United States Customs Service 

Audit of US. Customs Service's 

Air Automated Manifest System 

OIG-01-024 December 6,2000 

Office of Inspector General 


United States Department of the Treasury 


1 
DEPARTMENT OF THE TREASURY 


WASHINGTON, D.C. 20220 


December 6, 2000 

OFFICE OF 

INSPECTOR GENERAL 

MEMORANDUM 

FROM: 

SUBJECT: 

FOR COMMISSIONER RAYMOND W. KELLY A 

UNITED STATES CUSTO 

Dennis S. Schindel -

Assistant Inspector General for Audit 

Audit of US. Customs Service's Air Automated 


Manifest System 


This memorandum transmits the subject final report on the Office 

of Inspector General's (OIG) audit of the Customs Service's Air 

Automated Manifest System (Air AMS) . 

In summary, the OIG believes Customs needs to improve its 


controls over Air AMS to mitigate the risks to the integrity of 


its cargo processing systems. The Air AMS can be used to 


circumvent Customs inspection and avoid duties, tariffs, quota 


and import restrictions on merchandise entering the United 


States. OIG estimates merchandise manifested on over 3,000 air 


waybills in Fiscal Year (FY) 1998 was released into commerce 


without evidence of entry and Customs inspection or release. 


Customs could have assessed over $6.5 million in fines and 


penalties for violations of 19 CFR on those waybills. 


Customs recognizes Air AMS is not user friendly and that its 

utility has been compromised. However, it does not have 

adequate controls to detect or prevent system misuse, maintain 

data integrity, or enforce its expectations on system users. A 

third of the air waybills reviewed in the audit contained 

incorrect information, far beyond Customs' tolerance levels. 

OIG estimates over $184 million in fines and penalties could 

have been assessed for waybills entered incorrectly into the Air 

AMS during FY 1998. Because of the risk to Customs' enforcement 

and revenue collection efforts, the OK believes that the 

problems with Air AMS collectively constitute a material 

weakness in Customs management controls as defined in Office of 

Management and Budget Circular A-123, Management Accountability 

and Control. 
Page 2 


Customs concurred with all recommendations in this report and 


has taken or plans to take action that will address the issues 


surrounding those recommendations. Customs' responses have been 


incorporated into the report and included in its entirety as 


Appendix 11. 


Please be advised that it is our intent to record potential 


revenue enhancements of $136,918 in the Inventory, Tracking and 


Closure system (ITC) upon issuance of this report relating to 


fines and penalties Customs assessed as a result of the audit. 


The related recommendation is identified in Appendix 10 of the 


report. We will also include the potential revenue enhancement 


amount in the OIG Semiannual Report to the Congress. Customs 


management will be responsible for recording the amount of 


revenue actually collected for these assessments into the ITC. 


We appreciate the courtesies and cooperation provided to our 

staff during the audit. If you wish to discuss this report, you 

may contact me at (202) 927-5400 or a member of your staff may 

contact Benny W. Lee, Regional Inspector General for Audit (San 

Francisco), at (415) 977-8810 extension 222, 

Attachment 


cc: 	William Keefer, Assistant Commissioner 


Office of Internal Affairs 


U.S. Customs Service 


Brenda Brockrnan, Office of Planning 


U.S. Customs Service 

DIGEST................................................................................. i 


INTRODUCTION............................................................................................ 1 


Background ............................................................................................... 1 


Air AMS Developed To Benefit Customs nity ......................1 


Air AMS Participation Limited To A Few Carriers At Major Airports ...............2 


Lack Of CFS Participation Can Present kS..............................................*3 


Objective, Scope And Methodology .................................................................5 


AUDIT RESULTS .......................................................................................7 


Finding 1: Merchandise Is Entering Commerce Without 


Evidence Of Customs Inspection And Release ............e..a.....e............8.€ 7 


Customs Does Not Monitor The Use Of Automatic Release Feature ...................8 


Merchandise Is Being Released Without Evidence Of 


Customs Inspection ......................~........................................................
 9 


