed by ambiguous legislation, inadequate or non-existent regulations and conflicting or non-existent policies and procedures pose the greatest threat. Inadequate human capacity management and weak staff recruitment, performance management, discipline and grievance handling and appraisal follow closely as threats to the credibility of the organisation. There is a need to apply advanced social research techniques to map the cultural predispositions of staff and to develop a long term corporate culture definition and change strategy that is consistent with the values, social axioms and work behaviours required by a well functioning customs administration. This will demand the support of a strong and visionary leadership with resilient political backing from all political parties and, thus, independent of changes of government.

The cooperation of a number of external partners is crucial to the success of the CED. They are identified and recommendations delivered. Critical partners include MOFED, Bollore, SLPA, SLAA, C&F Association and the Banks.

The report on the vulnerabilities at the Freetown International Airport has been incompletely implemented and several important elements remain in progress or without action.



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We consider that the implementation of our recommendations would deliver a transformative change to the efficiency and effectiveness of the CED leading to a signifi cant increase in revenue collection, a major contribution to the ability of the country to trade internationally and a reduction in the cost of doing business in Sierra Leone.



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2. Introduction & Our Approach to the Systems & Processes Review 2.1 Introduction The efficiency and effectiveness of the Customs and Excise department is of strategic importance in revenue generation in Sierra Leone; and to the ability of the country to compete and trade its way to national prosperity. It plays a pivotal role in the entry and exit points to the country’s international trade; and can directly impact on the country’s reputation and attractiveness with local and international investors. Its work can have a direct effect on the ability of the country to reduce and eliminate the burden of poverty on its people. The department’s operations are important in the collection of revenue that is then disbursed to finance other government operations. The efficient functioning of Customs systems and procedures leads to optimised revenue collection, improves international trade, minimises the risks at the ports of entry and exit and ensures a learning organisation that identifies and responds to the dynamic nature of international trade and related national and global policies and practices. The Anti-Corruption Commission (ACC) in its effort to improve the services delivered by government agencies, commissioned diagnostics and analytical studies on systems and procedures of key Ministries, departments and agencies (MDAs). The outcome of the studies would be to support institutional risk analysis and management in public sector to control and prevent corruption. Amongst the key departments in focus was the Customs and Excise department (CED) of the National Revenue Authority (NRA).

ACC engaged customs and risk management experts from FJP to perform systems review in this department, geared towards examining the implementation of the existing practices and procedures vis-à-vis the existing legislation, administrative documents and proposed recommendations in order to ensure that revenue collection occurred efficiently and effectively. As part of the engagement, the consultants were required to identify the strengths and weaknesses of the CED and to make recommendations for improvement. This report presents the outcome of the consultants’ engagement complete with recommendations where risk or weak areas were observed.

2.2 Objectives & Scope of Activities The objectives of this study were to:

a) Identify the strength and weaknesses in the collection of revenue through a systems review. b) Proffer recommendations where there are weaknesses and to improve on service delivery in

general c) Build the capacity of systems review staff in diagnostic analysis in Customs d) Closely work with staff of the systems review department in conducting review in thi s

department. e) To present a diagnostic report to ACC client institutions and other stakeholders Desk and field research was to include a review of: a) The administration of the Customs and Excise Act, Customs laws, codes, administrative

procedures, policies for possible fiscal evasion and tax fraud, assess the level of compliance and effectiveness of the internal investigating team.

b) The internal and external auditing capacity within the CED vis-à-vis compliance with recommendations made by selected review bodies including those contained in the report on the review of structural vulnerabilities of the Lungi International Airport.



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c) Procedures in the granting of duty waiver whether they are consistent with the policy d) The management of the ASYCUDA++ (Automated Systems for Customs Data) systems for

potential abuse e) Inspection procedures at Customs posts and the leakages for possible smuggling at the posts f) Valuation of Import goods and the payment of duties 2.3 Limitations in the Scope of our Assignment: the Role of Internal Audit of the NRA The consultants sought, but were unable to obtain, access to reports and other information on the systems and processes of the internal auditors. We formally requested those reports, directly from the NRA and indirectly via the ACC, as part of our work on activity (b) above. The consultants had to rely on informal communications in order to assess the effectiveness of the internal auditing systems. This was unsatisfactory and significantly limited our ability to deliver the requirements of this assignment. It is considered that an effective and well resourced internal auditing system is a vital tool in achieving the goals of the ACC for the CED. Further information on the work done on internal audit is shown at Section 3.2.5.

We would recommend that steps be taken to increase the professional independence, authority, quality of human resources, quality of auditing strategies and systems and the salary scale of the NRA’s internal audit function. The reforms should include the possibility of outsourcing the work of the unit. Its authority and independence can also be improved by the establishment of formal planning and reporting links with other complementary entities such as the investigations unit of the ACC, the Audit Service of Sierra Leone (ASSL) and the Internal Audit unit of the central government. These reforms would enhance the ability of the Internal Audit unit to deliver services that assist the management of the NRA to receive information that enables it to direct and control the resources of the NRA to achieve its strategic goals with efficiency, economy and effectiveness. There appears to be an elevated risk that the current structures and systems of the Internal Audit function would underperform these objectives.

Risk class: Strategic- These recommendations are of strategic importance to the goals of this assignment.

Risk analysis: Likelihood: High. Impact: High

Risk rating: Fatal – failure to implement these recommendations may threaten the long term goals of this assignment.

2.4 Our Approach to the Assignment The consultants compared of best practices in Customs procedures and practices with identified system weaknesses at the CED. The weaknesses were identified through a walk-through of the systems and procedures at the department, personal interviews with key personnel to establish the day-to-day processes and desk review of documented processes.

The capacity of the Customs system review staff was assessed. Some of the gaps i dentified have been discussed in Section 3 of this report.

Close working relationships between the staff of the systems review department and the consultants were established towards a mutual benefit. The staff had the opportunity to learn from the consultants’ system review approach on some of the system’s risk areas; while the consultants were



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able to collect diagnostic information relevant to this assignment. Diagnostic information was collected with the aid of a risk management register, where identified risks were classified on the basis of clearly defined criteria. The risk register is attached as appendix I of this report.

A combined stakeholder meeting was convened to enable the different players express the difficulties they experience during the clearance process.

Based on the diagnostic information, a progress report was prepared and presented in person to the stakeholders of the study. Subsequently, this report has been prepared.



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3. Our Findings, their Implications & our Recommendations 3.1 Administrative Procedures and Systems 3.1.1 Introduction: the Role of Internal & External Partners During the review of the administrative procedures in application by CED in Sierra Leone, we focussed on the processes and procedures in application by different agencies engaged in Customs activities, key strengths and weaknesses under each agency and possible opportunities for fiscal evasion and tax fraud. Subsequently, recommendations on how to approach areas of weaknesses have been proposed. It was established that CED work with other agencies, including, but not limited to, Sierra Leone Ports Authority (SLPA), Sierra Leone Airports Authority (SLAA), the Ministry of Health (MOH), Bollore who are the concessionaires of the container terminal and the Bureau of Standards in Sierra Leone. Other stakeholders include clearing and forwarding (C&F) agents and banks. Key partners of the CED are considered below.

3.1.2 Ministry of Finance & Economic Development (MOFED) MOFED senior management in Sierra Leone were engaged in the review process as their core responsibilities include fiscal policy making, identifying fiscal gaps and improving the country’s fiscal systems. An additional responsibility, which is that of trade facilitation, was established during the field review.

MOFED were of the opinion that Customs efficiency may not only depend on internal factors but also other agencies and factors; prompting the need to review the activities of those agencies. Factors that were identified as possible bottlenecks towards efficient clearance and revenue collection include but are not limited to: long queues at banking halls, poor internet connectivity, delay in receipt of delivery orders from shipping lines by importers, literacy levels amongst the different stakeholders, competence within the administration, scanner process and cost, and inadequate legislative and operational guidelines.

