Duty Refund Newsletter - April 2011
Be Prepared
I had an opportunity last weekend to attend the ceremony for a young man who was being awarded the rank of Eagle Scout, the highest rank attainable in the Boy Scouts of America. This is no small feat - only 2% of those participating in the Scouting program ever earn this rank - and puts him in some pretty heady company. Four Nobel Prize laureates were Eagle Scouts, as were forty astronauts. Neil Armstrong is one, along with 10 of the 11 other astronauts to step foot on the moon. Eagle Scouts include many captains of industry such as Wal-Mart founder Sam Walton, Marriott International CEO J. W. Marriott, Jr., and billionaire businessman and New York Mayor Michael Bloomberg. They also have been well-represented in politics, including the 38th President of the United States Gerald R. Ford and past U.S. Secretaries of Defense Robert Gates and Donald Rumsfeld. Steven Spielberg is an Eagle, as is Mike Rowe, the host of Dirty Jobs.
Prominent on the dais during the ceremony was the Scout Emblem emblazoned with their famous motto, "Be Prepared". As I sat and watched the many dignitaries speak and make presentations to this amazing young man, I was reminded how applicable this simple motto is to all aspects of life. We need to be prepared for whatever life may bring to our doorstep, be it health issues, financial concerns, or even severe weather events such as what we witnessed in Japan. We need to be prepared to file our taxes by April 15th each year, and we need to be prepared for Customs to check our drawback records.
OK - I realize that a Customs review pales in comparison to a tsunami. But it can be frightening if you are not ready for it, and the purpose of this newsletter and subsequent issues is to inform you of what might happen and how to properly prepare for the eventuality of a Customs review of your drawback program.
Although Customs has the authority to request supporting records at any time, there are several times in the life of a drawback claim when such as request is more likely. Obviously, when you file your claim and the Customs drawback specialist picks it up to process it for payment or liquidation, you may be requested to provide information to address a particular concern spotted by the specialist. A request at this level tends to be either informal in the form of a phone call, email or letter, or may be a more formal request on a CBP Form 28 Request for Information. The request will specify what information or documentation is being requested and when it is due (usually 30 days).
The next level of review that Customs will initiate is the Desk Review, and this type of review is done periodically on all drawback claimants. If a new drawback ruling is approved, you will typically be hit with a Desk Review for the first claim under that ruling. Customs has various other criteria for determining when to pull a Desk Review, and we are not privy to all of their rationale. We do know that, on average, a claimant filing multiple claims can expect to see one to three Desk Reviews each year. Each Review will focus on a single drawback claim, and will request supporting records on a sampling of the imports and exports contained on that claim. The requested records will include import documentation, inventory records, proof of export, and related documents such as Certificates of Delivery.
Occasionally Customs will conduct Compliance Reviews and will visit a claimant's facilities to get first-hand knowledge of their manufacturing process, material handling operations, and record keeping systems. These visits are designed to give Customs a greater degree of familiarity with the company and the firm's ability to support a drawback program than what might be gleaned from a Desk Review alone.
The most intensive drawback-specific review that Customs can initiate is the Regulatory Audit. Rather than reviewing a single claim, this review takes into consideration a claimant's entire drawback program. Customs will begin with an opening conference and will select a sampling from the universe of imports and exports on claims to review. Depending on the quality of the claimant's response, the sampling may be deemed to have been sufficient, or may be enlarged to encompass a greater number of transactions. Customs will bring in computer experts and accountants to analyze data and test controls and accuracy. Reviews of this type are lengthy, thorough, and thankfully rather infrequent due to the resources that Customs must devote to such a project.
Over the next several issues I will be discussing in depth the records that Customs expects to see in support of the import entries, manufacturing processes, and export shipments that make up a drawback claim. Some of these are records you will have in house, and some are records that must be maintained and made available by other parties involved in these transactions. The requirements are not impossible, but you must pay attention to the details and know where the required information is located. In other words, "Be Prepared".
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