Substantial Risks From Use Of Automatic Release Feature ............................ 10 


The Government's Risk Of Lost Revenue Is Understated ....ea8..eee.e.....*.*.*....... 12 


Recommendations And Management Response............................................ 13 


Finding 2: Better Controls Needed To Ensure System Integrity ..ee..8.00.I.I...s.000. 15 


Air AMS Is Not User Friendly ................................................................. 15 


The Trade Community Is Not Properly Entering Import 


Transactions In Air AMS...................................................................... 16 


Trade Compliance Not Enforced 
.............................................................. 18

Forgone Fines And Penalties Indicate Magnitude Of Problems........................20 


Customs Is Reluctant To Assess Fines And Penalties 
.....................................21

System Users Need Training....................................................................22 


System Problems May Extend To Other Cargo Movements 
............................22

Computer Program Could Be A Useful Tool To Customs 
............................... 23

Recommendations And Management Response............................................ 24 


GLOSSARY ..............................................................................................28 


APPENDICES 

1. Objective. Scope And Methodology ...............................................................29 


2. Air AMS Program Participation As Of September 
30. 1998 ................................32

3. Universe Of Waybills In Air AMS With No Evidence Of 


Entry Or Release In ACS - Fiscal Year 1998................................................33 


4. OIG Random Sample Of AMS Air Waybills Needing Evidence 


Of Entry Or Release - Fiscal Year 1998 .......................................................34 


5. OIG Random Samp g Precision - Fiscal Year 1998.........................................35 


IT OF U.S. CUSTOMS SERVICE'S 

6. Projected Fines d Penalties On Universe Of S Air Waybills 

Lacking Evidence Of Entry Or Release - Fiscal Year 1998...................o.U .........36 


Penalties Assessed By Customs On ndomly Sampled 


Waybills - Fiscal Year 1998........ .................................ea.o......... 37 


8. 	 Fines And Penalties Assessed By Customs During OIG 


Methodology Testing - Fiscal Year 1998................................................... 38 


9. Projected Forgone Fines And Penalties For AMS Misuse - Fiscal Year 199 


10. Potential Revenue Enhancements .....................................................O...~..Q.... 40 


11. U.S. Customs Management Response ............................~...........................41 


12. Major Contributors ......................e...~........d................................Q........... 49 


13. Report Distribution .....................e...~...........................................oQ.a.........50 


TS AND GRAPHS 

1. 	 Chart No. 1: Container Freight Station Participation In 


Air AMS Program As Of September 30, 1998.. .................O..eO-..O.a... .2 


2. 	 Chart No. 2: Universe Of Air Waybills In Air AMS Lacking 


Evidence Of Entry In ACS - Fiscal Year 1998................................8 

Overview 

The U.S. Customs Service (Customs) needs to improve its controls over 

the Air Automated Manifest System (Air AMS) to mitigate the risks to 

the integrity of its cargo processing systems. The Air AMS can be used 

to circumvent Customs inspection and avoid duties, tariffs, as well as 

quota and import restrictions on merchandise entering the United States 

(U.S). Based on a statistical sample of air waybills reviewed, the Office 

of Inspector General (OIG) estimated merchandise manifested on over 

3,000 air waybills in Fiscal Year (FY) 1998 was released into commerce 

without evidence of entry and Customs inspection or release. Customs 

could have assessed over $6.5 million in fines and penalties for 

violations of 19 CFR on those waybills. The full effect on Customs' 

enforcement and revenue collection efforts is unknown. 

In addition, a third of the air waybills reviewed by the OIG contained 

incorrect information, far beyond Customs' tolerance levels. Customs 

recognizes Air AMS is not user friendly and its utility has been 

compromised, but does not have adequate controls to prevent or detect 

system misuse, maintain data integrity or enforce its expectations on 

system users. OIG estimated over $184 million in fines and penalties 

could have been assessed for inputting incorrect waybill information into 

the Air AMS during FY 1998. 