3.1.3 Bollore Bollore, the concessionaires of the container terminal, emerged as not being entirely efficient in its service delivery. In addition, according to some stakeholders, Bollore was overcharging clients and thus increasing the cost of doing business. Such charges are not communicated effectively to the importers, making it difficult for them to predictably discern how much they needed to pay as port charges.

We established that Bollore have increased the number of container lifting equipment to five. But, at the time of the study, only three equipments were operational resulting to an overwhelmed capacity at the port. This was reportedly because the equipments were expected to simultaneously offload and load cargo from arriving vessels, departing vessels and service the trucks moving goods at the port. This contributed to congestion at the port because trucks queue for long periods waiting to be loaded or offloaded. In relation to the high fees charged at the container terminal, Bollore confirmed that the rates were set after consultation and concurrence with the SLPA.

It was also alleged that consignments are pilfered at the container terminal. Bollore alluded that pilferage may occur at the verification stage and expressed concern that the quality of padlocks used



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to secure the containers could also be a contributing factor. Recommendations regarding the challenges facing Bollore have been discussed below.

Recommendations

There is a need for Bollore’s rates and service levels to be subject to independent regulatory oversight1 in order to ensure that costs of operator and/or port inefficiency are not passed on to clients; and that trade is performed at rates that are consistent with the wider economic competitiveness of the country.

To alleviate the challenge of port congestion, Bollore should consider increasing its capacity in terms of procurement of loading, moving and stacking equipment; since they have secured a 20 year contract with the government of Sierra Leone to manage the container terminal.

Bollore should also engage an effective communication platform to disseminate information regarding port charges so that importers have sufficient information to plan and make payments for their goods to avoid port congestion or increase cost of doing business. SLPA should also monitor Bollore’s application of the agreed port charges rates to ensure compliance by all parties. In addition, the trader should be given advance notice (preferably 3 months) for any proposed changes to the tariff of charges levied by Bollore2.

To alleviate the challenge of container pilferage, it is recommended that Bollore enhance its security equipment and procedures in order to uphold their fiduciary duty to both the importer and the SLPA. This may include investing in CCTV camera, enhancing security protocols at the port, recommending better quality padlocks usage on containers including tamper-proof seals among others.

Risk class: Strategic- These recommendations for an effective independent regulator are of strategic importance to the goals of this assignment.



3.1.4 National Revenue Authority The CED is an operating unit of the NRA. The National Revenue Authority is the government agency in Sierra Leone charged with the responsibility of collecting taxes on behalf of the government through the Sales Tax Department, Income Tax Department and the Customs and Excise Department. According to the MOFED, Sierra Leone heavily depends on Customs duties. They were keen to point out that part of the focus of this process review should be on the Customs legislation vis-à-vis the clearance process and on the provision of clarity on how duty waivers should be handled.

1 Preferably within the relative efficiency of a multi -sectoral regulator such as that which operates in The

Gambia (PURA – Public Utilities Regulatory Authority). In the context of Sierra Leone, with its human capacity

and financial constraints, single sector regulators are wasteful of financial resources . 2 These refereeing tasks are best done within the framework of the proposed independent regulator.



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Observed Strengths within NRA

There is an interim team of managers who appear to be dedicated and are determined to ensure the organisation excels.

CED has put ASYCUDA in place. The system has standardized documentation processing at the stations where it has been installed. It has also introduced a level of efficiency that has reduced the documentation period from 2 to 3 days to 3 to 4 hours. The system has also provided transparency to both internal and external users. With this system management is able to retrieve reports and also review the quality of documentation by the officers. The system is appreciated by both the officers and the clearing agents.

CED is working in collaboration with other agencies as evidenced by the joint verification procedures observed during the port visit. This reduces on the time of verification and also gives room for interdepartmental discussions on common issues. It enhances capacity of all government agencies and improves synergies.

The Customs operations allow for verification at the importers premise which means that the risk of increased cost on storage is minimised and security of the goods after verification is assured.

It was observed that preparation of Standard Operating Procedures (SOPs) for clearance was in progress.

Sierra Leone Customs enjoys the support of several development partners.

Observed Challenges within NRA

Legislation

There is lack of common Customs legislation – three versions of the legislation are in application namely the Acts of 1978, 1948 and the Customs Act Bill 2010. Hard or soft copy of some of the legislation like that of 1948 was not available. For this reason, some of the laws in those Acts may be applied only through intuition. This is a great exposure because the enforcement of such laws, in this context, become discretionary. In addition, it was observed that there are no Customs regulations to support the 1978 and the 2010 bill. This means that there are no guidelines to enforce the laws within the Acts.

The current bill (Custom Act of 2010) does not provide for fines and penalties. Thi s may encourage abuse of the entire Act since there are no consequences for flouted responsibilities. It is also an incentive for non-compliance and illegitimate trade. This environment also creates a lethargic situation in the system as personnel have no enthusiasm to apprehend non-compliant traders; they feel frustrated when the traders are simply warned or forgiven. Some know that the law does not provide for offences and as such use any means to facilitate clearance.

Without the enactment of the Customs Act and Customs Regulations, the CED and personnel have no guidance on the day to day business operations. This allows for discretionary service delivery and rulings for traders by Customs. The lack of Customs regulations allows opportunities for delays, manipulation, misrepresentation and rent seeking. It also creates inconsistency in the application of Customs procedures which creates a biased legal and economic situation.



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Customs officers must have a copy of the Act and the Tariff book to execute their duties effectively. Legislation must be available to all officers for effective implementation and enforcement.

Human Resources

Staff acquisition at NRA is reportedly done through a mix of advertisement, political appointment and patronage. The last two forms of acquiring staff are highly susceptible to compromises in terms of quality of personnel recruited. Some Customs officials receive training organised by the World Customs Organisation (WCO) and regional bodies like ECOWAS. However, there is no formal induction or structured continuing development programme that is offered for employees at recruitment. Most employees learn on the job which is time consuming, inefficient, results in unstable quality in services delivery and in the operation by intuition instead of standardised systems and processes. There exists a human resource code of conduct; but it appears that many employees are not aware of its existence or relevance. In addition, there are no clear policies to guide the growth and performance of the Customs officers, creating a poor learning environment and negative perception of the institution. The lack of skills means inefficient and ineffective service delivery to importers and exporters, who include both international and local investors. This will translate to loss of revenue, collection of revenue below optimal levels, persistent mis-declaration, undervaluation, lack of trade facilitation and poor economic performance for Sierra Leone.

In regards to staff placement to various positions within CED, it was observed that there is a mismatch between technical capacity/qualification and allocation of responsibilities. This is attributed to the political interference, lack of understanding of what capacity is required for the target position and lack of a clearly documented policy on appointments to management positions. It was also observed that there is a high turnover of experienced personnel which left some of the positions within CED incapacitated because staff exits occur without any formal hand over processes.

Operations

All containers are subject to scanning and subsequently receive physical verification. There are three levels of physical verification i.e. sighting (where Customs Officers verify container numbers and Customs seals), intrusive (100% verification) and where the container is open and the first row of goods are inspected. This causes delays and duplication of verification procedures which increases the cost of doing business for the importer and inefficient use resources by the government. The investment on scanner should be realised by using the images effectively. The scanning process in itself is efficient, however the subsequent operations of verification are not done immediately and this creates traffic jams at the port.

Majority of the cargo go through the red channel which means majority of goods imported are verified. This provides an environment for rent seeking in two ways; to facilitate fast verification and camouflage illegal activities. It also presents the risk of delaying goods at the port and inevitably increasing the cost of doing business in the country.

Verification reports or accounts

Another challenge is that of lack of technical and administrative capacity within Customs to drive Customs reforms currently taking place. Some of the technical capacity gap that is lacking is of a legislative and operational nature, which is exacerbated by the lack of Customs regulations. For



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example, senior managers at the NRA should be able to access or generate management reports from the ASYCUDA system to track the performance within the department. There was no evidence of management report retrieval from the ASYCUDA system. Consequently, decisions made by management may not be adequately informed. In certain contexts, such decisions may prove counterproductive.

