PCA GUIDELINES VOL 1 Flashcards
An importer, exporter, one who engages in transit or the like, who has a relationship with Customs, excluding forwarders, etc., who merely convey international cargos, and Customs brokers who merely submit declarations on behalf of the “trader”
trader
A entity selected for an audit, not limited to importers, as it can include exporters or transportation companies, Customs broker etc.
Auditee
Collective term for commercial or industrial enterprises usually referred to as the Customs’ counterpart
Business Sector (or Business Community)
Group of productive or profit-making enterprises
Industry
Commercial enterprise, regardless of any relationship with Customs
Company
One who is involved in or affected by a course of action plan
Stakeholder
A business pattern with particular commercial / physical distribution of an import / export cargo, including the payment conditions
Whole business transaction / transaction /
transaction pattern
Statement of an administration’s overall intentions and direction regarding PCA
PCA Policy
Scheme/strategy for audits specifying the objectives, scope, methodologies and assignment of auditor/team members for the audit
Audit Plan
An audit conducted at auditors’ premises usually by calling information through correspondence or telephone
Desk Audit
An audit conducted at the premises of the auditee
on-site audit
The overall objectives of PCA is to assure that Customs declarations have been completed in
compliance with Customs legal requirements as well as other requirements under any other law applicable in respect of import or export, via examination of a traders’ systems, accounting and other business records and premises
true or false
true
Objectives of PCA
- To verify that the value, origin and classification of goods is declared correctly and the amount of revenue legally due has been identified and collected;
- To ensure goods liable to specific import/export controls are properly declared, including prohibitions and restrictions, licenses, quota, etc.;
- To ensure conditions relating to specific approvals and authorizations are being observed, e.g. pre-authenticated transit documents, preferential origin/movement certificates, licenses, quota arrangements, Customs and excise warehouses and other simplified procedure arrangements; and
- To facilitate international trade movements of the compliant traders.
PCA is a means to measure and improve compliance of the traders.
true or false
true
PCA is an “Internal Audit”
true or false
false
PCA should not be confused with “internal audit,” PCA should not be confused with “internal audit,”
The information obtained in post clearance audit may be used in further administrative or judicial proceedings.
true or false
true
Wherever practicable, use the result of post-clearance audit in applying risk management.
true or false
true
Compliant trade is facilitated at the point of Customs clearance and border controls can
be reduced;
Enables Customs to gain better information on and understanding of traders’ business;
Risk levels can be more easily assessed and reviewed: a premises visit provides the
opportunity to identify risks and weaknesses in traders’ systems;
Facilitates client education, long-term and comprehensive compliance management
focus;
Customs administrations’ resources are more effectively deployed;
Customs can promote the concept of voluntary compliance and self-assessment;
Suspected fraudulent activities including cases of illicit financial flows (IFF), trade-base
money laundering (TBML) may be identified and referred to competent authorities and/or
enforcement unit for appropriate action;
Provides a platform for evaluating continued entitlement to Authorized Economic Operator
status, where applicable.
Benefits derived from PCA
Types of Audit
comprehensive audit (system-based audit)
focused audit (issue-based audit)
post-importation transaction-based audit (TBA)
This type of audit looks at the entire business control environment and the impact this might have on Customs compliance. Analytical procedures are used heavily and substantive testing is reduced where control environment and corporate governance systems are good.
Comprehensive audit (Systems-based audit)
This kind of audit takes place at the premises of the auditee (field audit). The amount of information to be examined by auditors is potentially large although it depends on frequency audit. A complete picture of the business can be captured by the field audit, including examination of its business systems, trading methods, partners/directors and internal control.
Comprehensive audit (Systems-based audit)
This type of audit concentrates on one or a few areas of Customs e.g. valuation, country of origin etc. Tests on related systems and controls and substantive tests may also be carried out.
Focused audit (Issue-based audit)
Administrations that have newly implemented post-importation controls may consider introducing checks on individual transactions
Post-importation Transaction-based audit (TBA)
Customs laws and regulations should provide the following:
definition of PCA coverage (persons/company subject to PCA)
authority and powers of Customs officials/auditors conducting PCA
obligations and rights of auditees
penalty scheme
right of appeal
The scope and coverage of PCA
Potentially, all businesses involved in the import and/or export of goods or in the receipt, storage, manufacture and delivery of goods subject to Customs controls may be audited.