Because of the risk to Customs' enforcement and revenue collection 

efforts, the OIG believes the problems with Air AMS collectively 

constitute a material weakness in Customs' management controls as 

defined in the Office of Management and Budget's (OMB) Circular 

A-123, Management Accountability and Control.

Objective, Scope And Methodology 

The audit objectives were to determine: (1) if Air AMS allowed merchandise 

to enter United States commerce without entry and Customs inspection or 

release as required by 19 CFR; and (2) if so, the impact on Customs 

enforcement and revenue collection efforts. 

The audit focused on merchandise that arrived in the U.S. in FY 1998 on 

an AMS-participating air carrier and was transferred to a nonparticipating Container Freight Station (CFS). The fieldwork was 

conducted between September 1998 and October 1999 at Customs': 

IT OF USe CUSTO S SERVICE'S AIR Page i 
(1) Headquarters in Washington, DC; (2) Office of Information and 

Technology (OIT) in Newington, Virginia; and ) offices at 6 airports. 

The OIG used a computer-assisted auditing tool developed by Customs to 

identify its audit universe and select a sample of waybills for 7 randomly 

selected days in FY 1998. Random sampling was based on an expected 

confidence interval of 95 percent, a precision off 5 percent and a 

pValue of 50 percent. Based on the sample r 

waybills in the universe lacking evidence of 

as well as the related fines and penalties. B 

system, the sample size was not sufficient t 

of improper or illegal activities by interest 

(See Page 5) 

Detailed Audit Results 

,OIG estimated the 

inspection and release 

OIG focused on the 

patterns or practices 

of the merchandise. 

Customs' cargo manifesting and entry processes were paper-driven and €

labor intensive until international trade exploded automation became €

necessary. Customs implemented its Automated Commercial System €

(ACS) in the mid-1980's and eventually devel €

automate the manifesting process at airports €

subsystems are known as Sea and Air Auto €

Air AMS was to standardize communications bemeen Customs and the €

trade, streamline the manifesting process and reconciliation of €

information in air waybills with that in entry €

Customs hoped to enhance its release of mer €

contraband interdiction, trade enforcement and revenue collection €

responsibilities. €

Air AMS allows the trade to electronically noti Customs of an €

aircraft's pending arrival and transmit air waybill information for the €

merchandise onboard. Because Air AMS is part of ACS, Customs can €

"inspect" merchandise by reviewing information in ACS or by physically €

inspecting the merchandise. Either method meets the regulatory €

requirement that Customs inspect all merchandise entering commerce. €

The ability to electronically inspect merchandise allows Customs €

opportunity to better use its personnel. In turn, it permits quicker €

transfer of merchandise off the busy tarmac into a CFS resulting in €

reduced airport congestion, faster release of merchandise and lower €

handling costs. (See Page 1) €

016-01-024 A IT OF U.S. CUSTOMS SERVICE'S AIR Page ii 
-- 

Lack Of AMS 

Participation 

Presents Risks 

Although Customs expected to fully automate its manifesting process b 

1996, Air AMS participation as of September 30, 1998, consisted of 

only 56 carriers and 127 CFS' operating at 29 airports in the U.S. 

about 13 percent of the CFS' participated in Air AMS. (See Page 2) 

The Air AMS system works best in a total electronic environment; i.e., 

when carriers and CFS' participate in Air AMS and when importers 

brokers participate in Automated Broker Interface (ABI) in ACS. In 

such an environment, waybill and entry information is in the system 

when carriers electronically request transfer of merchandise to a CFS. 

ACS will match waybill information in AMS to entry information in 

ACS and approve the transfer without further Customs involvement. 

However, when CFS' do not participate in Air AMS, the process 

becomes paper-driven and labor intensive. This is especially so if 

brokers or importers do not electronically submit entry documents. In 

such an environment, entry information is not always available when 

carriers request transfer of the merchandise because entry documents 

generally filed after merchandise has been transferred. 