A significant risk that was observed during the study was that Customs declarations at one of the border posts are not numbered. This means that there is no way of tracking goods or consolidating supporting paperwork like the entry form and bonds, compromising post importation audit procedures. It also distorts reporting of trade statistics which depends on reliable import and export tracking. In addition, the declaration forms filed by Customs are completed by Customs with details copied from a declaration that has been completed by the importer. From the study, inadequate mobility and the unavailability of agents to prepare declarations to Customs was cited as the reason for this process of declaration. These practices compromise the credibility of the declarations and gives room for false or no declaration. This process also goes against the established norms that Customs Declarations are typically sworn statements made by the importer and it would be difficult to charge the importer in the case of false declarations if the same is filled by Customs.

The Customs procedures allow for clearance of part Bill of Lading (BL). This means that where five vehicles are imported into the country against one BL, the importer may clear one and leave the rest for clearance at a later date. There is however no system of following up on the status of the remaining vehicles. The compilations of manifests are not up to date, and as such it is difficult to reconcile what is outstanding at the port with what has been left at the same port. On consultation, it was observed that the vehicles registration bureau registered more vehicles than those officially listed by the CED. This inconsistency signifies an elevated risk of revenue loss, which should be sealed.

It is also important to note that there are no manifests for consolidated cargo. This makes it difficult for Customs to account for consolidated goods. Consequently, there is no evidence of what is being imported into the country thus exposing the country’s security and revenue.

Our examination of the ACC’s advisory opinion on the first SLEITI report3 noted from that more transparent and realistic revenue streams would accrue to Government if the following are done a) verification of quantity and quality of exported minerals by having permanent mining representatives at the shipping sites and b) mining companies should not be exempted from paying obligatory levies.

Recommendations

Legislation

3 Anti-Corruption Commission (2011, March), Advisory Opinion on the First Sierra Leone Extractive Industries

Transparency Initiative (SLEITI) Reconciliation Report



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The ambiguity of multiple legislations and effective absence of penalties for non-compliance with legislations must be addressed swiftly.

Risk class: Compliance- These recommendations impact on the usefulness of legislation and regulations.



Human Resources

In order to alleviate the challenge of staff allocation, a clear organisation structure at NRA should be established. This should be supported by a well articulated policy on allocation of management position within the organisation. No appointment should be allowed outside the established policies.

Competitive recruitment through advertisement should be entrenched within the recruitment policies at the NRA. It may be useful to seek external support in making a fresh assessment/recruitment of the staff of the NRA as an entity to establish the suitability or otherwise of the staff compliment for the roles they are expected to play in the three revenue departments.

To avoid future antagonism within government agencies, the staff hired through patronage should receive thorough Customs training so that they are capable of delivering better and professional services to clients. Such hiring must be ended.

To ensure that positions are not left without capacity when personnel exit NRA, handover procedures should be formulated, documented and implemented to guide the handover process of staff responsibilities.

All staff should be trained regardless of station. The training of the research and audit team within custom on ASYCUDA and the Preventive Services and Special Duties (PSSD) division should be prioritised. Learning by these three teams would greatly enhance their supportive role within Customs and Excise activities.

All officers should undergo the ASYCUDA training.

A comprehensive training program should be developed and a training manager appointed to manage the program in order to enhance skills transfer sustainably. This program should encompass the unique needs and requirements of all the positions within NRA and should be reviewed and enhanced regularly to keep the training outcome relevant to the employees’ role.

A thorough human resource audit is required at the Customs and Excise department to verify the need to employ more people at the borders of Sierra Leone. Subsequently, a human resource planning exercise should be undertaken by the HR department so that the current and future HR needs, resources and sources are managed adequately and sustainably.

In conclusion, we propose the development of a formal training needs analysis and a training plan through the engagement of Customs staff. The rationale behind engaging the staff is so that staff



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members take ownership of training program developed. In addition, the training program should have an established review and amendment process to keep the program relevant. It should also be delivered within, an NRA-wide, strong and merit based integrated performance management, discipline, grievance handling and appraisal system that works throughout the year to assure that CED staffs deliver services that are commensurate with the knowledge that they have gained. As training converts a collective resource (NRA’s cash) into a personal resource (individual human knowledge), it is a high risk investment outside an effective performance management system that ensures that the investment is used for the benefit of the CED.

Risk class: Operational- These recommendations impact on the short term business operations of the CED.



Operations

A comprehensive risk assessment should be conducted to establish and allocate a channel to the goods imported into Sierra Leone and constantly monitor the risk profile of traded goods in order to make the necessary adjustments based on established changes in risk levels. This will enhance port clearance and mitigate port congestion caused by unnecessary delays.

Sierra Leone should consider procuring a risk management system. In the meantime, the one inbuilt in the ASYCUDA should be enhanced and used.



Risk rating: Weak – failure to implement these recommendations may not be fatal in the short term but may develop into a fatal threat if it is not quickly arrested.

Verification reports or accounts

To mitigate the risk associated with completion of declaration forms by both Customs and the importer/agent, it is recommended that importers or their licensed agents be the only ones allowed to fill Customs declarations rather than Customs officers.

To mitigate the risk associated with part BL, it is recommended that the procedure only provide for the clearance of a full consignment where by a BL is deemed to be a consignment. In the event the importer does not have adequate funds to pay the duties, then the consignment should be cleared into a Customs bonded warehouse. This ensures that Customs has full control of the consignment and that there is no loose cargo lying at the port unaccounted for and thus no loss of revenue,

House manifests for Less than Container Load (LCL) cargo should be prepared for all consolidated or loose cargo and submitted together with the main Full Container Load (FCL) manifest.



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All Customs declarations must be with secure documents that are printed pre-numbered. There must be a credible audit trail to permit the tracking of goods or consolidating of supporting paperwork like the entry form and bonds. Internal audit should include processes to verify the completeness and accuracy of the reporting of trade statistics from CED data.


Risk analysis: Likelihood: High. Impact: Medium


Technical assistance must be provided to the CED to build technical and administrative capacity within Customs to drive Customs reforms currently taking place. This assistance must be designed to build in-house capacity and the advisers must be subject to the NRA’s recommended enhanced performance management systems to ensure that they deliver on their terms of reference. The assistance should be legislative and operational in nature, and must include the development and implementation of necessary Customs regulations. Managers at the NRA should be trained to access or generate management reports from the ASYCUDA system in order to track the performance within the department on a timely basis.

Risk class: Reporting- These recommendations impact on the reliability of internal and external reporting which provide information for decision making, control and the assessment of management’s stewardship of resources.



Resources and control systems should be allocated to enable the verification of quantity and quality of exported minerals by mining companies. NRA should advocate for the lifting of exemptions from obligatory levies for mining companies.

Risk class: Safeguarding Assets- These recommendations impact on the CED’s ability to protect the resources available to the organisation and the country and, if implemented, reduce the likelihood of financial loss through poor systems and controls.



3.1.5 Sierra Leone Ports Authority (SLPA) Observed Strengths within SLPA



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Sierra Leone Ports Authority (SLPA) emerged as having systems in place. They have regulations in place which describe among other things the time requirement to lodge the manifest when the ship arrives. However, it should be noted that the time and place for lodging of the manifest has been amended by the Finance Act 2011. The place lodging the manifest is customs according to the amendment.

SLPA also have documented SOPs that guide their operations.

The scanner in place at the port facilitates the verification process at the port. The scanner and its operations up until early this year was run by Intertek. The contract was cancelled and now the system is managed by both Customs and the SLPA.

Observed Challenges within SLPA

The area occupied by the scanner does not allow easy manoeuvre by trucks on entry and exit. In addition, cargo undergoes physical verification after scanning. The area where trucks are parked awaiting verification after scanning is not adequate. This results in congestion and delays at the port.