PCA scope and coverage; this may include:
importers/exporters;
declarants;
consignees of the imported goods;
owners or beneficial owner of the imported goods;
subsequent acquirers of the imported goods;
Customs clearing agents of the imported/exported goods;
storage agents of the imported/exported goods;
transporters of the imported/exported goods; and
other persons/companies directly or indirectly involved in the transaction of the imported or export goods.
Customs laws and regulations should provide officers conducting PCA with the authority to
conduct an audit at the premises of the auditee and at the premises of auditor.
true or false
true
Necessary powers of the Customs Officer include:
the right to access auditee’s premises;
the right to examine business records, business/trading systems and commercial data
relevant to Customs declarations;
the right to inspect auditee’s premises;
the right to uplift and retain documents and business records;
and the right to inspect and take samples of goods.
An obligation to maintain confidentiality should also be provided by Customs laws and regulations to keep a good relationship between the Customs and the traders.
true or false
true
Obligations and rights of auditees
a requirement to maintain specified documentation, information and records. The duration for retaining such records should be no less than the maximum period after importation or exportation when Customs may legally demand underpaid duty and make refunds for overpaid duty;
a requirement to make such documentation, information and records available in a timely
manner;
a right to appeal
a right to an explanation from Customs concerning determination of Customs value
a right to expect confidential treatment of business documentation;
a right to clearance of goods at the frontier with provision of security
and a right to amend declarations without penalty in the appropriate circumstances
PCA has an interface with many other areas within the Customs department, including risk
management, intelligence sharing, enforcement, debt / revenue collection and legal support. The organizational and management structure should therefore reflect this and facilitate close working
and effective communication among these areas and these agencies.
True or false
true
Other non-Customs legislation may be of relevance and interest to Customs in the course of conducting a PCA. For example:
regulation of business entities and their activities, such as commercial law, company law,
income tax law, etc.
import/export licensing requirements
foreign currency control, etc.
obligations deriving from binding UN Security Council Resolutions: Chapter VII UN Charter
(e.g. embargos, export controls)
PCA programme will be driven by a central team responsible for managing the audit programme. Depending on the situation of a particular country, an administration will set up one or more operational PCA units. The need for Customs staff to be able to visit a trader’s premises means Customs offices should be located accordingly
true or false
true
types of organizational structure
centralized audit
decentralized audit
This structure has established a single PCA unit within the administration.
Centralized audit
Enhanced communication, coordination and sharing of knowledge;
it is an advantage of?
Centralized audit
Decentralized audit
Advantages of Centralized audit
Better supervision and management control;
it is an advantage of?
Centralized audit
Decentralized audit
Advantages of Centralized audit
More effective risk management. (feedbacks are sent to Risk Management Unit in
more coordinated manner)
it is an advantage of?
Centralized audit
Decentralized audit
Advantages of Centralized audit
Disadvantage of Centralized audit includes
Difficult to physically verify the business premises of trader prior to the start of the
audit; and
Field audit may be time consuming and costly particularly when auditors have to travel
a long distance to conduct this exercise.
Easy to locate and contact importer/exporter;
it is an advantage of?
Centralized audit
Decentralized audit
Decentralized audit
Cost and time effective – more audits can be performed;
it is an advantage of?
Centralized audit
Decentralized audit
Decentralized audit
Auditors of different regions can compete to perform better;
it is an advantage of?
Centralized audit
Decentralized audit
Decentralized audit
Knowledge is improved in specific trade sectors
it is an advantage of?
Centralized audit
Decentralized audit
Decentralized audit
Local risk factors are considered more effectively
it is an advantage of?
Centralized audit
Decentralized audit
Decentralized audit
This structure seeks to establish several PCA units within the administration.
Decentralized audit
Disadvantage of Decentralized audit includes
Difficult to coordinate with other units;
Lack of effective communication with each regional PCA units; and
May lead to high administrative cost due to recruitment of additional auditors,
managers and cost of training.
what essential elements the PCA Policy contains?
objective and scope of PCA;
potential risks in the PCA scope;
annual/monthly working plan;
selection of the audit types;
standardized PCA procedures/techniques.
