Audit and assurance: general information
This chapter sets out the specific audit and assurance aspects of CFSP. It does not tell staff how to conduct an audit, this detail is set out the Audit Standards guidance located in the CITEX CAF.
One of the primary aims of CFSP is to gear resources to risk by moving fiscal controls from transaction checking at the frontier to audit-based controls inland.
The department’s main objective under CFSP is to achieve enhanced compliance by improved targeting and greater use of systems-based audit techniques. For the vast majority of imported goods, control will be exercised post-clearance inland rather than on entry at the frontier.
By moving controls inland, Customs can gain greater assurance of traders’ activities. The assurance officer obtains a fuller picture of traders’ revenue operations through authorisation and approval. By bringing the traders under local control, the department is able to gain a greater understanding of a trader’s business activities and thereby more effectively target those aspects of their trading which pose the greatest risk to the revenue.
The assurance officer will also be able to liaise with other Business areas, both in VAT and Excise, to ensure that the entirety of a trader’s operations are inspected rather than just a fraction of their imports as previously inspected at the ports.
Compliance with CFSP regulations, legislation and operating procedures is mainly assured through systems-based audit controls. Traders wishing to become authorised for CFSP will be subject to a full systems audit pre-authorisation. This is to ensure that their operating/computer systems are compliant with all the criteria and conditions relating to CFSP.
If the trader is operating a computerised duty management system, the assurance officer should enlist the support of Audit Services.
Once the audit is completed the officer should discuss any areas of system weakness/irregularities discovered with the trader. These weaknesses must be fully documented in the audit report and additional control procedures implemented to address the risk/revenue leakage.
A formal letter should be issued to the trader documenting the findings of the audit and recommended remedial action. The letter should specify a date by which any necessary system changes should be implemented. The officer should ensure that the trader formally acknowledges this letter.
The findings of the visit will then be used either by RIS or the LB control team when considering the trader for future audits.
Prior to the visit
There are a number of checks that an officer must perform prior to a visit to a trader operating CFSP. The outcomes of these checks should be used to form the basis of the subsequent audit activity.
- Obtain trader’s details.
- Examine the trader’s folder for copies of their original application form, the authorising officers report, the authorisation letter and any amendments/updates to them. In CITEX, the ART in Leeds will retain a copy of this information.
- Determine the Customs procedures that the trader is authorised for.
- Determine if the trader uses a Direct Rep and subsequently, who is responsible for making the declarations and maintaining the records which you will require for the audit.
Note: A CFSP Internal Control Questionnaire (ICQ), designed to help officers test the traders procedures and to evaluate the audit findings is on the CFSP UoE Intranet web page.
Use of MSS
The use of MSS allows officers to compare records held by Customs with the trader’s own records on their internal systems. Preliminary work on a trader’s activities can be carried out before the audit and information can be gained which can help to give the relevant structure and direction to the audit.
The main advantage of CFSP for assurance officers is that traders’ SFD and SD information can be obtained through MSS in addition to the MSS checks provided by RIS. Officers may wish to develop their own MSS user-defined reports to obtain specific details of a trader’s activities.
MSS entry information
Accept date/time = Base date for submissions of the Supplementary Declaration/Tax point
Entry date/time = Date entry keyed to CHIEF (SFDs may be pre-lodged)
Dclrn date/time = Date on which CHIEF clears the entry (could be up to 48 hours after the entry was accepted)
While the CNAT will be carrying out checks on the accuracy of FSD Data/ and late declarations etc to determine whether declarations have been submitted in the correct period for payment purposes, assurance officers should take the opportunity at audit to check the accuracy of the trader’s tax point information and to reconcile a selection of SDs with their corresponding frontier declarations but only by checking the commercial documentation can we fully assure the accuracy.
Officers need to assure completeness of the traders system, from the SFD through to SDI/SDW/FSD but should also check that all declarations are complete, that transactions did not escape and that full consignment quantity/value was accounted for.
Please note that for UCC supplementary declarations will not be required for goods declared into CW.
Each CFSP consignment should be allocated a DUCR (see CFSP06200).
CFSP traders must always use box 44 for the DUCR but may if they wish additionally enter the DUCR in Box 7.