The port area is small and this too attributes to the congestion.

Shipping lines may sometimes cause delays in the clearance process due to delayed issuance of delivery orders.

Recommendations

The gate area around the scanner should be expanded to allow for trucks to manoeuvre easily during entry into and out of the scanning area.

It is recommended that shipping lines be more efficient in issuing delivery orders to clearing agents so that imported goods do not incur unnecessary delay at the port. A penalty should also be imposed for late submission of cargo manifests and or presentation of cargo clearance documents in order to encourage compliance.




3.1.6 Sierra Leone Airports Authority (SLAA) SLAA has a number of reforms underway in areas of infrastructure and security. Some of the infrastructural reforms include a scanner that has been procured but is yet to be installed. In order to guarantee business continuity and consistency in the application of procedures at the port, SLAA has developed and is implementing Standard Operating Procedures (SOP) which are reviewed annually.

Observed Challenges within SLAA Activities



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There is no clarity on who should receive the aircraft manifest or where it should be lodged; including clarity on the time limits for manifest submission to allow Customs ample time for advance profiling and risk assessment. This compromises both security and revenue collection since no one is sure of what exactly is coming into the country and what revenues are due based on the manifest details.

Recommendations

We recommend that all airport manifests be lodged with Customs at least 1 - 2 hours before the arrival of the aircraft, which is best practice, in order to ensure that Customs is able to collect taxes, importation data and information efficiently while adequately safeguarding against smuggling.




It is also recommended that the amendment to the Finance Act with regards to manifest be enforced.

Risk class: Compliance- These recommendations impact on the level of compliance with applicable laws which are intended to enhance the efficiency and effectiveness of the CED.



3.1.7 Clearing & Forwarding (C&F) The C&F Association acknowledged and applauded the reforms that were being planned and implemented by the government, including the implementation of ASYCUDA.

Observed Strengths within the C&F fraternity

The C&F Association has trained a majority of their members on the Customs laws and procedures. It is reported that DFID recently funded the training on Customs, port, ethics, communication skills and valuation for 240 personnel of different C&F companies. 480 more people are scheduled to benefit from the same training.

Observed Challenges within the C&F fraternity

C&F agents raised concerns over the tariff headings which have not been enacted and the fact that the tariff headings list on ASYCUDA system did not exhaustively cover all goods. The chapter notes and detailed description to support classification activities were not in place, making it somewhat difficult to make correct declarations.



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There was also concern about the Customs officers’ minimal understanding and poor application of the Agreement on Customs Valuation (ACV). It was reported that officers are not conversant with the requirements of the agreement on valuation. More often than not, the officers uplift declared values without a basis regardless of the importer confirming the value by providing evidence on the same.

Recommendations

Required tariff headings should be enacted. Actions to expand the tariff headings list on ASYCUDA system should be explored for viability. The chapter notes and detailed description to support classification activities should be made available. Customs officers must receive adequate training on the ACV.

Risk class: Compliance- These recommendations impact on the level of compliance with applicable regulations and processes which are intended to enhance the efficiency and effectiveness of the CED.



3.1.8 Banks At the time of the study, one bank had been approved as the collecting agent on account of the CED.

Observed Challenges within the Bank

There are long queues at the banks. One of the causes for the long queues was the fact that only one bank acts as a Customs duty collection agent and only two branches of this bank are allowed to collect duties on behalf of the CED. The risk identified in this case is that the rigid nature of the duty collection by only two branches limits the payment control by the importer and where such control is delegated to the clearing agent, it may be abused.

At the stakeholders meeting that took place during study, the representatives of the bank confirmed that the banking hours would be extended from 3pm to 5 pm.

Recommendations

In order to reduce the long queues at the banks, it is recommended that, provided necessary criteria are met, all branches of the collecting bank be approved in order to accord importer some le vel of fund transfer risk management and control.

It is also recommended that the agreed proposed extension of banking hours by the collecting bank be formalised on the basis of an agreement with CED for sustainability.

It is important that NRA consider incorporating other banks in the scheme by developing formal qualification criteria as a basis for qualification and quality assurance reviews.



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Risk rating: Strong – an opportunity that can lead to an increase in the client responsiveness of the CED’s services and which the organisation is in a strong position to manage. The CED should already have the required capacity for the envisaged increase in service scope and quality.

3.2 Other Customs Facilities & Activities 3.2.1 Bonded Warehouse There are two types of Customs bonded warehouses in Sierra Leone, namely; bonded oil installation for petroleum or hydro carbon products and bonded warehouse for dry cargo. There are resident officers stationed at these facilities. The officers record the receipt of imported goods or ex-warehouse removal goods (movement from one bonded warehouse into another bonded warehouse) and deliveries duty paid, exempt and/or for export goods out of the warehouse.

For petroleum products, a form C27 is prepared weekly showing the volumes delivered and amount to be paid.

Observed Challenges within the Bonded Facilities

This information on the form C27 is not captured in the ASYCUDA. It is important to note that the officer does not have information on the volumes that were imported. Customs was observed as having limited control over hydrocarbon commodities imported into the country due to the lack of compliance procedures to collect and manage hydrocarbon information using ASYCUDA.

The system of operations today produces an elevated risk of non-compliance. It is not mandatory that documentation for goods going into and out of the bonded warehouse be done through the ASYCUDA system. This means that the reconciliation is not complete as some go through the system while others do not.

Management of bonded warehouses for hydrocarbons is worst affected as the commodity is deemed to be a political commodity. The absence of regulations, proper legi slation and a workforce that upholds good work ethics and accountability, further aggravates the situation as it allows for external influence in administering operations. In absence of the rules and regulations, the stakeholders dictate how the facility should be managed. It also creates an environment where the Customs officers are in a position where they are unable to legally support their action or requirement. It is important that goods stored in a bonded warehouse are covered by a security bond. The purpose of the bond is to secure government taxes. The bond requirement for the hydro carbon importers has been waived. This was done to minimise the importers cost of importation and subsequently reduced retail pump prices. This action further compromises government revenue, as there is no control of the imported volumes. Without a bond and control of volumes imported by Customs, an importer may or may not make a correct declaration to Customs as they have nothing to lose.



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Recommendations

Procedures should be put in place that requires Customs duty and levies for all imported petroleum products be paid for up front and subsequently refunded on the basis of quantities sold to exempt entities. Petroleum products could also be held in a bonded installation with a security bond covering the total quantity subject to payment of duties and taxes.

It is recommended that taxes be collected on delivery rather than a week after delivery. This way all goods leaving the depot will be paid for or properly exempt on consumption.

Officers should be trained in the field of hydrocarbon management so that they understand the dipping process and how to account for petroleum volumes and taxes.

In the short run, it is recommended that an independent surveyor be contracted to keep account of the volumes of hydrocarbon products coming into the Sierra Leone and submit the accounts to NRA for purposes of collecting taxes due on the respective volumes.

It is recommended that flow meters be installed at the port of discharge as a medium term solution to account for the volumes imported into the country.



Risk rating: Challenge. These are opportunities that are likely to drive an increase in the demand and the credibility for the CED’s services but which will require an increase in the organisation’s effectiveness in order to cope with the increased demand.

It is also recommended that Customs ensure the volume imported is correctly captured into the ASYCUDA system at the point of entry.

Risk class: Reporting- This recommendation impacts on the reliability of internal and external reporting which provide information for decision making, control and the assessment of management’s stewardship of resources.



3.2.2 Valuation Valuation emerged as a significant challenge within Customs. An example of the level of imminent risk was observed in determination of the values for motor vehicles; which is currently based on the engine size regardless of type and country of origin. The guide in use is as old as 2006 and the values are based on the engine size of vehicles rather than the vehicle type. This means that if an importer



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pays more for a vehicle, the taxable value taken or used is the guide value which may be higher or lower depending on the vehicle type.

In addition, it was observed that the valuation database was not updated regularly which presents an erroneous valuation due to the use of outdated values.

