TAIEX Workshop on PostClearance Audit Processes
Risk-based audit planning for
selection of economic operators to
be audited
• Definition of risk criteria
• Assessment of company-specific risks
• Risk based audit planning
1
German customs: organisational setup
Supreme
Federal
Authority
Higher
Federal
Authorities
Ministry of Finance
Dept. III
Federal Administration for
Spirits
General Customs
Directorate
(phasing out, closing down until
2018)
(9 Directorates: 2 with central, 7 with
technical function)
43 Main Customs Offices
Local
Authorities
8 Law Enforcement Offices
(31 audit units)
267 Customs Offices
(border crossing points, inlands customs stations at
sea ports, airports and other transportation hubs)
German customs: organisational setup
2015:
• total revenue approx. 130 billion € (customs duties
and taxes = 40% of Federal budget)
• more than 60 million import declarations (about
404 billion €)
• more than 125 million export declarations (about
502 billion €)
• 2016 World Bank LPI rank #2 in the field of customs
• approx. 1,500 audit staff
General Customs Directorate (HQ)
General Customs Directorate (branch)
Main Customs Office
administrative district (Main Customs Office)
Law Enforcement Office
3
Rationale for risk-based audit planning
Basic considerations:
• In the context of facilitated trade flows, narrow time frame for customs
clearance
• Scope of documentation supporting customs declarations is limited
• Full context of a commercial transaction is often unknown, e.g. in view of the
correct
 customs value
 tariff classification and
 entitlement to preferential treatment.
• Need for efficient deployment of available resources
• Selection of control cases must be governed by an unbiased approach
4
Rationale for risk-based audit planning
Motives to relocate immediate control measures at the stage of customs
clearance to systematic post clearance audit (PCA)
• Quality gains can be achieved by systematic and detailed controls based on
comprehensive information gathered at companies' premises
• Post-clearance approach enables Customs authorities to target their
resources more effectively whilst facilitating trade
• Formal audit organisation and standardised procedures subject to central
supervision (internal audit) can secure uniform level of quality and integrity
• Selective and targeted checks at import / export clearance must remain in
place to counteract imminent (safety) threats
5
Risk-based audit planning
Legal framework
•
•
•
•
Article 5 item 25 Union Customs Code (definition of risk management)
Article 46 Union Customs Code (risk management and customs controls)
Article 48 Union Customs Code (post-release control)
National legislation
International and national standards and guidelines
•
•
•
•
WCO Guidelines for Post-Clearance Audit - Vol. 1 and 2
EU Customs Audit Guide
EU Customs Blueprints
Customs Authorities internal manuals and directives
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Risk-based audit planning
Commonly agreed recommendations:
A modern audit organisation…
• should be embedded in a common risk management framework
maintained across the entire customs administration, based upon the
exchange of risk information and risk analysis results that prescribes
common risk criteria and standards, control measures and priority control
areas
• must take into account the human resources available to conduct customs
audits
• must make use of modern information tools
• should focus on high risk areas
• should be administered by prior (annual) audit planning
7
Risk-based approach and PCA
Challenges of a risk-based approach :
• How to identify risks?
• How to quantify risks?
• How to weigh the impact of different risks?
Addressed by:
• Analysis of business transactions and stakeholders involved in
customs operations
• Identification of risk areas (= customs regimes, procedures
and other areas where customs authorities exercise their
responsibilities and traders shall fulfil their obligations)
• Definition of risk criteria
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Concept of risk criteria
Standards for risk criteria determination:
•
•
•
•
Clear definition
Description of the indicators and factors of each risk criterion is provided
Implementation in a uniform manner throughout the organisation
Set of all risk criteria must be appropriate to serve as main selection factor
for inclusion of economic operators in audit plan
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Risk criteria
• Risk criteria based on individual profile of economic operator
 Company structure and organisational setup
 Authorised economic operators, holder of an authorisation, use of
simplifications
 Complicated elements to be examined requiring substantial resources
 Potential threat to revenue due to actual economic situation
 Nature of partners in trade (suppliers, agents, customers etc.)
