# Israel Free Trade Area 

**Pre-Assessment Survey**

**Internal Control Technical Guide**

**Objective**

Provide guidance in performing a Pre-Assessment Survey (PAS) of the
company's internal control for goods entered for preferential treatment
as products of the Israel Free Trade Area (IFTA) and evaluating the
results.

**Background**

Generally Accepted Government Auditing Standards require the PAS team to
obtain a sufficient understanding of internal control to plan the audit
and determine the nature, timing, and extent of tests to be performed.

The guidelines and terms in this technical guide are based on *Assessing
Internal Controls in Performance Audits*, GAO/OP-4.1.4, in Performance
Audits published by the United States General Accounting Office, Office
of Policy, September 1990; and the American Institute of Certified
Public Accountant's *Statement on Auditing Standards No. 78.*

On April 22, 1985, a free trade agreement was established between the
Government of the United States of America and the Government of Israel.
Public Law 99-47 entitled the U.S.-Israel Free Trade Area Implementation
Act of 1985. IFTA is a special trade program authorized by the president
to extend trade benefits for eligible articles of Israel for
preferential treatment when entered into the U.S. and satisfying the
IFTA eligibility requirements. The eligibility requirements for IFTA
goods are found in General Notes (GN) 8 and 3(a)(v) of the Harmonized
Tariff Schedule of the United States (HTSUS). The GN describes specific
rules that are considered for IFTA preference.

GN 8 designates articles produced by Israel and GN 3(a)(v) covers
specific entities including the West Bank, the Gaza Strip or a
qualifying industrial zone (defined in GN 3(a)(v)(G)) as eligible to
claim preference under IFTA.

Merchandise subject to IFTA preference appears in the HTSUS as "Free" in
the HTSUS "Special" Rate of Duty subcolumn followed by the symbol "IL"
in parenthesis. The Israel Free Trade preference is claimed on the
imported good by using the symbol "IL" in the Special Program Indicator
field of the Automated Commercial System (ACS) database.

Although GN 8(e) indicates regulations will be issued as necessary, to
date there are no formal regulations for the IFTA.

To qualify for preferential treatment merchandise of the IFTA must:

-   Be imported to the U.S. directly from Israel, the West Bank, the
    Gaza Strip or a "qualifying industrial zone". The direct shipment
    requirements are in GN 8(b)(ii) and 3(a)(v)(B).

-   Meet the country of origin criteria and either: a) be merchandise
    wholly the growth, product or manufacture of Israel, the West Bank,
    the Gaza Strip or a "qualifying industrial zone"; or b) be
    merchandise transformed into a new or different article that has
    been grown, produced or manufactured in Israel, the West Bank, the
    Gaza Strip or a "qualifying industrial zone". The origin criteria
    are stated in GN 8(b)(i) and 3(a)(v)(A)(1) & (2).

-   Meet the value content requirements where the sum of materials and
    direct cost of processing must represent not less than 35 percent of
    the goods' appraised value at the time it is entered. If the article
    includes cost or value of materials produced in the customs
    territory of the United States, an amount not to exceed 15 percent
    of the appraised value may be applied toward determining the
    percentage. The percentage value content requirements are stated in
    GN 8(b)(iii) and 3(a)(v)(A)(2).

    The term "Qualifying Industrial Zone" is a term defined in GN
    3(a)(v)(G) as "any (designated) area that encompasses portions of
    the territory of Israel and Jordan, or Israel and Egypt."

    Additional guidance may be found in:

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-   C.S.D. 85-25 (double substantial transformation);

-   Ruling 556193, dated 12/23/91 (dual-sourcing);

-   Ruling 557087, dated 7/22/93, T.D. 81-282, T.D. 78-399, and C.S.D.
    80-208 (unallowable general and administrative costs); and

-   Ruling 559010, dated 3/14/96 and T.D. 91-7 (treatment of components
    in sets).

####### Examples of Red Flags

The following examples are conditions that may indicate a potential
problem

with IFTA merchandise.

-   Company has insufficiently documented, poorly defined, or no
    internal control for accurately declaring merchandise entered as
    products of IFTA for Customs purposes. Examples:

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-   Company does not monitor or interact with the broker on IFTA issues.

-   Company relies on one employee to handle IFTA issues, and there are
    poor or no management checks or balances over this employee.

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-   Responsible person lacks cost accounting knowledge.

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-   Company's import staff lacks knowledge of IFTA eligibility
    requirements.

-   Company offers unreasonable explanations to Customs.

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-   Company fails to cooperate with or respond to Customs.

-   Company has high turnover of people in key positions.

-   Significant variance exists between the importer's data and Customs'
    data.

-   Customs (import specialist, account manager, compliance measurement,
    prior audit) shows history of problems with merchandise entered as
    IFTA goods.

-   One company representative dominates multiple phases of the IFTA
    process without monitoring or management oversight.