Recommendation

To curb the risk associated with loss of revenue due to erroneous application of motor vehicle valuation, it is recommended that a review of the current guideline in line with ACV methods be performed and a training of the Customs valuation staff on the same is undertaken. The training will assist the staff to appreciate best practice approach towards valuation.

It is recommended that the valuation database be used as a guide rather than the firm customs value as there are instances where the actual price paid or payable is higher is than the database value.

It is also recommended that the valuation database be updated regularly to reflect the correct values for application during valuation.




3.2.3 Anti Smuggling A special anti smuggling unit has been set up under NRA.

Observed Challenges relating to Smuggling

According to Customs, the borders are susceptible to smuggling. The main reason is that Sierra Leone has a long coast line with a limited border patrol capacity to adequately safeguard against smuggling activities.

In addition, the legislation does not provide for the modalities to punish perpetrators once apprehended.

The anti-smuggling officers lack capacity to adequately enforce anti-smuggling legal provisions

Recommendations

To curb smuggling at the overland borders and along the coast line, it is recommended that more Customs reporting points be established and border patrol increased along the coastline to sufficiently discourage smuggling.



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Provide the border patrol officers with vehicles to enhance their mobility along these areas

It is also recommended that border patrol officers be provided with adequate training on best practice border patrol mechanisms and approach.

The number of officers at the border should be increased since five PSSD officers are not adequate to man the border day and night. The same five compose the patrol team.

To further improve the current performance of the border patrol units, a feasibility and economic appraisal should be done to assess the viability of a thorough border patrol budget. This may be required together with accountability structures put in place so that patrols have adequate resources to safeguard the borders. The budget should include fuel cost, motor vehi cle including where possible patrol boats purchase and maintenance, medical cover and a competitive compensation package to cover the risk of securing the border.

Oversight and quality assurance processes at all land, sea and air borders can include “ghost imports and exports” by the internal audit unit, which can be used to anonymously test the application of standard processes.




3.2.4 Legal provision and statutes Part of the study was to review the administration of the legal instruments in order to determine areas of exposure in terms of revenue loss. The findings of the desk review in this context would be supported by the actual occurrence of such an exposure collected from field interviews. Identified risk areas, their implications and recommended solutions and enhancements have been discussed below.

Observed Legal Challenges

Both the desk review and field interviews confirmed that there are multiple Customs Acts in use by the Customs administration. The three include the Customs and Excise Act 1948, the Customs and Excise Act 1978 and the Customs Bill 2010. All these Acts were applied at one point or the other by the Customs officers and some of the stakeholders. The one mostly used or quoted is the bill, which is yet to be passed into law.

Regulations to operationalise the Act are not in place. The only ones which were sighted are those of 1948. These were available at Lungi Airport.



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The Customs tariff book is another essential piece of legislation that is not in place. Offi cers are compelled to rely on the ASYCUDA, however, as earlier stated, ASYCUDA is not all inclusive and it also does not have the chapter notes which are available in the ordinary tariff books. The tariff books are important because they state the rates of duty payable and allow for proper classification of goods. The tariff book is what guides the information to be input into the ASYCUDA system. CED recently developed the Harmonised System (HS) office which has put together new proposed tariff. In addition, classification forms, classification monitoring process tools, sample testing form and Sierra Leonean abbreviation manual have been developed awaiting approval and implementation

Departmental instructions or operational manuals may be optional but they are very useful in the management of Customs activities. It was observed that these are not in place. The need for these procedures was reinforced by the fact that Kambia officers expressed concern over the lack of laid down procedures and legislation. Operating without these procedures has led to lack of coordination at Kambia. However, it was observed that a procedures manual has been developed by CED awaiting approval and implementation.

Section 9 (1) of the Customs Act/Bill 2010 provides an application for an advance binding ruling in respect of tariff classification, origin, tax exemption and valuation methodology of goods specified in the application to Customs Services. Section 9 (3) of the states the following in relation to section 9 “an application under subsection (1) of this section may be made at any time, and may have retroactive force”. There is an observed risk in the use of the words “retroactive” for both Customs and traders in the case of Section 9 (3) because Customs may choose to apply this legislation punitively to retrogressively collect high taxes if the application results in increase d tax obligations on the trader in comparison to what they were subject to before the application. In the same way, the traders may engage a favourable ruling to retrogressively obtain refunds on past tax payments.

WCO membership is not up to date, hence limited support from WCO if any.

Implications

Where there is no proper legislation, there are no rules; and where there are no rules, there are no offences. Currently officers of the department raise offences based on perception, sometimes unable to adequately address issues related to contravention of the Customs procedures or even discern which legislation to apply. Such offences can also be easily challenged by the importers and are difficult to enforce or can lead to rent seeking, with the concomitant loss of revenue.

The lack of a commodity tariff book means that there is no way of accurately and reliably classifying goods for tax and trade statistics purposes. This also leaves room for manipulation. The bottom line for the inadequate or missing legislation is that government revenue collection is not maximised and the country security is compromised.

The Acts are not available to officers on the ground. This leaves room for discretionary decisions which can result in unlawful declaration, undervaluation and under or over collection of revenue.

Recommendations

We recommend that the ruling made under section 9 of the new Customs Act/Bill 2010 be applicable from the date of official ruling going forward and not retrogressively.



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The Customs Act should be enacted as soon as possible to provide CED and personnel with the required statutes and guidelines for Customs operation and also to protect the interest of both the traders and the Customs officers.

It is also recommended that a review and amendment of the proposed tariff handbook be conducted, using the WCO guidelines as a template. This will enhance the current state of the handbook, to include missing tariff headings. Subsequently, the tariff heading will then be customised to suit Customs application in Sierra Leone

The Act should also be enhanced to provide for offences and fines. The fines should be specific in form of percentage, punishment or monetary. The portions that deal with fines and penalties should to the greatest extent not be discretionary such as reading “as the commissioner or officer may decide”. It is also important that it should, as much as possible, provide action for the offences in every section. Offence sections are a deterrent to unscrupulous traders and agents and as such mandatory to be in the Act.

An addendum should be drafted to incorporate all missing legal provisions cited in this report.




CED should renew its WCO membership in order to benefit from WCO support in training and best practice procedures.

Risk class: Operational- These recommendations impact on the resources available to manage the short term business operations of the CED.


Risk rating: Strong – an opportunity that can lead to an increase in the client responsiveness of the CED’s services and which the organisation is in a strong position to attain.

3.2.5 Effectiveness of the Internal Audit team Under the instruction of the Commissioner, an Internal Audit unit was created in November 2009 and was commissioned in the year 2010. Its effectiveness is of crucial importance to the attainment of the objectives of this assignment as it potentially provides a vehicle for professionally independent internal assurance on systems and processes.

Typically, the internal audit function should support the Department’s strategic, operational and legal objectives through a systematic and disciplined approach to evaluate and improve the effectiveness of risk management, control, and governance processes within Customs. This is the



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function that should ensure that Customs keeps to its goals and objectives in order to achieve its vision and mandate.

The Internal Control and Audit (ICA) department of the NRA was established in year 2005 and was later scrapped and shut down due to issues not revealed to us. In year 2009, the board of directors re-established a new Internal Control and Audit dept. to carry out the risk assessment and internal audit functions for the authority. The unit is headed by a deputy Director who reports directly to the Board of Directors (BoD).

The ICA unit began with nine employees namely the Deputy Director, three Audit Supervisors and five Audit Seniors. All the employees were graduates from different institutions and background. Apart from the deputy Director, the three audit supervisors had experience in internal auditing, the rest were new to internal audit functions. In January/February 2011 a staff of the ICA department was transferred to the Monitoring Research and Planning (MRP) department and later in June 2011, a replacement was recruited.