In order for the system to approve the transfer, Customs must "trick" 

system into thinking waybill and entry information have been matched or 

reconciled. Customs does this through a special automatic release 

feature. Once the transfer is approved, Air AMS will show the waybill 

and entry information was reconciled and the merchandise has been 

transferred and released.

The merchandise is to remain at the CFS until the trade submits paper 

entry documents and Customs inspects the merchandise. Once 

inspected, Customs must manually record the correct entry information 

on the waybill records in Air AMS. 

ACS can not detect when entry documents have not been filed on 

merchandise manifested on a waybill in Air AMS. If entry documents 

are not filed, the waybill records in Air AMS are the only information 

available to Customs. However, because of the special automatic re1 

feature, those records show waybill and entry information was matched 

and the merchandise transferred to a CFS and released into commerce. 

Thus, the special automatic release feature provides opportunity for 

merchandise to enter commerce without proper entry and Customs 

-

OIG-01-024 A IT OF U.S. CUSTOMS S 

inspection or release and can be used to circumvent Customs' co 

interdiction, trade enforcement and revenue collection efforts. 

Customs is most vulnerable when importers, brokers and CFS operators 

have close business relationships. This is especially so where imp 

or brokers are co-located in a CFS and have access to merchandis 

greater threat is when the CFS operator is also an importer or broker, 

thereby providing total control and unfettered access to merchandise. 

(See Page 3) 

Merchandise Is The OIG estimated that merchandise manifested on 3,053 waybills €

Entering Commerce in FY 1998 entered commerce without evidence of entry by the trad €

Without Customs or inspection and release by Customs. (See Page 9) €

Inspection €

Because the merchandise is gone, it is difficult to quantify the 

consequences of merchandise entering commerce without proper e 

inspection or release. The waybill record in Air AMS provides only 

generic information on the merchandise. Thus, it is difficult, if not 

impossible, to reconstruct events and determine the nature and quantity 

of the merchandise, existence of contraband, the applicable trade la 

and revenue due to the Government. As such, OIG can only provide 

indicators of diminished enforcement effectiveness and lost revenues. 

(See Page 10) 

Some merchandise manifested on the 3,053 waybills could pose a r 

Customs' enforcement efforts. The decision to physically examine 

merchandise is often based on entry information and, in those instances,

there was none. The type, configuration, size and weight of some 

merchandise could have provided opportunity to conceal and smu 

drugs and other contraband through some of the busiest highest risk 

airports in the U.S. 

It is also difficult to quantify lost revenues. The OIG estimates Customs 

could have assessed over $6.5 million in fines and penalties on the 

waybills lacking evidence of entry and inspection. (See Page 11) 

However, fines and penalties understate the Government's true revenue 

losses because they do not compensate for lost revenue from duties 

tariffs that should have been collected. Nor do they compensate 

hidden costs of violating quotas, trademark and patent laws, or other 

trade requirements. (See Page 12) 

IT OF US. CUSTO €
Better Controls 

Needed To Ensure 

System Integrity 

Although the special automatic release feature in Air A 

unique problem, other system problems compromise the integrity 

of Air AMS and threaten Customs' cargo processing control. 

The Air AMS system is not user-friendly. Although integral to 

Customs' cargo control, it is difficult to operate and hard to control. 

Designed as a historical record, it records and retains all information on 

every air waybill in the system. When trade users do not enter accurate 

information, the system can not reconcile waybill and entry information. 

Unable to reconcile, it creates a duplicate and useless record known as a 

"shell" record that remains in the system's active database indef&tdy. 

Customs recognized the problem and had begun to remove shell records 

from the system. (See Page 15) 

However, other control problems with the Air AMS could compromise 

Customs' drug interdiction and trade enforcement efforts. Air AMS 

contains a special feature known as a "permit-to-transfer" authorization. 

This feature allows the transfer of merchandise to a CFS. Although 

designed for transferring merchandise to a local CFS, Customs r 

the trade at all six airports were using it to move merchandise to 

ports of entry in the country. In total, 20 percent (206 of 1,031) of the 

waybills OIG referred to Customs for evidence of inspection involved a

permit-to-transfer to move merchandise to other ports of entry. 