 High amount of annual revenue or holder of authorisation equivalent
to similar potential amount of revenue
 Type/ volume of transactions, methods of payment, etc.
10
Risk criteria
• Risk criteria based on customs tariff information, customs declaration
data and other trade transaction data
 Volume of cross-border movements
 Amount of duties collected/ reimbursed
 Tariff classification and duty rates
 Valuation declarations
 Country of origin of imported goods
 Modalities of transport etc.
11
Risk criteria
• Risk criteria based on past conduct of the economic operator
 Audit records: Significant compliance problems (including
organisational shortcomings) at the time of the previous audit)
 Errors identified in the course of customs clearance
 Offense records
 Corporate tax, VAT compliance information, etc.
12
Risk criteria
• Risk criteria based on risk information sources
 Common irregularities/ significant risks associated with the sector (e.g.
mineral oils trade, imports of electronics, textiles or meat)
 High-risk countries of origin (transshipments etc.)
 High-risk goods (RIF, AM, EBTI, etc. )
13
Risk assessment by German customs
• Single electronic register comprising all economic operators engaged in
customs procedures in Germany (identified by EORI-Nos)
• Comprehensive analysis and documentation of all their activities relevant
for customs
• Activities earmarked according a common list of "elements under
surveillance"
• Definition of common risk criteria to be applied on each element under
surveillance
• Assessment based on information provided by customs offices, audit
units, law enforcement units, central risk analysis capability and external
sources (other (tax) authorities, external business intelligence etc.)
• Countrywide EDP-based management of above data
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EDP assisted risk management
Company register („BISON“)
• Single customs application for management of both data referring to
economic operators and elements under surveillance
• Input/ maintenance of data handled by local customs procedures unit
where economic operator is based / authorisation was granted
• Compiling data from various internal and external sources
• Automated data transfer from other central customs applications
(particularly „ATLAS“ - electronic customs clearance system)
• Customised data extractions for management support and evaluation
purposes (various access levels)
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EDP assisted risk management
Audit management module („PRÜF“)
• Refined information related to economic operators from database
„BISON“
• Records on PCA measures and results (data input partly by audit units)
• Automated data exchange via interfaces with specialised applications (e.g.
BISON, ATLAS)
• Risk assessment
• Audit planning
• Customised data extractions for management support and evaluation
purposes (various access levels)
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Some customs related elements under surveillance
1100
1110
Release for free circulation (standard procedure
Release for free circulation (simplified procedure)
1140
End-use
1200
1210
Authorised consignee
Authorised consignor
1300
Goods placed under the private customs warehousing procedure (standard procedure)
1310
Goods placed under the private customs warehousing procedure (simplified procedure)
1400
1410
Goods placed under inward processing procedure (standard procedure)
Goods placed under inward processing procedure (simplified procedure)
1600
1610
Temporary admission (standard procedure)
Temporary admission (simplified procedure)
1700
1710
Goods placed under outward processing procedure (standard procedure)
Goods placed under outward processing procedure (simplified procedure)
2000
2010
2030
Proofs of preferential origin/ authorised exporters
Proofs of preferential origin/ other exporters
Proofs of preferential origin/ accounting segregation
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Criteria to be used for risk assessment
Principles:
• Addressing various aspects: There are more than 20 risk criteria defined.
• Due to obvious reasons, the risk criteria are not in the public domain.
• The coverage of the different risk criteria varies,
 either company-wide,
 or all customs related elements under surveillance,
 or element under surveillance in question only
• Risk criteria are weighted among each other according to their importance
(allocation of confidential indices).