-   HTSUS numbers that the company uses to enter IFTA merchandise have
    high compliance measurement error rates.

-   Company imports from a specific exporter, or under an HTSUS number
    or country of origin, that have been identified by Customs because
    of known or suspected IFTA problems.

-   Company has a large number of IFTA exporters or a large number of
    goods for which IFTA is claimed.

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-   The company does not request, maintain, or review documents
    supporting the qualification of IFTA imports.

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-   Company has a sharp increase of IFTA imports from a prior period.

-   The importer claiming IFTA and the exporter producing the
    merchandise are related parties.

-   There have been no prior audits or Customs reviews of IFTA imports.

-   The profile identifies specific IFTA issues.

-   The IFTA producer dual sources or obtains a material from two
    different countries, where only one material is a product of Israel.

-   The merchandise does not have required markings to distinguish the
    origin.

-   A declaration that assembled IFTA goods declared as wholly produced
    or manufactured in Israel or a "qualifying industrial zone" appears
    to be doubtful.

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-   The importer does not request, maintain, or review documents
    supporting the qualification of IFTA imports (e.g., value content
    requirements).

-   Value content qualification is marginal, just meeting the 35 percent
    requirement, increasing the importance of accurate cost
    computations.

-   Direct materials alone are not adequate to meet the 35 percent value
    content requirement, making accurate direct processing costs
    particularly important.

-   Textiles and apparel articles imported are subject to textile
    restrictions.

-   Amounts on cost sheets for unallowable general expenses and profit
    appear unusually low, indicating that allowable costs may be
    overstated.

**Examples of Best Practices**

-   Internal controls over merchandise entered for preferential
    treatment under the Israel Free Trade Act (IFTA):

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-   Are in writing;

-   Include procedures for monitoring and feedback; and

-   Were monitored by management.

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-   One manager is ultimately responsible for control of the import
    department, including merchandise entered as IFTA goods. That
    manager has knowledge of Customs matters and the power to assure
    internal control procedures for imports are established and followed
    by all company departments.

-   Written internal control procedures assign IFTA duties and tasks to
    a position rather than a person.

-   The company has good interdepartmental communication regarding IFTA
    matters.

-   The company conducts and documents periodic reviews of IFTA
    merchandise and uses the results to make corrections to past and
    present entries, and makes changes to their import operations as
    appropriate.

-   Purchasing, Engineering, other departments, and suppliers provide
    sufficient descriptions of merchandise to permit a determination of
    IFTA eligibility.

-   Internal control involves a verification process to determine that
    the imported merchandise qualifies for IFTA.

-   Importer has procedures to obtain any required or necessary
    documentation to support the claim (e.g. a penalty provision on the
    supplier if IFTA information is not provided to Customs on demand).

-   Importer maintains a database or listing of imported merchandise
    that would readily identify IFTA transactions.

-   The importer (or the importer's agent) visits the plant in the IFTA
    country where the products are produced.

-   The importer performs an annual review of changes to IFTA.

**Examples of Documents and Information to Review**

-   Internal control policies and procedures for ensuring IFTA
    eligibility.

-   The company\'s response to the questionnaire.

-   Interviews with company staff concerning actual procedures and
    controls specific to IFTA imports.

-   Documentation that supports monitoring and verification of
    established and/or written internal control for IFTA imports.

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-   The company's documentation that supports monitoring and
    verification of established and written internal control for IFTA
    including:

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-   An IFTA declaration signed by the person responsible for certifying
    that all information on the documentation is accurate and complete,

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-   A list of goods by vendor that are products of the IFTA,

-   Invoices, specification sheets, or other documents providing a
    detailed description and origin of the IFTA goods,

-   Bills of Lading or other documents that show direct transport to the
    U.S.

-   For related or unrelated foreign vendors, bills of material listing
    country of origin of the materials used in production of the good,

-   Travel documents that show that the company has recently visited the
    IFTA manufacturer and verified the commodities are manufactured,
    produced, or wholly grown in Israel, the West Bank, the Gaza Strip
    or a "qualifying industrial zone",

-   Records from the IFTA producer supporting the company's verification
    for goods not wholly the growth or product of Israel, such as, cost
    allocation worksheets, bills of materials, product specification
    sheets, engineering drawings, work-in-process documents, material
    inventory records, purchase history reports, and/or material
    supplier lists,

-   Country of origin markings on products and components,

-   Manufacturer's affidavits as to country of origin of components,

-   "Where used" reports ("exploded" bills of material) showing that
    components underwent "double substantial transformation," and

-   Accounting records supporting product cost sheets, including
    financial statements, post-closing trial balance, detailed chart of
    accounts, and general ledger detail.

**Suggested Testing**

PAS team judgement should be used to determine the type and amount of
testing needed to evaluate how effective internal control is and to
determine whether there is a sufficient risk to warrant proceeding to
Assessment Compliance Testing (ACT) phase.