Using the local permit-to-transfer feature to move merchandise to other 

ports of entry compromises Customs' contraband enforcement 

inspections because those inspections are often targeted through the 

manifesting process rather than entry process. 

Customs was very concerned the local permit-to-transfer feature w 

being used to move merchandise to other ports. They agreed it be 

very difficult and time consuming to determine if the merchandi 

inspected prior to its release into commerce. (See Page 16) 

Trade Compliance The OIG recognizes that special programming features are needed. As 

Not Enforced € such, it advocates controlling rather than eliminating them. Customs 

provides little control over Air AMS system or its users. In effect, it 

looked to the trade to maintain the integrity of the system and has not 

required users to meet its expectations over data integrity. 

OIG-01-024 AUDIT OF U.S. GUS e v 
- -- 

Computer Program 

Could Be A Useful 

Tool To Customs 

Although participation is voluntary and encouraged, Customs e 

90 percent accuracy rate over the infomation entered into the 

Yet, Customs has no systematic means to enforce its expectations. 

(See Page 18) 

Customs reported 339 instances of errors in the 1,031 waybills referred 

to them for evidence of entry, inspection or release. This represents an 

exception rate of 32.9 percent, far beyond Customs' 10 percent tolerance 

limit. Yet, Customs inspectors assessed fines and penalties only on the 

55 waybills lacking evidence of inspection and not on the other 284 

waybills involving errors. One inspector stated it was not worth the 

effort because fines and penalties are often mitigated down. 

Based on the sample results, OIG projected that information on 

approximately 20,000 waybills was incorrectly entered in the Air AMS 

during 1998. Had a $1,000 fine or penalty been assessed for these 

record keeping violations, over $20 million in fines and penalties could 

have been assessed in FY 1998. Based on the higher of the $1,000 

record keeping fine or a fine based on the declared weight on the 

waybill, OIG estimated $184.6 million in fines and penalties could have 

been assessed in FY 1998, 

A senior Customs official at the exit conference acknowledged inspectors 

were reluctant to assess fines and penalties. He stated Customs preferred 

voluntary compliance to forced compliance through punitive measures. 

The OIG does not disagree with the preference for voluntary compliance. 

However, an unwillingness to assess fines and penalties or apply other 

sanctions when appropriate can encourage further non-compliance. 

(See Page 21) 

The OIG believes the computer program Customs developed for the 

audit could be very useful, especially at higher risk ports of entry. It 

can target any data element in Air AMS and could be used to 

detect unusual and suspicious activity by members of the trade. As such, 

it could have application to investigations, management special projects 

and risk assessments. (See Page 22) 

Recommendations 

In this report, OIG recommends Customs: (1) collect the fines and 

penalties assessed during the audit, (2) establish controls to mitigate the 

impact of the special programming features on the integrity of its cargo 

IT OF U.S. CUSTO Page vi 
processing, (3) incorporate controls over Air AMS in the development of 

any new cargo processing system, (4) determine if the problems 

associated with Air AMS affects other Customs activities, and 

(5) consider identifying the control deficiencies with Air AMS as a 

material weakness under the Department of the Treasury Federal 

Managers' Financial Integrity Act process. Customs concurred and had 

taken or planned to take actions that would address the issues 

surrounding the recommendations. (See Pages 13 and 24) 

OIG-01-024 AUDIT OF U.S. CUSTOMS SERVICE'S AIR Page vii 
Federal regulation 19 CFR 5 122 requires all air carriers arriving in the 

U.S. from a foreign location to obtain permission from Customs to land 

and to provide Customs certain documents describing the cargo or 

merchandise onboard. The primary document for notifying Customs of 

merchandise entering the U.S. is the air carrier's manifest. The manifest 

is a summary document describing in very general terms the type, weight 

and quantity of the merchandise onboard the aircraft. With each 

manifest are individual air waybills providing a more detailed description 

of the merchandise listed on the manifest. Upon presenting the manifest 

and air waybills, the merchandise can be transferred to a local CFS 

where it must remain until inspected and released by Customs. 