The development of the PCA policy should also be linked to the overarching strategy for
conducting pre-arrival controls (in the case of import) and controls at the time of clearance (in the case of both import and export). This ensures a unified strategy to the complete Customs control cycle
true or false
true
who should consider how to incorporate the policy with the measures at the border?
the Administration
give clients a chance to correct inaccurate or incomplete information or to disclose information that clients have not reported during previous dealings with Customs authorities, without penalties in the appropriate circumstances.
voluntary disclosure programmes
aims to improve the level of voluntary compliance of traders and create the conditions necessary to facilitate voluntary compliance as the most cost effective and efficient approach. It will help traders comply
voluntarily and correctly with Customs requirements through the voluntary disclosure
programmes
“Voluntary Compliance Framework”
includes the method of trader (client) segmentation to approach the different categories of traders (clients)
Voluntary Compliance Framework
4 broad catergories of traders
Type 1 traders are voluntarily compliant;
Type 2 traders try to be compliant but do not necessarily always succeed;
Type 3 traders will avoid complying if possible;
Type 4 traders deliberately do not comply
PCA is a means to measure and improve compliance. The audit results can be used for this segmentation of traders.
true or false
true
type of traders who fall under the level of compliance cost of make it easy to comply, they are the people who are willing to do the right thing.
Type 1 trader are voluntarily compliant
type of traders who fall under the level of compliance cost of assist to comply, they are the people who try to, but don’t always succeed in doing the right thing.
Type 2 traders try to be compliant but do not necessarily always succeed;
type of traders who fall under the level of compliance cost deter by detection, they are the people who don’t want to comply
Type 3 traders will avoid complying if possible;
type of traders who fall under the level of compliance cost of use the full force of law, they are the people who decide not to comply
Type 4 traders deliberately do not comply
Voluntary compliance can be achieved through three broad ways:
1) Decreasing compliance cost;
2) Increasing incentives on compliance; and
3) Increasing probability of exposure.
Customs is encouraged to provide compliance programmes or facilitation measures at the border as an incentive for traders to be more compliant and promote the Customs -
Business partnership concept.
true or false
true
PCA provides an opportunity for Customs to encourage traders to comply with Customs
requirements through self-assessment and for Customs to provide advice accordingly. Customs administrations should actively promote the benefits of compliance to the business community and provide information and advice via telephone enquiry lines, Internet or other publicity means.
true or false
true
Some administrations offer ________________ in the areas of classification, Customs valuation and preferential origin as a further means to provide greater certainty to the importer or exporter, prior to the clearance of the goods.
advance rulings
Better________________ can help
importer/exporter to detect and prevent fraud, negligence, or operational errors, which would have otherwise affected the correctness and completeness of Customs declarations
internal controls
Internal controls can also detect and prevent ______, ____________, or _____________________ which may have affected Customs declarations.
fraud
negligence
operational errors
When auditors judge that the auditee’s internal controls are well designed and performing effectively, this should be reflected in the _____________.
business’ risk rating
Where internal control is sufficient to fulfill the conditions or requirements set by Customs, such a trader may be considered eligible for a facilitated Customs procedures as stipulated in the Transitional Standard 3.328 (Authorized Trader) of the Revised Kyoto Convention/RKC.
true or false
true
Traders can also be given the option to involuntarily request an amendment of a Customs declaration without penalty when errors have been identified, even after submission and processing of the declaration or clearance of the goods, if it is not a case of deliberate contravention. This could also be included in the national/regional Customs legislation.
true or false
FALSE
VOLUNTARILY REQUEST
When PCA is newly introduced, Customs may prepare a publicity or __________________ to
disseminate necessary information to make traders aware of the objectives and benefits of PCA, raise awareness and improve the level of cooperation. Initially, there may be some resistance as some traders may not understand how they can benefit from PCA, and they may be unfamiliar with the idea of visits from Customs officers.
education program
In order to improve the compliance level of Customs declarations through self-assessment, it is effective to inform declarants, including brokers and importers/exporters, about typical and frequent errors found on Customs declarations, and assist them in avoiding such errors in future. It is also important to encourage a mutual responsibility between importers/exporters and their brokers to ensure declarations are accurate; the importer/exporter should provide all necessary
information to his broker and, likewise, the broker should actively challenge the information provided by an importer/exporter if he considers it to be inaccurate or incomplete.
true or false
true
“coordinated activities undertaken by administrations to direct and control risk.”
risk management as defined by the WCO Risk Management Compendium
enables Customs to carry out its key responsibilities effectively and organize and
deploy its resources in a manner which improves overall performance and facilitates trade
risk management
The risk management process comprises:
- Establishing the context
- Risk assessment
2.1. Risk identification
2.2. Risk analysis
2.3. Risk evaluation and prioritization - Risk treatment
- Recording, communication and consultation
- Monitoring and review
establishing the goals, objectives, strategies,
scope and parameters of the activity or part of the organization to which the risk management
process is being applied
Establishing the risk management context or Establishing the context
This step is also about establishing the risk criteria
Establishing the risk management context or Establishing the context
The risk management process can apply across all of these levels. Risk management within the PCA context can be:
(a) strategic and
(b) tactical
based on Customs being able to identify the overall risk posed by an entire sector or a group of importers
Strategic risk management
the strategic importance of the industry to the national interest;
the international trade agreements which govern the industry;
public health and safety considerations;
intellectual property rights;
and the economic and environmental impact of the imports/exports.
industry sector may be classified as high risk
Studies on specific commercial sectors. Sector studies may be on specific program areas such as:
valuation;
textile transshipment;
classification of new products;
intellectual property rights, etc.