Using the chart and the guidelines below, determine through limited
judgmental testing whether the company's internal control is effective.

To determine the extensiveness of internal control testing, it is
necessary to evaluate:

1.  The **risk exposure level**, and

2.  The **internal control** system by determining if the controls are
    in operation, how the controls were applied, how consistently they
    were applied, and who applied them.

**Risk Exposure**

Risk exposure is the probability of significant Customs noncompliance.
In each step of determining risk exposure, consideration should be given
to:

1.  Significance (to Customs) and sensitivity (e.g., issues of interest
    to Congress or the media, or affecting admissibility).

2.  Susceptibility (of making incorrect declarations).

3.  The existence of any "red flags."

4.  Management support (of strong internal control).

5.  Competent personnel (to adequately administer the controls).

*Steps to Determine Risk Exposure:*

1.  Evaluate problems identified in the profile, compliance measurement
    rates, questionnaire, and concerns raised by the import specialist
    and account manager.

2.  Perform the macro risk analysis tests.

3.  Analyze the macro risk analysis tests results to determine the risk
    exposure level.

4.  Evaluation of risk exposure is not simply a one-time process that
    occurs at the start of the PAS process. Continually reassess risk
    exposure as more information is gathered from evaluating internal
    control and performing other work in the PAS.

**Macro Risk Analysis Examples**

*Example A: Low Risk Exposure*

The import specialist did not identify specific concerns with this
importer's IFTA program. There are no inconsistencies in information
regarding the IFTA program in the importer's responses in the
questionnaire. The importer had no history of high compliance
measurement error rates. The PAS team compared the total IFTA
merchandise value to the value reported in ACS and determined the
variance with importer records to be insignificant. The materials used
to produce the merchandise, claimed under the IFTA provisions, were
materials known to be grown, produced, or manufactured in Israel, the
Gaza Strip, the West Bank, or a qualifying industrial zone. The goods
were directly shipped from Israel to the U.S. Because there were no PAS
team concerns and the importer's import data mirrored Customs ACS data,
the risk exposure for inaccurate claim of IFTA was considered low.

*Example B: High Risk Exposure*

The import specialist identified specific concerns with this importer's
IFTA program. Some of the IFTA manufactured goods were reported as
wholly the growth, production, and manufacture of Israel. The good was
made from numerous components and some have foreign markings. Therefore,
it's unlikely that the goods were wholly grown, produced, and
manufactured in Israel. In addition, the importer had high turnover in
the import department and it appeared that no one was familiar with
IFTA. Because of the PAS team's concerns and the discrepancy between the
importer declaration and the markings, the risk exposure level was
considered high.

**System of Internal Control**

To evaluate the internal control system:

1.  Consider the five components of internal control:

-   Control Environment

-   Risk Assessment

-   Control Activities

-   Information and Communication

-   Monitoring

2.  Review relevant Customs and company documents to identify and
    understand relevant internal control over entries of IFTA products
    (examples of documents and information to review are listed on prior
    pages).

3.  Determine whether the company established and follows procedures by
    reviewing:

-   Documentary evidence of the results of periodic internal control
    reviews/testing and corrective action implemented.

-   Documentary evidence (such as a log) of communication between the
    broker and the company on IFTA issues, including company testing of
    broker operations and verification that the broker followed company
    instructions.

-   Company-specific IFTA rulings, and evidence that they are followed.

-   Documentary evidence of intra-company communications to ensure
    correct information is provided to Customs.

-   Training records and materials relating to IFTA used to educate
    staff on Customs matters.

4.  Review written policies and procedures and interview applicable
    company personnel to complete appropriate sections of the "Worksheet
    for Evaluating Internal Control over IFTA Goods".

> Note: The internal control assessment should include steps to:

-   Identify and understand internal control.

-   Determine what is already known about control effectiveness.

-   Assess the adequacy of internal control design.

-   Determine whether controls are implemented and effective.

-   Determine whether transaction processes are documented.

**Extensiveness of Audit Tests (Testing Limit)**

The purpose of limited PAS testing is to take a survey in order to
determine the necessity for and extent of substantive tests. In some
circumstances, the PAS team may decide that it probably will not be able
to form an opinion based on limited PAS testing. In that case, it may be
necessary to proceed immediately to the ACT process. If the PAS team
believes that it can form an opinion based on limited PAS testing, test
the appropriate number of controls and associated transactions using the
table below. Tests may be appropriate for various areas below the total
IFTA level that compliance will be reported on. For example, the company
may import from several foreign companies, but testing may be necessary
only for certain companies or certain products that have been identified
as primary risks.