Federal regulations 19 CFR $141 and 142 require consignees, brokers, 

importers or other interested parties to present to Customs, within 

5 working days, certain documents requesting inspection and clearance 

of merchandise seeking entry into U. S. commerce. Customs uses the 

information on these documents and the air waybills to inspect the 

merchandise and collect revenue due the Government. Once the 

inspection is completed and the estimated revenue is billed or collected, 

the merchandise can be released into commerce. 

Customs' cargo manifesting and entry processes were paper-driven and 

labor intensive until international trade exploded and automation became 

necessary. In 1984, Customs implemented its Automated Commercial 

System. Eventually, subsystems were developed in ACS to automate 

the manifesting process at major airports and seaports. These similar but 

separate sub-systems are known as the Sea and Air Automated Manifest 

Systems. 

Air AMS Developed To Benefit	

Customs And Trade Community 

Customs' Air AMS became operational in late 1989. Designed as an 

inventory control, Air AMS was to standardize communications between 

Customs and the trade, streamline the manifesting process and facilitate 

reconciliation of air waybills and entry documents. In doing so, 

Customs hoped to enhance the timeliness of its release of merchandise 

while meeting its contraband interdiction, trade enforcement and revenue 

collection responsibilities. Customs expected the manifesting process to 

be fully automated by 1996. 

Air AMS allows the trade to electronically transmit manifest and air 

waybill information on incoming merchandise to Customs before it 

AUDIT OF U.S. CUSTOMS SERVICE'S AIR Page 1 
arrives in the U.S. Because AMS is part of ACS, Customs can review 

the information and decide whether to inspect the merchandise 

electronically or physically. Either method of inspection meets the 

requirement that Customs inspect all merchandise entering the U.S. Once inspected, Customs records its results in ACS and communicates 

its release to interested parties through the ABI in ACS. Once released, 

the merchandise can enter commerce. 

Electronic inspections provide Customs opportunity to better allocate its 

personnel. In turn, the trade gets faster transfer of merchandise off the 

busy airport tarmac thereby reducing airport congestion, lowering 

handling costs and providing quicker release of the merchandise. 

Air AMS Participation Limited To 

A Few Carriers At Major Airports 

Participation in Air AMS program is voluntary. Primary participants 

include air and express carriers, port authorities and CFS operators, 

including de-consolidators and freight forwarders. Participants invest in 

Air AMS-related computer hardware and software and are expected to 

use it on at least 90 percent of their merchandise and to maintain a 

90 percent accuracy rate over information they enter into the system. 

Although Customs expected full automation by 1996, participation in Air 

AMS as of September 30, 1998, was limited to 56 carriers and 127 CFS'

operating at 29 U. S. airports. According to Customs, system usage 

averaged nearly 3,000 flights and 168,000 waybills per week in August 

of 1998. As indicated in Chart No. 1, the CFS' participating in AMS in 

FY 1998 represented about 13 percent of all CFS' at the 29 airports. 

Chart No. 1 


Container Freight Station 


Participation In Air AMS Program 


As Of September 30,1998 


AM§ CFS' 

Non-AMS (127) 

CFS' 

(861) 

Source: U.S. Customs Service 

016-01-024 AUDIT OF U.S. CUSTOMS SERVICE' Page 2 
Detailed information on system participation is presented in Appendix 2. 

Lack Of CFS Participation 

Can Present Risks 

The Air AMS system works best when carriers and CFS' participate in 

Air AMS and when importers and brokers participate in ABI. However, 

when CFS' do not participate in Air AMS, the process goes from an 

electronic medium at the carrier to a paper medium at the CFS. This 

deprives Customs and the trade of the system's full benefits and presents 

opportunity for merchandise to enter U.S. commerce without inspection. 

To illustrate the problem when merchandise processing moves from an 

electronic medium to a paper medium, assume a U .S. importer orders 

10 widgets from a foreign manufacturer. The 10 widgets are brought 

into the U.S. by an air carrier, manifested on a single waybill and 

transferred to a CFS. 