The sector would be targeted in advance according to criteria such as:
estimates of the value of the commodity;
sensitivity of nationals or industry to illegal activity, etc.
Once the sector is chosen, information must be defined and collected on the various
components, at both macroeconomic (sector size, production, consumption, etc.) and
microeconomic levels (the number of firms involved, their technological capacity, structure, the type of fraud to which they are exposed, etc.). This information may be compiled and maintained in a database or in some other electronic format.
true or false
true
This is the process of identifying groups of high-risk transactions by particular importers or exporters.
Tactical risk management
values and volumes of imports/exports
types of goods imported/exported
previous irregularities in respect of importer/exporter or commodities
first time importer/exporter
considerations when identifying groups with high risk transactions
Other factors which could increase the level of risk:
referral information from other Customs units / any other government agency including
taxation authorities;
risk of revenue loss;
government program priorities or specific intelligence;
risk to trade based money laundering.
performance of an industry against legislative/administrative requirements;
performance of individual auditees;
elements of individual auditees’ operations (e.g., robustness of internal control, separation
of duties/tasks, results of external reviews if appropriate.).
elements can assist in identifying risk:
the systematic use of available information to determine how often defined risks may occur and the magnitude of their likely consequences. Likelihood and consequence can be determined using a rating scale (e.g. high, medium and low or 1- 6, etc.). These two measures, likelihood and consequence, taken together determine the overall level of risk, once again rated as high, medium or low.
Risk Analysis
based on the determined likelihood and consequence of each risks.
Risk Evaluation
By considering the level of each risks, it is possible to evaluate and prioritize the key risks that need to be analysed in more detail and monitored thereafter.
true or false
true
The key risks which were identified as to be monitored by the administration should be treated in order to reduce the likelihood or consequence of the risks occurring by putting in place control measures and actions that are intended to modify the level of risks to fit the organizational tolerance.
Risk Treatment
Communication and recording with internal and external stakeholders should be conducted as appropriate at each stage of the audit process, and for the process as a whole.
true or false
FALSE
COMMUNICATION AND CONSULTATION
Good governance requires decision making that is accountable and transparent. To ensure
accountability, it is important that the recording indicates why decisions were made and actions were taken. Therefore, the audit results need to be well recorded and stored in a way that enables their quick retrieval and dissemination.
True or False
True
Monitoring and review are integral steps in the process of managing risk. This is necessary to:
determine if previously identified risks are still current/valid;
identify new risks;
reevaluate risk levels assigned previously in the light of updated information;
and evaluate the effectiveness of compliance activity/measures undertaken
a product, derived from the collection and processing of relevant information, which acts as a basis for evaluating risk and making informed decisions when developing an audit plan
Intelligence
Each Customs administration should establish its own intelligence network and systems, tailored to its own needs and based on perceived risks. This network is likely to include both local intelligence units based in ports and airports and a central intelligence unit that is able to collect and collate information and disseminate it throughout the entire service.
true or false
true
Financial Action Task Force (FATF) publishes list of jurisdictions with strategic anti-money laundering (AML) / combating the financing of terrorism (CFT) deficiencies. Companies / entities having transaction with units located in such countries need deeper analysis and such factors may also be considered while evaluating risk.
true or false
true
A risk and intelligence team may serve the whole Customs department. The team’s role will normally include the following
identify, manage and cultivate information sources
contribute to the identification and measurement of risk
communicate with operational colleagues enabling them to take effective and appropriate action in a timely manner
review intelligence data by obtaining feedback and reviewing targets at regular intervals accordingly
This work could be carried out by a dedicated risk analysis/targeting team. The selection should be based on risk assessment and take into account the human resources available to conduct audits. The team will then present or propose a plan to the PCA team who will be responsible for carrying out the audits
Targeting: selection for audit
The frequency for auditing a particular business entity will vary depending
on the perceived risk and availability of resources.