In compliance with the terms of reference, we requested access to the internal and external audit reports, the Audited Financial Statements of the Authority and other information on audit resources, systems and processes - directly from the NRA and indirectly via the ACC - but were unable to secure the required information. This has been a significant, unexplained, reduction in the scope of our work. The audit reports and other relevant information were withheld from the consultants. All information utilised to in preparation of this report was obtained from informal interviews with the CED staff members. This limited the level of assurance that we could obtain on the assertions received and noted below.

Reported Strengths within the Internal Audit function

An internal Audit Strategic Plan was reportedly prepared at inception of the new ICA department, presented to the Audit Committee and the BoD for approval. This plan would be the blue print to guide the direction of the ICA department in achieving the overall objectives of NRA. We have not been able to assess the appropriateness of this plan relative to current best international practices.

Reported Challenges within the Internal Audit function

Management

It was communicated that a newly engaged consultant responsible for the re-structuring of the NRA had developed an organisation chart that show the reporting line of the ICA direct to the Commissioner General (CG). The basis for this change is unknown.

The ICA strategic plan has not been reviewed or approved by the Audit Committee or the BoD since 2009. The work plan prepared as a tool to achieve strategic objectives set in the CED’s strategic plan and submitted to the Audit Committee and the BoD has not been reviewed or approved. Furthermore, the work plan has neither been reviewed nor acknowledged by the department heads at NRA despite its submission to the different departmental heads. The lack of support for these documents sets a negative precedence for the ICA which partially explains the ineffectiveness of the department since its inception. The work plan has no basis for its existence since the strategic plan has not been approved.



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In an effort to come up with a risk manual for NRA, risk assessment questionnaires were prepared and sent out to all departments for responses in order to come out with an adequate risk manual for the use of the authority. Two hundred responses were received and were sent to the appropriate line managers for review and comment. Only six managers have so far responded as at time of preparing this report. Full cooperation at all levels of NRA is required in order to complete and implement the risk manual.

It was established that the BoD were not in agreement regarding the establishment and operations of the ICA department. The dual responsibility of the BoD chairman who doubles as the Audit committee chairman was also cited as a concern by board members.

Reported Human Resources Issues within the ICA

A staff member reportedly resigned from the ICA department due to the threat and unwarranted attitudes and behaviour of the some board members and management staff towards the department. Poor morale has hindered the effectiveness of the unit.

New members of the ICA department are not offered induction training. Furthermore, there is inadequate capacity building offered to the ICA department.

There were concerns that the remuneration of the employees of the ICA department may not be commensurate to the independence and skills required, responsibilities and the challenges faced of the unit.

Reported Operational Issues

The ICA department may not have the authority to audit the full range of the CED’s functions and locations, thus limiting the effectiveness of their mandate.

From the diagnostic review, it was observed that the internal audit function has not been fully established or appreciated. The Chairman of NRA board is the only active member within this function.

It was reported that internal reports have frequently failed to elicit a response from relevant managers.

The unit is said to require audit software to enhance its efficiency and effectiveness.

Implication

There is an elevated risk of low morale and inadequate efficiency and effectiveness of the internal audit function. This poses a major threat to the integrity of CED systems and processes as the Internal Audit is a vital tool for providing assurance on the functioning of those systems.

Recommendations

The Government should consider adopting the Arusha Declaration, a non-binding WCO instrument which provides a number of basic principles to promote integrity and combat corruption within customs administrations.



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Steps should be taken to increase the professional independence, authority, quality of human resources, quality of auditing strategies and systems and the salary scale of the NRA’s internal audit function. The reforms should include the possibility of outsourcing the work of the unit. Its authority and independence can also be improved by the establishment of formal planning and reporting links with other complementary entities such as the investigations unit of the ACC, the Audit Service of Sierra Leone (ASSL) and the Internal Audit unit of the central government. These reforms would enhance the ability of the Internal Audit unit to deliver services that assist the management of the NRA to receive information that enables it to direct and control the resources of the NRA to achieve its strategic goals with efficiency, economy and effectiveness. There appears to be a seriously elevated risk that the current structures and systems of the Internal Audit function would underperform these objectives.

Risk class: Strategic- These recommendations are of strategic importance to the goals of this assignment.



3.2.6 ASYCUDA System Management The implementation of ASYCUDA is in progress. However, the enactment of Customs legislation (2010 bill), regulations, capacity building within Customs is moving at too slow a pace. The lack of legislation is a significant hindrance to the full implementation of an effective and efficient Customs administration arm. An example of the level of imminent risk was observed where some of the tariff headings were missing from the ASYCUDA system e.g. that of mayonnaise, which is one of the highly imported commodity in Sierra Leone. As part of the review, the consultant engaged the head tariff to establish the tariff heading of mayonnaise, where it was observed that the tariff on mayonnaise is not specific in the AYSCUDA but the tariff heading can be specific according the WCO template. The risk in this case would involve collection and compilation of wrong trade statistics, lower duty rate for the importer, or high duty rate for Customs because both importers and Customs have conflicting interests. There is also the risk of increased Customs discretionary powers leading to actions that are not in the corporate interest of the CED.

Access passwords to AYSCUDA are shared among examining officers (EO) which presents an undesirable risk of accountability. It increases the chances of fraud through document tampering. This can happen when an officer is officially or unofficially away from the office.

Skills transfer emerged as another challenge. The ASYCUDA team expressed an urgent need for a skills transfer program and the need to harmonise manual and automated Customs documentation for improved service delivery and for the sake of consistency of retrieved information.

Customs is meant to verify the declared values and query if they are below or above what is in the AYSCUDA system. It should also be noted that the function of the system is not to value the goods but to aid in the process of verification by a Customs officer. According to the C&F Association, the pace of implementation of (procedures at the) the X-ray and Bollore is slow.



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There is need to reconcile the manual and automated Customs documentation, in order to enhance recording keeping at Customs, post importation audits and other Customs activities.

Recommendations

The operationalisation of relevant legislation and regulations must be expedited with priority.

Password control should be enforced through regular inspection and verification of the computerised audit trails of user access. The conditions of service must contain explicit sanctions for breach of this rule.

The manual and automated Customs documentation must be reconciled and harmonised.




Tariff headings should be expanded to reduce the risk of inappropriate statistics and valuations.

Risk class: Reporting- These recommendations impact on the reliability of internal and external reporting which provide information for decision making, control and the assessment of management’s stewardship of resources.



A skills transfer programme must be designed and implemented in the short term.

Training must be given to officers in the proper use of the ASYCUDA system.




3.2.7 External Auditing As with internal audit, information was requested, but not received, from the CED.



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3.2.8 Implementation of recommendations to improve on the structural vulnerabilities of the Lungi International Airport We were requested to verify if the recommendations of the Report on the Vulnerabilities of the Freetown International Airport have been implemented.

This report was meant to highlight and recommend ways of dealing with management, financial and infrastructural challenges identified at the airport for greater economic activities to be realised. The challenges that were identified in the report are highlighted below together with the milestones that have been achieved so far. This section then concludes with the recommendation on the way forward based on the current situation and the recommendations of the Lungi Airport vulnerability report.

Overall, it should be mentioned that the challenges that had been confronting Lungi Airport prompted the formation of a Airport Operations Review Committee (AORC), made up of various airport stakeholders such as SLAA, ACC, MMR, ONS, CISU, NDCA, SLP mandated to revie w existing legislation on money laundering, counter against financing terrorist activities, the effectiveness of the counter-narcotics and other crime preventive measures to see whether they conform to international standards.

Major infrastructural and modernisation activities at the airport are expected to improve its capacity, efficiency and safety. A mainland airport, easily accessible by road from Freetown, has also been proposed to further improve the international trade capacity of Sierra Leone.

Lungi Report Recommendation and Status

The study was required to establish the level of implementation of the recommendations made within the Report on Vulnerability at the Lungi Airport. The findings were as follows:

The rewards promised to the officials who facilitated apprehension of offenders at the airport, which was set at 40% of the value, has not been implemented. It was established that each agency deals with the matters of staff compensation differently. SLAA reward employees who facilitate apprehension through commendation and sometimes promotion. With Customs, one is deemed to be on duty and as such, just doing what he is employed to do. Such dishonoured claims could cause personnel to be less motivated to support the anti-smuggling campaign at the airport; and as such it is important that the recommendation is implemented.