Note: Traders using CFSP to place goods into and remove goods from a Customs warehouse should use the same DUCR from the SFD to the SDI and then to the SDW, but the use of the same DUCR for the SDW is not mandatory. (Please note from 1st May 2016 a supplementary declaration is not required where goods are declared into CW)
Box 40 ‘Summary declaration/previous document’
The previous declaration/document data is mandatory on all import declarations and should provide an audit trail from the declaration to free circulation back to the initial frontier declaration. The format of the box 40 data is detailed in Volume 3 Part 3 of the UK Integrated Tariff.
Computer Audit Service
The Audit Services should be consulted where traders operate Duty management systems, integrated or in-house software, especially where the Duty management system is reliant upon downloads from commercial systems or other regime specific systems. Officers should ensure that they allocate enough time to complete a thorough audit. Work should be undertaken on the trader’s details (size, quantity of imports, number of sites etc) before the audit so that all relevant areas can be covered in the time provided.
Once the audit itself has been completed, officers should take the following action as appropriate:
- collect any missing revenue
- consider if action is required to improve trader’s compliance
- consider what action would be appropriate eg education, Customs Civil Penalty (CCP), amendment to authorisation
The audit checks carried out and the results/reasons for any action taken should be recorded in the Internal Control Questionnaire/on Caseflow (CITEX) in the Supplementary Narrative retained in the document store.
Failure to comply with the conditions and requirements of their CFSP authorisation will result in Customs taking action against the trader, and may result in a Warning Letter, a Civil Penalty and/or the authorisation being suspended or revoked.
In CITEX, if on completion of the audit action a Warning Letter has been issued, officers should advise the RIS Sift Team of the date they consider a follow up visit or other assurance activity should take place to ensure compliance, bearing in mind that the lifespan of the letter is two years.
If after issue of a Warning Letter, a ‘broadly similar’ contravention is found on subsequent audit action, the required information should be forwarded to a Civil Penalty Officer for consideration of issue of a penalty.
If Customs Civil Penalty (CCP) action is considered appropriate, action should be taken in accordance with the ‘step’ process set out in the customs civil penalty guidance - Civil Penalties for Contravention of Customs Law, see links below.
Note: There are three categories of contravention under Customs Civil Penalties.
- Serious Error
It is regarded as a Serious Error when the declaration is delayed so that the payment falls in a later period and the amount of duty exceeds £25,000.
Direct to Penalty
There may be occasions, to improve compliance, where it is appropriate to issue a penalty notice without a warning letter having being issued.
Contraventions involving Serious Errors should be notified to your Civil Penalty Officer for consideration of the most appropriate action.
(CCP03020 - types of contraventions and application of consistency: serious errors)
- Poor Compliance
Examples of non-compliance may include:
- a track record of failure to make declarations on time
- the persistently careless completion of declarations.
The CCP Guidance CCP03030 contains more examples.
A Warning Letter should only be issued after you have considered whether trader education or other action (such as amending a trader’s authorisation) is more appropriate, with a view to improving compliance. A trader should not be penalised for occasional errors. Consideration should be given as to whether the contraventions found are isolated occurrences and not therefore liable to CCP action.
Direct to Penalty
A Penalty Notice may be issued for a first identified contravention, where traders have failed to follow written instructions from HM Revenue & Customs. These may have been issued as a result of a previous intervention/audit or in response to a query initiated by the trader.
Breaches of Authorisation conditions may attract a penalty for a first identified contravention where the authorisation holder fails to comply with the conditions, obligations or procedures to be followed, and failure to comply with these has a serious detrimental effect on the revenue or physical control of the goods.
You would need to discuss any consideration for a direct to penalty action with your Civil Penalty Officer.
See CCP03030 - types of contraventions and application of consistency: poor compliance.
- Deficiencies in Systems
If you consider that the deficiency is of minimal impact, you should restrict your action to a written instruction to rectify the shortcomings. If the impact of the deficiency is considered sufficiently serious a Warning Letter should normally be issued.
The trader would need to be given a period of time in a Warning Letter to rectify the system. At the end of the period of grace given, the officer should confirm that the deficiency has been rectified. Where the deficiency is not rectified within the specified time limit you should report the matter to your Civil Penalty Officer.
See CCP03040 - Types of contraventions and application of consistency: deficiencies in systems, records, security of premises, etc and CCP04040 - Customs Civil Penalty Warning Letter process: Warning Letters.
If non-compliance persists after full utilisation of the Civil Penalty system, officers should consider suspending or revoking the trader’s authorisation.
However, this should not be done without prior referral to the CFSP UoE and the CFSP Policy Team in Southend on sea.