true or false
true
The redirection of controls from the border towards the post-importation environment poses significant resource implications for a Customs administration. The increase in PCA activities should coincide with a commensurate decrease in border controls; based on an adequate risk assessment, it may be considered to reduce the number of staff in ports and border posts and to increase staff in PCA teams. New offices may also need to be set up.
true or false
true
The effective posting of the staff in PCA team needs proper description of the job description.
true or false
false
proper description of the JOB PROFILE
Job profiling is based upon meeting the aims and objectives of the PCA team, which is also in
alignment with overarching strategy of the Administration.
true or false
true
o Job title, Reports to, Job grade, Location
o Work conditions
o Job location/ local jurisdiction
o Terms of employment
Job Information
o Job content: Job purpose/objective, Key performance Areas, Duties and
responsibilities
o Competencies and Qualifications: Job level, Level of education, Competencies,
Level of experience, Professional Certification
Job Requirements
A combination of skills, knowledge and experience is required to carry out PCA effectively. Customs administrations should be committed to providing auditors with the levels of training necessary to equip them to perform their duties. Training departments have an important part to play in ensuring that officers acquire the required skills to conduct an audit.
true or false
true
familiarity with Customs laws and regulations;
knowledge of Customs procedures (valuation, classification, origin, etc.);
knowledge of auditing standards and procedures;
accounting techniques and principles, based on Generally Accepted Accounting Principles (GAAP);
knowledge of computer-based accounting systems;
a commercial awareness and knowledge of business strategies in international trade; and
good communication skills.
General skills relevant to the task of auditing that all auditors need
Recommended specialist skills to staff working in audit for technical areas:
Customs Valuation, Rules of Origin, Tariff Classification;
I.T.-based accounting;
multinational corporation accounting, including transfer pricing;
knowledge of specific trade sector/area including emerging issues such as E commerce,
new payment methods etc.; and
risk management method including risk indicators relevant to trade based money laundering.
With regard to knowledge of transfer pricing, assistance may be sought from ________________
direct tax officials.
With regard to knowledge of money laundering, assistance may be sought from ___________________
agency investigating money laundering cases.
ethical standards for auditors
a) integrity
b) confidentiality
c) professional competence, due care and diligence
d) equity/impartiality
The WCO has developed a Model Code of Ethics and Conduct that sets out the minimum required attitude and behavior expected of all Customs officers. The Code of Conduct should be respected in the context of conducting PCA.
integrity
Auditors must maintain adequate levels of confidentiality when accessing and examining auditees’ records. Auditors should not disclose any business/Customs information they have acquired during the performance of their duties, unless national laws provide for disclosure of information in specific cases.
confidentiality
Auditors should act diligently and in accordance with applicable technical and professional standards. Further, they should take due care of the auditee’s property including account books, systems etc., and respect company health and safety and security policies and requirements (e.g. wearing of safety helmets).
Professional competence, due care and diligence
Auditors are required to be objective, maintain fair and just judgment over similar cases and not to treat them arbitrarily or allow bias, conflicts of interest or undue influence of others to override professional or business judgments. They should not misuse their authority over the auditee.
Equity/Impartiality
In such cases, PCA is not the most practical tool; there may be problems locating the trader and, once located, there is often a lack of a structured accounting system and supporting books and records, etc.
_______________ are the only realistic methodology/option to exercise proper controls, which should be targeted via risk management techniques
border controls
PCA is a standalone system.
true or false
false
PCA is NOT a standalone system but one function of the Customs organization optimally LINKED to the other relevant functions
Where a potential Customs offense is discovered during the course of the audit, the audit team may withdraw from the audit without alerting the auditee and communicate and coordinate with the appropriate enforcement unit, who will decide whether to start a formal investigation.
true or false
true
During the course of the audit, issues arise which require further legal interpretation, the auditor may seek advice from the Customs’ legal department.
true or false
true
In the event that disputes regarding the audit findings cannot be resolved by a dialogue with the importer or exporter, the option should be available for requesting a formal review of the decision in question and the right of appeal in accordance with the procedures provided in national legislation.
true or false
true
It is recommended that communication channels are not established with Customs clearance units and other control, risk and enforcement units to share knowledge and information on a particular commercial operator or sector.
true or false
false
COMMUNICATION CHANNELS ARE ESTABLISHED
Benefits can be had by exchanging knowledge and information with departments responsible for collection and investigation of cases relating to VAT, excise and direct taxes, to the extent that national legislation allows.
true or false
true
Cooperation with foreign Customs administrations may be sought using the pertinent tools for Mutual Administrative Assistance.
true or false
true