The Lungi report also recommended that ACC and National Drugs Control Agency (NDCA) personnel provide support to the airport team through monitoring. This has not been implemented. These two organisations collaborate with the airport only when there is an issue to be solved, making the airport team more reactive than proactive. If the Customs personnel had adequate training particularly on safeguard measures at the points of entry and exit, they would comfortably take up monitoring responsibilities.

It was also recommended that the airport fence be manned by police and that SLAA provides shelter for them. This has so far been implemented.



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The Lungi report made recommendations that SLAA and other operating agencies take practical steps to deploy their most efficient personnel at the Airport Terminal Building (ATB) to improve on the public relations at the airport. A lot of improvement was observed at the time of the study. The congestion caused at the baggage hall had also been highlighted as a concern. It was observed that SLP personnel would show up at the baggage hall when certain flights arrive even when off duty, raising the question as to why this was happening. We recommend this be investigated by ACC to rule out cases of foul play or harassment and optimise the deployment of police at the ATB.

In order to improve the security at the airport, it was recommended that both the SLAA and NDCA take steps to procure, train and deploy sniffer dogs to complement the efforts of the security forces at the airport. This has not yet been implemented because of the expenses associated with maintaining “K9” sniffer dogs. It is recommended that the two organisations draw up a capital expenditure budget on what it will take to sustainably acquire and maintain the dogs. It is recommended that the Departments seek support from organisations like the U.S. Drug Enforcement Agency (DEA) for procurement of “K9” sniffer dogs.

At the time of the diagnostic study, it was observed that four channels had been established to manage the passenger arriving at the airport terminal namely, the green channel for random checks, the blue channel for PCA checks, the yellow channel for documentary checks and the red channel for mandatory checks. There is evidence that, in practice, these channels are not used for all flights.

Lungi report recommended that a monitoring unit be set up to monitor compliance with valuation of goods that have pre-determined tariffs in line with WCO. Baggage and freight goods would be valued based on the rates provided by valuation list and Brussels Definition of Value (BDV) respectively. However, there was no basis for the definition of value for second hand goods and it was therefore recommended that the computerisation of the valuation process be implemented as a long term measure, where payment would be made through the bank using bank drafts. This would limit the discretionary powers of customs officers in valuation of goods particularly second hand goods. The AORC had proposed ways of developing an effective regime to handle such goods at the time when the Lungi report was prepared. So far, this regime has not been established, which has perpetuated the risk of revenue loss and the abuse of powers by some customs officers. It is also important to note that the BDV cannot be used as SL is a signatory to the ACV Framework.

The report also identified the tendency of long serving personnel at the airport to have unrestricted access to every part of the airport, giving them a great deal of space to engage in corrupt activities including flouting Customs screening procedures. From the diagnostic study, it was also observed that these personnel also authoritatively instruct Customs personnel on what to do sometimes regardless of what the law states. This confuses the officers on what is required of them, creates avenues for revenue loss for the government not to mention the increased risk of importing prohibited items into Sierra Leone. In order to avoid the establishment of self interest groups and unscrupulous relationship between enforcement agency employees at the airport themselves and with the public, Lungi report had recommended the redeployment of long serving employees to other stations. The police, phyto sanitary and port health personnel would be redeployed after five years and airport authority personnel would be redeployed after two years of services at the airport. From the study it was observed that minimal change had been done on this front.

It was also recommended that phyto sanitary personnel at the airport work behind the scenes to avoid explicit involvement in airport operations. This had been implemented at the time of the study.



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The freight/ cargo section of the airport is part of airport operations, which was meant to be handed over to a ground handling agent on concession to manage on behalf of the SLAA. However, before the concession was awarded, the report in Lungi recommended that only registered C&F agents should be allowed within the confines of the cargo sections in order to safeguard against corrupt activities and loss of goods. This has so far been implemented.

In order to better handle public suggestions and complaints in relation to airport operation activities, Lungi report recommended that suggestion and complaint boxes be fitted in strategic locations of the airport by SLP, SLAA and NRA. This exercise was in line with the government’s attitudinal change campaign. The boxes would only be accessed by senior officers in charge for greater transparency and accountability. At the time this study, it was observed that suggestions boxes have been put up at the baggage area and within ATB and that senior management officers at the Customs and SLAA were the only officers allowed to retrieve correspondences from the suggestion boxes based on their respective jurisdiction.

Lungi report also recommended all enforcement agencies should refer all facilitation activities to the airport Public Relations (PR) office in order avoid distracting enforcement agency personnel from their core functions and uphold integrity. This has so far been implemented however we recommend the response time is monitored.

It was recommended that SLAA formally induct staff from other agencies on airport culture in order to enhance airport operations and coordination. From the study, It was observed that each agency induct their respective staff members who are sent to work at the airport.

It was also observed that the project to upgrade the quality of immigration forms has been implemented. SLAA in collaboration with Airtel has come up with quality immigration forms which have replaced the earlier ones.

It was recommended that main grid electricity be extended to the sensitive areas of the Freetown International Airport (FIA). From the diagnostic study, it was observed that a private company is assembling mega plants to generate extra power which they intend to sell to SLAA and its environs.

Safety measure for landing and takeoff: - at the time of this diagnostic study, SLAA was in the process of engaging the farmers in talks to relocate them. Currently a surveyor has being contracted to assess the area of encroached land. The land under survey was leased to SLAA by the community living around the airport

Management of VIP lounge: – it was observed that there is an SOP that has been developed describing the proper use of this facility. According to information from SLAA, the management of the facility is under control now.

Lack of well defined responsibilities was one of the challenges identified within the Lungi report where the enforcement agencies ascribe roles to themselves without due regard to laid down policies, procedures and requisite capacity. However, the government at the time of reporting had made attempts to operationalise an SOP which would manage this conflict of responsibilities at the airport. This has so far been implemented. The SOP clearly defines the responsibilities of all enforcement agencies at the airport and it was said that it is reviewed annually.



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Lack of coordination and strained relationship between airport management and enforcement agencies was the second challenge cited in the report. A multi-organisation coalition, Multi Agency Threat and Risk Assessment (MATRA) was established to enhance coordination.

The third challenge was that of political interference in the administrative and management affairs of the airport in areas such as recruitment and financial activities. The latter fact left the SLAA budget constrained to manage their capital financing activities which led to stalled projects and a slump in economic development. The SLAA management reported that political interference has so far eased. We could not verify this assertion.

The poor state of infrastructure at the airport was cited as a risk factor to the health of the people using the terminal, reducing the port’s possible economic gains. Power and security equipment insufficiency problem left the airport exposed to local and transnational crime according to the Lungi report. With time, the airport would be rendered unsuitable for international flights and blacklisted under the Convention on International Civil Aviation (CICA). However, the report stated that the government had instituted measures to meet fundamental requirements of international civil aviation especially annexes 9 and 17 of the CICA. It is also reported that the airport management was implementing varied development programmes including infrastructural improvements and equipment replacement projects. SLAA is working on improving the situation.

According to the report, the vulnerability of Lungi Airport to transnational crime such as drug trafficking, smuggling and money laundering was compounded by the malpractices at the airport including abuse of discretionary powers by Customs Officers, harassment of passengers by layabouts around the airport in pretext that they are making an honest living. Based on the current visit to the airport, it was observed that the layabouts are still present at the airport. NRA has reshuffled a significant number of the Customs staff working at the airport to reduce the abuse of discretional powers. The control of the movement of people in and out of the airport is still a challenge to SLAA, leaving the airport exposed to criminal activity, loss of business from potential investors who are security conscious, unethical business practices and a limited airport capacity to generate revenue.