**Determine Extensiveness of Audit Tests**

+----------+---+------------------+---+-------------------+-------------+
| **Risk   | * | > **Preliminary  | * | **Extensiveness   | **Testing** |
| Ex       | * | > Review         | * | of Audit Test**   |             |
| posure** | + | > Internal       | = |                   | **Limit**   |
|          | * | > Control**      | * |                   |             |
|          | * |                  | * |                   |             |
+==========+===+==================+===+===================+=============+
|          |   |                  |   |                   |             |
+----------+---+------------------+---+-------------------+-------------+
| **High** |   | Weak             |   | High              | 10-20       |
+----------+---+------------------+---+-------------------+-------------+
|          |   | Adequate         |   | Moderate to High  |             |
+----------+---+------------------+---+-------------------+-------------+
|          |   | Strong           |   | Low to Moderate   |             |
+----------+---+------------------+---+-------------------+-------------+
|          |   |                  |   |                   |             |
+----------+---+------------------+---+-------------------+-------------+
| **Mo     |   | Weak             |   | Moderate to High  | 5-15        |
| derate** |   |                  |   |                   |             |
+----------+---+------------------+---+-------------------+-------------+
|          |   | Adequate         |   | Moderate          |             |
+----------+---+------------------+---+-------------------+-------------+
|          |   | Strong           |   | Low               |             |
+----------+---+------------------+---+-------------------+-------------+
|          |   |                  |   |                   |             |
+----------+---+------------------+---+-------------------+-------------+
| **Low**  |   | Weak             |   | Low to Moderate   | 1-10        |
+----------+---+------------------+---+-------------------+-------------+
|          |   | Adequate         |   | Low               |             |
+----------+---+------------------+---+-------------------+-------------+
|          |   | Strong           |   | Very Low          |             |
+----------+---+------------------+---+-------------------+-------------+

*Source*: Adapted from *Assessing Internal Controls in Performance
Audits.*

Column titled "Testing Limit" reflects Customs test sizes.

**Evaluation of Pre-Assessment Survey Testing Results**

The following steps are guidance for determining the effectiveness of
company\'s internal control over merchandise entered as products of
IFTA.

1.  Complete the "Worksheet for Evaluating Internal Control Over IFTA
    Goods" to determine whether risk determination is acceptable or
    unacceptable and to document why. Put results of testing in
    perspective and evaluate confirmed weakness as a whole. The
    evaluation should consider the results of the internal control
    testing, problems identified in the profile, and/or concerns raised
    by the import specialist or account manager. The team must evaluate
    the PAS results based on the specific situations.

> Customs considers risk unacceptable when testing reveals that internal
> control is not sufficient or effective in providing reasonable
> assurance that accurate, timely, and complete declarations are
> reported to Customs.

2\. The following will help the PAS team determine whether conditions
warrant proceeding to ACT.

##### Do not proceed to ACT (Revenue) if:

-   Cost benefit analysis warrants no further effort (do not spend a
    significant amount of resources to identify a potential loss of
    revenue considered insignificant).

-   The PAS indicated that the IFTA revenue loss was due to an isolated
    incident.

-   The company agrees with PAS finding(s) and agrees to quantify the
    loss of revenue within an acceptable timeframe.

##### Do not proceed to ACT (Compliance) if:

-   Error was isolated and the importer can show identical entry lines
    are correct.

-   The errors were systemic and the importer agreed to develop and
    implement a compliance improvement plan within an acceptable
    timeframe.

##### Proceed to ACT (Revenue) if:

-   The company does not have adequate internal control, and PAS
    indicates a material loss of revenue that cannot be quantified
    without statistical sampling or further review.

-   Importer will not quantify loss of revenue.

##### Proceed to ACT (Compliance) if:

-   The company refuses to take corrective action on systemic errors and
    it is necessary to calculate a compliance rate.

Note: If substantive tests necessary to determine a compliance rate, or
revenue loss, can be performed quickly and without extensive effort, the
team should immediately perform the substantive tests without proceeding
to ACT.

3.  Determine whether EET thresholds are met, or could be met, and take
    appropriate action.

### **Examples**

The following examples of situations that might be encountered under the
PAS are *for clarification only*.

*Example A: Situation in which the team* would not *proceed to ACT
(Revenue)*

Background

Commodities Inc., (CI) imports a number of articles manufactured in
Israel (none are wholly a product of Israel) entered duty free. The
exporter has indicated that the IFTA merchandise is produced with
materials obtained from both the United States and foreign vendors. The
internal control procedures listed in CI procedure manual requires that
two conditions be met before purchasing. The two conditions are: 1) the
buyer must secure from the IFTA vendor, at the time the purchase order
is written, a general written statement regarding the content of the
merchandise; and 2) the purchasing department will obtain from the
vendor, as part of the purchase order, a statement that the vendor will
provide Customs with detailed value content data on demand. The purchase
order statement also indicates any failure to supply Customs with the
needed content information will make the IFTA vendor liable for any duty
due.