In a total electronic environment, an AMS air carrier electronically 

transmits waybill information and requests permission to transfer the 

widgets to an AMS CFS before arriving. In doing so, the waybill 

number and 10 widgets are inventoried in Air AMS. The importer 

electronically transmits the entry documents to Customs through ABI. 

As a result, the entry and waybill information is in the system. The Air 

AMS is programmed to match or "reconcile" the entry and waybill 

information before approving transfer of the merchandise to the CFS. 

Because the information is in the system, Customs can electronically 

inspect the widgets by reviewing the waybill information in the AMS and 

the entry information in the ACS. If acceptable and not selected for 

physical examination, Customs will electronically inspect the 

merchandise, record the release in ACS and electronically notify the 

importer and CFS operator. The Air AMS record is now complete or 

"reconciled" and will show the 10 widgets were inspected and released. 

The process is not so streamlined under a partial or non-electronic

environment. Assume the air carrier participates in AMS but the CFS 

does not nor does the importer participate in the ABI. The AMS carrier 

electronically transmits waybill information on the 10 widgets and 

requests transfer to a non-AMS CFS. Because the importer does not 

participate in ABI, entry information is not available at the time of 

carrier's request. Lacking the entry information, the system is unable to 

match or "reconcile" the waybill and entry information in order to 

approve the transfer of the merchandise. 

016-01-024 AUDIT OF U.S. CUSTOMS SERVICE'S Page 3 
As a result, Customs must "trick" the system into 


waybills have been reconciled or matched to entry 


so with special programming in AMS known as th 


feature. Upon the carrier's transfer request, the s 


CFS does not participate in Air AMS. This activ 


release feature and tricks the system into thinki 


matched to an entry number. Once tricked, the transfer to the CFS is 


approved. At this time, the Air AMS record will sho 


were inspected and released by Customs even though 


Once transferred to the CFS, the process becomes 1 


paper driven. The non-ABI importer hand carries 


documents to Customs to obtain inspection and release of the widgets 


from the CFS. Once the inspection is completed, Customs will manually 


record the ACS entry information into the Air AMS waybill record. 


This effectively reverses the effect of the automatic release feature that 


allowed the widgets to be transferred to the CFS withcwt proper 


reconciliation. The AMS and ACS records then show 


inspected and released by Customs. The importer can 


completed entry documents and retrieve the merchandise from the CFS. 


However, the system assumes that entry documents will be filed on all 


merchandise. It can not detect when an importer fails to file entry 


documents or when a CFS releases merchandise 
wi&oezt Customs

inspection and release. If entry documents are not 
fil

information available is the waybill record in Air AMS. However, 


because of the automatic release feature that record shows Customs 


inspected and released the 10 widgets into commerce. 


Lacking a systematic means to detect the importer's failure to file entry 


documents or the improper release of merchandise, Customs can not 


ensure the merchandise is inspected as required by 19 CFR $142. The 


merchandise is no longer at the CFS. The only in ion available to 


Customs is the air waybill and it does not adequate cribe the 


merchandise. Thus, it is difficult, if not impossible, for Customs to 


detect the violation or reconstruct events. As such, Customs' inspection 


and any duties, tariffs, fines and penalties and import ictions can be 


circumvented or avoided. 


Given the vast amount of merchandise imported into 


lack of a systematic computerized control, Customs i 


smuggling threat that can affect contraband interdiction, trade 


enforcement and revenue collection. It is most vulnerable when 


importers, brokers and CFS operators have close bus s relationships. 


IT OF U.S. CUSTO S SERVICE'S AIR 
This is especially so when importers or brokers occupy space in a CFS 

and have access to the merchandise. However, the greater threat is 

where a CFS operator is also an importer or broker, providing total 

control over and unfettered access to the merchandise. 