18
Application of risk criteria
on elements under surveillance
• Each specific criterion is assessed according to specific situation („risk rating
factors“)
 either automatically by system (e.g. import turnover data)
 or partly automatically (e.g. results from previous audits)
 or manually by competent customs officer based on information
available/ received from other units (e.g. withdrawal of authorisation)
• Calculation of a specific risk benchmark for each element under surveillance
(“total risk score”)
Formula:
(index criterion A x risk factor) + (index criterion B x risk factor) + (…etc. … )
sum of all indices
x 100
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Calculation of a specific risk benchmark
for element under surveillance
R
i
s
k
c
r
i
t
e
r
i
a
20
only relevant for element
under surveillance in question
criteria irrelevant for
element in question
all risk areas
B
a
s
e
i
n
d
e
c
e
s
0
15
20
2
10
all customs related
elements under surveillance
I
n
d
i
v
i
d
u
a
l
150
4
r
a
t
i
n
g
0
8
xxx
195
I
n
d
i
v
i
d
u
a
l
80
s
c
o
r
e
0
120
1,000
1,220
1,220
195
X 100 = 626
20
Automated management of risk assessment
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Preparation of annual audit plan
•
•
•
•
•
•
•
Country-wide ranking of all elements under surveillance by individual risk
benchmark (global list of elements, sorted by total risk score)
Grouping of elements by regional responsibility of customs audit units
Generation of draft of annual audit plan representing 90% of audit cases
taking into account local audit staff actually available (November each year)
Evaluation of draft by customs audit units (December each year)
Modifications to draft by customs audit units (justification obligatory, subject
to central supervision)
 Exclusion of elements from plan (based on recent and reliable information)
 Inclusion of elements in plan (based on recent and reliable information)
Final audit plan (taking into account justified modifications)
Final audit plan includes random choice of auditees independent from risk
assessment (10%)
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Global ranking of elements by risk scores
Descending risk score
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Grouping by local responsibility
Sequential no.
Total risk score
Element to be monitored
Economic operator
Customs audit unit in charge
Audit Unit A
Audit Unit A
Audit Unit B
Audit Unit C
Audit Unit B
Audit Unit C
Audit Unit A
Audit Unit A
Audit Unit A
Audit Unit C
Audit Unit B
Audit Unit B
Audit Unit C
Audit Unit C
Audit Unit A
Descending risk score
Audit Unit A
Audit Unit B
Audit Unit B
Audit Unit C
Audit Unit C
Audit Unit C
Audit Unit A
Audit Unit C
Audit Unit B
Audit Unit C
Audit Unit C
Audit Unit B
Audit Unit C
Audit Unit C
Audit Unit A
Audit Unit B
Audit Unit B
Audit Unit A
Audit Unit C
Audit Unit A
Audit Unit C
Audit Unit C
Audit Unit C
Audit Unit B
Audit Unit B
Audit Unit C
Audit Unit C
Audit Unit B
Audit Unit C
Audit Unit C
Audit Unit C
Audit Unit B
Audit Unit C
Audit Unit C
Audit Unit C
Audit Unit C
Audit Unit A
Audit Unit B
24
Local annual audit planning
elements above threshold: inclusion in local audit plan
threshold defined by number of audit staff actually available
25
Taking the context into account:
Concept of common audit elements
1100
1110
Release for free circulation (standard procedure)
Release for free circulation (simplified procedure)
1140
End-use
1200
1210
Authorised consignee
Authorised consignor
Inclusion of one element in audit
plan triggers inclusion of all
other elements in same group
irrespective of their risk score
1310
Goods placed under the private customs warehousing procedure (standard
procedure)
Goods placed under the private customs warehousing procedure (simplified
procedure)
1400
1410
Goods placed under inward processing procedure (standard procedure)
Goods placed under inward processing procedure (simplified procedure)
1600
1610
Temporary admission (standard procedure)
Temporary admission (simplified procedure)
1700
1710
Goods placed under outward processing procedure (standard procedure)
Goods placed under outward processing procedure (simplified procedure)
2000
2010
2030
Proofs of preferential origin/ authorised exporters
Proofs of preferential origin/ other exporters
Proofs of preferential origin/ accounting segregation
1300
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Thank you for your attention!!!
Ulrich Schepers
Senior Customs Officer
Main Customs Office Münster, Germany
Federal Finance Administration
[email protected]
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