The PAS team requested the IFTA vendors' material costs and allocation
of direct costs of processing for eight items. The eight items
represented imports from all IFTA vendors and 90 percent of the IFTA
merchandise value. The producers were able to provide the requested
information because of the conditions set in the purchase orders. An
analysis of how the producers allocated the labor and overhead costs
revealed that the allocations included some costs that were not part of
the direct cost of processing. As a result of the revised allocations,
one item failed to meet the 35 percent content requirements.

CI agreed with the PAS finding and quantified the loss of revenue. CI
also reviewed the remaining 10 percent of the IFTA merchandise not
covered by the PAS and found that they qualified for IFTA treatment. The
PAS Team reviewed CI's work and confirmed its accuracy. Therefore,
proceeding to ACT was not considered necessary.

*Example B: Situation in which the team* would not *proceed to ACT
(Compliance).*

Same as Example A above except that the purchase order for one item did
not have the IFTA "documents on demand/duty for failure to provide
records" provision stated on the purchase order. Although the purchase
order procedure was not followed, the article was entered under IFTA
preference. The company found that despite their failure to put the
provisions on the purchase order, the content information was supplied
to Customs on demand and the good was determined to qualify under the
IFTA.

The cause for the above error was the lack of communication between
departments and internal control procedures in place at the time. The
company established a CIP to reinforce existing procedures and to
improve communication between the departments. Therefore, proceeding to
ACT was not considered necessary.

*Example C: Situation in which the team* would *proceed to ACT
(Revenue).*

Same internal control procedures as in Example A, except that 16 items
(two from each vendor) were selected from eight vendors for review. The
PAS sample represented 52 percent of the IFTA entered value and eight of
the 10 IFTA vendors.

Two of the eight vendors tested failed to provide Customs with
documentary evidence for four of the 16 items. As a result, the duty
free treatment for four items was denied.

It was determined that CI did not review the shipments to determine
whether they qualified for IFTA preference. The broker was instructed to
enter the goods as eligible for IFTA. In addition, the 48 percent of
IFTA value that was not covered in the PAS testing included two vendors
that were never selected for review, and additional items for the two
vendors that previously failed to provide IFTA documentary evidence. CI
did not agree with our findings, was unable to quantify the loss of
revenue, and did not take corrective actions to ensure that the 48
percent of merchandise value not tested qualified for IFTA. As a result,
the PAS team proceeded to ACT to determine potential loss of revenue on
ineligible IFTA merchandise.

*Example D: Situation in which the team* would *proceed to ACT
(Compliance).*

CI has the same controls as Example A above except that prior to limited
PAS testing, it was discovered that written internal control procedures
were not followed. CI did not follow its procedures to review
merchandise for IFTA eligibility. The broker was instructed to enter the
goods as eligible for IFTA.

For this example, CI is a mass merchandiser of Middle Eastern goods. CI
imports from many vendors covering many HTS numbers. Due to the large
volume of IFTA vendors and the broad range of IFTA merchandise, a
determination of risk could not be assessed, based on a limited review
of 20 items, without going to the ACT phase. Since the company did not
agree to, or want to, take corrective action, proceeding to ACT to
determine CI level of compliance was considered necessary.

**Worksheet for Evaluating Internal Control**

**Over Israel Free Trade Area Goods**

Objective: Determine whether the company has procedures designed to
effectively control Customs risks related to merchandise entered under
provisions of IFTA.

Risk Determination:

  ------------------------------------- ---------------------------------
                                        

  **Acceptable**                        

  **Unacceptable**                      
  ------------------------------------- ---------------------------------

+------------------------+---+---+---------+------+---------+---------+
| **Internal Control**   | * | * | **Not   | **   | **Work  | **Com   |
|                        | * | * | Appli   | Inte | Paper   | ments** |
|                        | Y | N | cable** | rnal | Refe    |         |
|                        | e | o |         | Con  | rence** |         |
|                        | s | * |         | trol |         |         |
|                        | * | * |         | Ma   |         |         |
|                        | * |   |         | nual |         |         |
|                        |   |   |         | Page |         |         |
|                        |   |   |         | Numb |         |         |
|                        |   |   |         | er** |         |         |
+========================+===+===+=========+======+=========+=========+
| ###                    |   |   |         |      |         |         |
| ##### Overall Controls |   |   |         |      |         |         |
+------------------------+---+---+---------+------+---------+---------+
|                        |   |   |         |      |         |         |
+------------------------+---+---+---------+------+---------+---------+
| Are internal controls  |   |   |         |      |         |         |
| over IFTA merchandise  |   |   |         |      |         |         |
| formally documented?   |   |   |         |      |         |         |
+------------------------+---+---+---------+------+---------+---------+
|                        |   |   |         |      |         |         |
+------------------------+---+---+---------+------+---------+---------+
| Are written policies   |   |   |         |      |         |         |
| and procedures         |   |   |         |      |         |         |
| approved by            |   |   |         |      |         |         |
| management?            |   |   |         |      |         |         |
+------------------------+---+---+---------+------+---------+---------+
|                        |   |   |         |      |         |         |
+------------------------+---+---+---------+------+---------+---------+
| Are written policies   |   |   |         |      |         |         |
| and procedures         |   |   |         |      |         |         |
| reviewed and updated   |   |   |         |      |         |         |
| periodically?          |   |   |         |      |         |         |
+------------------------+---+---+---------+------+---------+---------+
|                        |   |   |         |      |         |         |
+------------------------+---+---+---------+------+---------+---------+
| Is one manager         |   |   |         |      |         |         |
| responsible for        |   |   |         |      |         |         |
| control of the Import  |   |   |         |      |         |         |
| Department, including  |   |   |         |      |         |         |
| IFTA imports?          |   |   |         |      |         |         |
+------------------------+---+---+---------+------+---------+---------+
|                        |   |   |         |      |         |         |
+------------------------+---+---+---------+------+---------+---------+
| Does that manager have |   |   |         |      |         |         |
| knowledge of Customs   |   |   |         |      |         |         |
| matters and the        |   |   |         |      |         |         |
| authority to ensure    |   |   |         |      |         |         |
| that internal control  |   |   |         |      |         |         |
| procedures for imports |   |   |         |      |         |         |
| are established and    |   |   |         |      |         |         |
| followed by all        |   |   |         |      |         |         |
| company departments?   |   |   |         |      |         |         |
+------------------------+---+---+---------+------+---------+---------+
|                        |   |   |         |      |         |         |
+------------------------+---+---+---------+------+---------+---------+
| Does the responsible   |   |   |         |      |         |         |
| person have cost       |   |   |         |      |         |         |
| accounting knowledge?  |   |   |         |      |         |         |
+------------------------+---+---+---------+------+---------+---------+
|                        |   |   |         |      |         |         |
+------------------------+---+---+---------+------+---------+---------+
| Do written internal    |   |   |         |      |         |         |
| control procedures     |   |   |         |      |         |         |
| assign IFTA duties and |   |   |         |      |         |         |
| tasks to a position    |   |   |         |      |         |         |
| rather than a person?  |   |   |         |      |         |         |
+------------------------+---+---+---------+------+---------+---------+
|                        |   |   |         |      |         |         |
+------------------------+---+---+---------+------+---------+---------+
| Does the company have  |   |   |         |      |         |         |
| good interdepartmental |   |   |         |      |         |         |
| communication about    |   |   |         |      |         |         |
| IFTA matters?          |   |   |         |      |         |         |
+------------------------+---+---+---------+------+---------+---------+
|                        |   |   |         |      |         |         |
+------------------------+---+---+---------+------+---------+---------+
| Does the company       |   |   |         |      |         |         |
| conduct and document   |   |   |         |      |         |         |
| periodic reviews of    |   |   |         |      |         |         |
| IFTA?                  |   |   |         |      |         |         |
+------------------------+---+---+---------+------+---------+---------+
|                        |   |   |         |      |         |         |
+------------------------+---+---+---------+------+---------+---------+
| Does the company use   |   |   |         |      |         |         |
| the IFTA periodic      |   |   |         |      |         |         |
| review results to make |   |   |         |      |         |         |
| corrections to its     |   |   |         |      |         |         |
| import operations?     |   |   |         |      |         |         |
+------------------------+---+---+---------+------+---------+---------+
|                        |   |   |         |      |         |         |
+------------------------+---+---+---------+------+---------+---------+
| Does the company use   |   |   |         |      |         |         |
| the IFTA periodic      |   |   |         |      |         |         |
| reviews to make        |   |   |         |      |         |         |
| changes to its import  |   |   |         |      |         |         |
| declarations as        |   |   |         |      |         |         |