The government was willing to adopt Anti-Money Laundering (AML) and Counter effort against Financing Terrorism (CFL) standards and ascend to the international convention relating to the AML and CFL. The government set up Sierra Leone Joint Drug Interdiction Task Force (SLJDITF) which would enable the control over drug trafficking at the airport. Currently, the scanner has been procured awaiting installation. The state of security infrastructure at the airport is not adequate but efforts have been made to improve the infrastructure. Some of the modernisation milestones that have been achieved so far include reconstruction of the runway, installation of navigational equipment and other similar equipment that help to enhance safety of the airport. However, the social amenities are yet attain the required standards. The airport currently has a handling capacity of 150 passengers but plans are in place to upgrade its handling capacity to 450 passengers. Modernisation of the airport will continue as SLAA prepares to commission the airport in April 2012.

Duty free shops are in place at the departure terminal in SLAA and there are none available at the arrival terminal. This has allowed the securing of taxes and sealed the loophole for abuse of this tax exempt facility. However, SLAA plans to put up duty free shops at the arrival terminal once the new arrival infrastructure is in place. It is recommended that this is not implemented because it will create an opportunity for abuse where passengers will capitalise on the chance to benefit from duty free goods leading to revenue loss for the government. Inbound passengers should purchase goods from inland shops where all necessary taxes have been paid



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Taxation Policy and Strategy on second hand goods had been a massive source of revenue at the time when the Lungi report was prepared. The AORC had proposed ways of developing an effective regime to handle such goods. So far, this regime has not been established, which has perpetuated the risk of revenue loss.

3.2.9 Duty Waiver The Ministry of Finance expressed some frustration in as far as revenue and exemptions are concerned, hoping that this diagnostic study would offer reprieve for better management of the same.

Difficulties in the administration of the tax exemption regime mainly attributed to the fact that the existing legislation does not provide clear cut instructions on how exemption will be administered. Although the Second Schedule of the Customs Act/Bill 2010 provides for General exemptions from import duties and taxes of similar effect, part 2 of the Second Schedules provides that “The privilege of exemption from duties and taxes of similar effect shall be contingent upon compliance with regulations promulgated by the Minister of Finance”. From the study, it was observed that these regulations are not in place and this is the major reason behind that the difficulties in granting of duty waivers.

The Act/Bill of 2010, section 9 (1), states that an application for an advanced binding ruling on tax exemption under Customs can be made to the Customs Services. However, it does not describe or reference the procedures to be followed in the making such an application. This has led to the lack of consistency in the application and administration of this regime with potential for rent seeking.

Recommendations

It is recommended that the MOFED in collaboration with Customs formulate, review and enact regulations that govern qualification criteria for tax exemption in accordance with provisions of the Second Schedule part 2.

Formulate, implement and publicise the procedures to be followed in the application for an advanced binding ruling on tax exemption.




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APPENDIX 1.1. List of stakeholders interviewed

Name of the Organisation Stakeholder representative in the meeting

Ministry of Finance Deputy Minister Revenue and Tax Policy Officer NRA Reps

Customs Administration Commissioner ASYCUDA Team Customs Advisor DFID

National Revenue Authority (NRA) Reform and modernisation Director

Port authority CEO and a team of managers Sierra Leone Airports Authority Deputy CEO

Head of Engineering Head of Finance Head of Security Head of Customs NRA representative CRM

Clearing Forwarding Chairman of the Association Finance Director

ASYCUDA Team The Team

Department of International Development (DFID)

Kambia Officer I/C PSSD Deputy Officer I/C Customs Collector DTD Team

Stakeholders Forum

Freight Forwarders Association President Financial controller Secretary General



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1.2. Customs Business Process

Long Room (LR)

At the Gate

i. They check to confirm that all the relevant documents are attached

ii. They confirm; name TIN number, BL, DO, container number, shippers stamp, summary of CIF,

Insurance, bank receipt, intertek receipt, invoice, fumigation and phytosanitary certificates.

There are four channels: green random checks

Blue PCA checks

Yellow documentary checks

Red mandatory checks

Messenger

Registers all documents received by the in gate and forwards to the Examining officer

Chief Examining Officer

i. There are 2 officers. They are the only two who have this portfolio in the Asycuda. Where they

are absent, they give their password to others to facilitate business. (RISK)

ii. The EO looks at all declarations

iii. System does auto allocation depending on officer’s work load.

iv. E.O. can reallocate declarations if an officer is slow.

v. EO refers documents to valuation and tariff classification

vi. All goods are subject to verification with an exception of perishable goods.

vii. When EOs have looked at the document, they refer them back to the EO to recheck for

onward transmission to the port.

viii. Where there is a rejection, the issues are listed on a rejection form to the agent or importer

for correction

ix. The valuation is based on ACV and referenced against an Intertek valuation data base (this

database is outdated).

The department is always under fire for undervaluation by the politicians and others. This in my opinion is due to lack of understanding.



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Query Office

i. Documents that require amendments are referred to the query office.

ii. Agents accept changes on the query sheet and Customs do the amendment in the system

Manifest Process

i. The details on the manifest are captured

Road consignment

Local purchase manifest

They amend manifest where there is a Customs approved request from the shipping line.

ii. Other manifests are received electronically (to confirm)**********

HS Office

This is a fairly new office.

The office has just put together a new proposed tariff.

A correlation table for the same has been drawn up

There are certain items missing from the tariff

The duty rates of the tariff are different yet the difference in item is minimal

A procedure manual has been drawn up yet to be put in place

A classification request form has been prepared

A record form has been prepared for monitoring time of process and ruling

Sample form has been prepared

SL abbreviation manual has been drawn up

Rulings are binding for 1 year

Out Door Officer

This office is based at the SL port. There are four units to this section. They are:

a) Container terminal

b) Baggage

c) Motor Vehicle section

d) Bulk Cargo



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All documents from the LR land at the O/c (principle Collector) outdoors office. They are all received in hard copy.

Majority of the documents are in the red channel which means majority of goods that are imported are verified.

Documents are referred to valuation where there is an anomaly

The O/C sees all documents when they are received and again when the officers have done the verification

Goods are entered into the system by a Customs officer sitting in the O/C’s office.

The O/C allocates documents to EOs

EOs record their verification account in the Inspection Act. Goods may be inspected at the importers sight if the need arises.

After verification, where there is a discrepancy, the information is recorded manually and not input into the system

Baggage

This area is headed by a chief Examining Officer.

This area handles second hand goods

Valuation of used goods is a big challenge here

Documents are received here from the OC outdoor.

The chief EO allocates entries to the EO for verification

The legislation does not have a provision for fines and offences.

Officers many times fear to do the right thing

Motor Vehicles and Bulk

Vehicles are verified before lodgment of the entry

Values for vehicles are standard by engine size regardless of type, age and country of origin. The guide in use is a big risk and loophole to revenue.

DTI

Capture data from invoice and Bill of Lading (BL), verify the invoice details against BL

Check valuation against invoice

H.S code, insurance

Need to get shippers to present house bills

Suggest BL is held by Customs until all goods are cleared



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P.O & 3 officers -100 entries daily

Declaration may be poor for lack of penalties

Preventive Services and Special Duties (PSSD)

Principle economist to C.G and is responsible for detecting, preventing revenue linkage both

technically and physical (Restricted/prohibited)

Offences- penalties

Export

Export fee are in place

$75 per C.M fee not collected by Customs

Customs receive amount

NRA collect $75

Agricultural goods have certificates of authority that must be attached

Exporter must meet conditions as laid down



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1.3. Documents and Materials Reviewed during the Diagnostic Study

a) Report on the Vulnerabilities of Freetown International Airport by Airport Operations Review

Committee in 2008

b) Second Schedule which provides for General exemptions from import duties and taxes of

similar effect

c) The Third Schedule which provides for for exemption from import duties and taxes of similar

effect on approved unprocessed products when originating from member states of the

economic community of West African States

d) The Arusha Declaration on Customs Integrity (1993 and revised in 2003)



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Space for Your Notes