An annual drawback program review is a requirement of all drawback claimants utilizing the accelerated payment privilege (APP) and is recommended for any client claiming drawback. A review is important in a general compliance sense but has become increasingly so as we see more scrutiny from CBP. This scrutiny has been growing in recent years and is due, in large part, to continued poor results concerning the CBP drawback program in the annual independent auditor’s report. This year’s report identifies four significant deficiencies in internal controls, one of which is considered to be a material weakness in the area of drawback duties, taxes, and fees.
The requirement for an annual review is stated in Question 15 in the APP : “Describe the procedures for an annual review by the applicant to ensure that the drawback program complies with the statutory and regulatory drawback requirements and that Customs will be notified of any modifications of the procedures described in this application”. The typical response within the application recognizes the need for a review and simply states that one will be conducted.
But what does this mean and how is this accomplished? A drawback claimant can either conduct an internal review by their drawback staff or internal audit staff, or they can hire an outside party, such as Comstock/Holt, to conduct the review.
What should such a review entail? Through many recent desk reviews, compliance reviews and audits, as well as the filing of many ruling requests and privileges applications, we have noticed CBP returning to the basics and going “back to the book” (i.e. the regulations). In an audit context, one such area is the reviewing of manufacturing drawback rulings. Therefore each portion of a ruling needs to be carefully reviewed against what is being claimed. This includes complete coverage of the imported merchandise and exported articles, the manufacturing process (flowcharting is helpful), location of factories, basis of claim, waste handling, agents, etc.
Also essential to an annual review is the creation of or update to drawback procedure manuals, ensuring that they capture key contacts, responsibilities, and document data flow and record retention. These manuals need to be kept current, distributed to all employees involved with drawback, and readily available in the case of a request from CBP.
Education is important as well. Every year all staff members involved with drawback or contributing to data used in the drawback program should attend a class, if possible, to review the regulations and requirements to keep their program in compliance. This will keep them engaged in the drawback process and motivated to ensure they each do their part to provide accurate information that is in accordance with the regulations.
Conducting an annual review is a necessity today because much can change even in the course of a year including imports, exports, processes, and personnel. Having staff educated on the laws and regulations, a formal process manual on all activities involving and supporting a drawback claim, and verifying your rulings are correct and regularly updated, are all essential to not only having a compliant drawback program but to ensure that you fulfill the requirement to maintain your drawback accelerated payment privileges.