| appropriate?           |   |   |         |      |         |         |
+------------------------+---+---+---------+------+---------+---------+
|                        |   |   |         |      |         |         |
+------------------------+---+---+---------+------+---------+---------+
| Do internal controls   |   |   |         |      |         |         |
| involve a verification |   |   |         |      |         |         |
| process to determine   |   |   |         |      |         |         |
| that the imported      |   |   |         |      |         |         |
| merchandise qualifies  |   |   |         |      |         |         |
| for IFTA?              |   |   |         |      |         |         |
+------------------------+---+---+---------+------+---------+---------+
|                        |   |   |         |      |         |         |
+------------------------+---+---+---------+------+---------+---------+
| Is adequate            |   |   |         |      |         |         |
| descriptive            |   |   |         |      |         |         |
| information provided   |   |   |         |      |         |         |
| (by Purchasing,        |   |   |         |      |         |         |
| Engineering, other     |   |   |         |      |         |         |
| departments, and       |   |   |         |      |         |         |
| suppliers) to the      |   |   |         |      |         |         |
| Import Department      |   |   |         |      |         |         |
| and/or broker to       |   |   |         |      |         |         |
| ensure proper IFTA     |   |   |         |      |         |         |
| eligibility?           |   |   |         |      |         |         |
+------------------------+---+---+---------+------+---------+---------+
|                        |   |   |         |      |         |         |
+------------------------+---+---+---------+------+---------+---------+
| Does the importer have |   |   |         |      |         |         |
| procedures to obtain   |   |   |         |      |         |         |
| any required or        |   |   |         |      |         |         |
| necessary              |   |   |         |      |         |         |
| documentation to       |   |   |         |      |         |         |
| support the claim      |   |   |         |      |         |         |
| (e.g. a contract       |   |   |         |      |         |         |
| penalty provision if   |   |   |         |      |         |         |
| IFTA information is    |   |   |         |      |         |         |
| not provided to        |   |   |         |      |         |         |
| Customs on demand)?    |   |   |         |      |         |         |
+------------------------+---+---+---------+------+---------+---------+
|                        |   |   |         |      |         |         |
+------------------------+---+---+---------+------+---------+---------+
| Does the importer      |   |   |         |      |         |         |
| maintain an IFTA       |   |   |         |      |         |         |
| database or listing of |   |   |         |      |         |         |
| imported merchandise   |   |   |         |      |         |         |
| that would readily     |   |   |         |      |         |         |
| identify IFTA          |   |   |         |      |         |         |
| transactions?          |   |   |         |      |         |         |
+------------------------+---+---+---------+------+---------+---------+
|                        |   |   |         |      |         |         |
+------------------------+---+---+---------+------+---------+---------+
| Does the importer (or  |   |   |         |      |         |         |
| the importer\'s agent) |   |   |         |      |         |         |
| visit the plant in the |   |   |         |      |         |         |
| IFTA country(s) where  |   |   |         |      |         |         |
| the products are       |   |   |         |      |         |         |
| produced?              |   |   |         |      |         |         |
+------------------------+---+---+---------+------+---------+---------+
|                        |   |   |         |      |         |         |
+------------------------+---+---+---------+------+---------+---------+
| Does the company       |   |   |         |      |         |         |
| perform an annual      |   |   |         |      |         |         |
| review of changes to   |   |   |         |      |         |         |
| IFTA?                  |   |   |         |      |         |         |
+------------------------+---+---+---------+------+---------+---------+
|                        |   |   |         |      |         |         |
+------------------------+---+---+---------+------+---------+---------+
| #######                |   |   |         |      |         |         |
| # New IFTA Merchandise |   |   |         |      |         |         |
+------------------------+---+---+---------+------+---------+---------+
|                        |   |   |         |      |         |         |
+------------------------+---+---+---------+------+---------+---------+
| Does management review |   |   |         |      |         |         |
| the classification and |   |   |         |      |         |         |
| eligibility of new     |   |   |         |      |         |         |
| IFTA items?            |   |   |         |      |         |         |
+------------------------+---+---+---------+------+---------+---------+
|                        |   |   |         |      |         |         |
+------------------------+---+---+---------+------+---------+---------+
| Is responsibility for  |   |   |         |      |         |         |
| the IFTA eligibility   |   |   |         |      |         |         |
| process assigned to    |   |   |         |      |         |         |
| one knowledgeable      |   |   |         |      |         |         |
| individual or          |   |   |         |      |         |         |
| department with        |   |   |         |      |         |         |
| management oversight?  |   |   |         |      |         |         |
+------------------------+---+---+---------+------+---------+---------+
|                        |   |   |         |      |         |         |
+------------------------+---+---+---------+------+---------+---------+
| Is adequate            |   |   |         |      |         |         |
| descriptive            |   |   |         |      |         |         |
| information to ensure  |   |   |         |      |         |         |
| proper classification  |   |   |         |      |         |         |
| provided to the Import |   |   |         |      |         |         |
| Department and/or      |   |   |         |      |         |         |
| broker by suppliers,   |   |   |         |      |         |         |
| engineers, purchasing  |   |   |         |      |         |         |
| department, etc.?      |   |   |         |      |         |         |
+------------------------+---+---+---------+------+---------+---------+
|                        |   |   |         |      |         |         |
+------------------------+---+---+---------+------+---------+---------+
| ######### Is           |   |   |         |      |         |         |
| Customs assistance sou |   |   |         |      |         |         |
| ght in classifying mer |   |   |         |      |         |         |
| chandise (e.g., reques |   |   |         |      |         |         |
| ting binding rulings)? |   |   |         |      |         |         |
+------------------------+---+---+---------+------+---------+---------+
|                        |   |   |         |      |         |         |
+------------------------+---+---+---------+------+---------+---------+
| ####### Entry Review   |   |   |         |      |         |         |
+------------------------+---+---+---------+------+---------+---------+
|                        |   |   |         |      |         |         |
+------------------------+---+---+---------+------+---------+---------+
| ###                    |   |   |         |      |         |         |
| ###### Does the compan |   |   |         |      |         |         |
| y review entries to ve |   |   |         |      |         |         |
| rify that correct clas |   |   |         |      |         |         |
| sifications were used? |   |   |         |      |         |         |
+------------------------+---+---+---------+------+---------+---------+
| #########              |   |   |         |      |         |         |
+------------------------+---+---+---------+------+---------+---------+
| #########              |   |   |         |      |         |         |
| Does the company monit |   |   |         |      |         |         |
| or the entry review pr |   |   |         |      |         |         |
| ocess to verify that c |   |   |         |      |         |         |
| ontrols were followed? |   |   |         |      |         |         |
+------------------------+---+---+---------+------+---------+---------+
| #########              |   |   |         |      |         |         |
+------------------------+---+---+---------+------+---------+---------+
| ######### Are supp     |   |   |         |      |         |         |
| liers required to prin |   |   |         |      |         |         |
| t company provided HTS |   |   |         |      |         |         |
| US numbers on invoices |   |   |         |      |         |         |
|  and/or packing lists? |   |   |         |      |         |         |
+------------------------+---+---+---------+------+---------+---------+
| #########              |   |   |         |      |         |         |
+------------------------+---+---+---------+------+---------+---------+
| ######### Does t       |   |   |         |      |         |         |
| he individual reviewin |   |   |         |      |         |         |
| g merchandise have ade |   |   |         |      |         |         |
| quate knowledge and tr |   |   |         |      |         |         |
| aining on IFTA issues? |   |   |         |      |         |         |
+------------------------+---+---+---------+------+---------+---------+
|                        |   |   |         |      |         |         |
+------------------------+---+---+---------+------+---------+---------+
| ##                     |   |   |         |      |         |         |
| ##### Broker Oversight |   |   |         |      |         |         |
+------------------------+---+---+---------+------+---------+---------+
|                        |   |   |         |      |         |         |
+------------------------+---+---+---------+------+---------+---------+
| Are HTS                |   |   |         |      |         |         |
| classifications for    |   |   |         |      |         |         |
| IFTA maintained in a   |   |   |         |      |         |         |
| database that is       |   |   |         |      |         |         |
| provided to brokers?   |   |   |         |      |         |         |
+------------------------+---+---+---------+------+---------+---------+
|                        |   |   |         |      |         |         |
+------------------------+---+---+---------+------+---------+---------+
| Are brokers required   |   |   |         |      |         |         |
| to have written        |   |   |         |      |         |         |
| company approval to    |   |   |         |      |         |         |
| make classification    |   |   |         |      |         |         |
| changes?               |   |   |         |      |         |         |
+------------------------+---+---+---------+------+---------+---------+
|                        |   |   |         |      |         |         |
+------------------------+---+---+---------+------+---------+---------+
| Does the company       |   |   |         |      |         |         |
| provide adequate       |   |   |         |      |         |         |
| broker oversight?      |   |   |         |      |         |         |
+------------------------+---+---+---------+------+---------+---------+
|                        |   |   |         |      |         |         |
+------------------------+---+---+---------+------+---------+---------+
| ####### Intern         |   |   |         |      |         |         |
| al Control Conclusions |   |   |         |      |         |         |
+------------------------+---+---+---------+------+---------+---------+
|                        |   |   |         |      |         |         |
+------------------------+---+---+---------+------+---------+---------+
| Did PAS testing verify |   |   |         |      |         |         |
| that control           |   |   |         |      |         |         |
| procedures were being  |   |   |         |      |         |         |
| followed?              |   |   |         |      |         |         |
+------------------------+---+---+---------+------+---------+---------+
|                        |   |   |         |      |         |         |
+------------------------+---+---+---------+------+---------+---------+
| Did interviews with    |   |   |         |      |         |         |
| responsible persons    |   |   |         |      |         |         |
| support control        |   |   |         |      |         |         |
| procedures?            |   |   |         |      |         |         |
+------------------------+---+---+---------+------+---------+---------+
|                        |   |   |         |      |         |         |
+------------------------+---+---+---------+------+---------+---------+
| Does the company have  |   |   |         |      |         |         |
| internal control to    |   |   |         |      |         |         |
| address specific       |   |   |         |      |         |         |
| issues identified in   |   |   |         |      |         |         |
| the profile?           |   |   |         |      |         |         |
+------------------------+---+---+---------+------+---------+---------+
|                        |   |   |         |      |         |         |
+------------------------+---+---+---------+------+---------+---------+
| **List                 |   |   |         |      |         |         |
| company-specific       |   |   |         |      |         |         |
| procedures and         |   |   |         |      |         |         |
| controls below (if     |   |   |         |      |         |         |
| applicable)**          |   |   |         |      |         |         |
+------------------------+---+---+---------+------+---------+---------+