Objective, Scope And Methodology 

The audit objective was to determine if Customs' controls over the 

automatic release feature in Air AMS were adequate to ensure all 

merchandise entered into commerce was subject to Customs inspection as 

required by 19 CFR $142. And if not, to determine the impact on 

Customs' enforcement and revenue collection efforts. 

The audit focused on merchandise transferred from an Air AMS carrier 

to a non-AMS CFS for which no evidence of entry existed in the ACS. 

The OIG focused on these movements because about 90 percent of the 

warehouses at the AMS airports were not participating in Air AMS and, 

as a result, vulnerable to misuse of the automatic release feature. 

Fieldwork was conducted between September 1998 and October 1999 at 

Customs': (1) Headquarters in Washington, DC; (2) Office of 

Information and Technology (OIT) in Newington, Virginia; and 

(3) airport offices in Los Angeles and San Francisco, California; 

Chicago, Illinois; New York City, New York; Atlanta, Georgia; and 

Miami, Florida. 

The OIG used a computer-assisted auditing tool developed by Customs 

OIT to identify and extract information on air waybills entered into the 

Air AMS on 7 days randomly selected days in FY 1998 at 6 major AMS 

airports. After eliminating certain waybills, the OIG referred the 

remaining waybills to Customs for evidence of entry or inspection of the 

merchandise. Using an expected confidence interval of 95 percent, a 

precision of + 5 percent and a pValue of 50 percent, the OIG statistically 

estimated waybills in the universe that lacked evidence of entry or 

release and the related fines and penalties. 

Because the audit focused on the system, the sample size was not 

sufficient for the OIG to detect possible pattern and practice of improper 

or illegal activity by individual carriers, CFS operators, brokers, 

importers or other interested parties involved in importing merchandise. 

The audit was conducted in accordance with the Government Auditing 

Standards issued by the Comptroller General of the United States and 

included such tests that were deemed necessary. 

OIG-01-024 A IT OF U.S. CUSTOMS SERVICE'S AJR Page 5 
TRODU ON 

A detailed description of the audit objective, s 

presented in Appendix 1. 

016-01-024 A IT OF U.S. CUSTO S SERVICE'S AIR Page 
Better controls are needed to mitigate the risk Air AMS presents to 

Customs' enforcement and revenue collection efforts. The trade can use 

the automatic release feature in Air AMS to circumvent Customs 

inspection and avoid duties, tariffs, quotas and other import restrictions 

on merchandise entering commerce. OIG estimates merchandise 

manifested on over 3,000 waybills was released into commerce in 

FY 1998 without evidence of inspection and over $6.5 million in fines 

and penalties could have been assessed on those waybills. The full effect 

on Customs' enforcement or revenue collection efforts is unknown. 

Better controls are also needed to ensure the integrity of Customs' cargo 

control processes. Although Customs recognizes the system is not user 

friendly and its utility has been compromised, it has done little to police 

the system or its users. As a result, the system is being misused without 

action or sanction by Customs. A third of the waybills OIG referred for 

Customs review contained errors or evidence of misuse, far exceeding 

Customs' tolerance levels. OIG estimated over $184.6 million in fines 

and penalties could have been assessed for system misuse in FY 1998. 

Management controls are the organization, policies and procedures used 

by agencies to reasonably ensure that, among other things (1) programs 

achieve their intended results, (2) programs and resources are protected 

from waste, fraud and mismanagement, (3) laws and regulations are 

followed and (4) reliable and timely information is obtained, maintained, 

reported and used for decision making. Because of the risk to Customs' 

enforcement and revenue collection efforts, the OIG believes the 

problems with Air AMS described in the following findings collectively 

constitute a material weakness in Customs' management controls as 

defined in OMB's Circular A-123, Management Accountability and

Control. 

Finding 1: €Merchandise Is Entering Commerce Without 

Evidence Of Customs Inspection And Release 

Using the computer-assisted auditing tool to identify and extract 

information on air waybills, the OIG statistically estimated that 

merchandise manifested on 3,053 air waybills in FY 1998 entered 

commerce without evidence of entry or Customs inspection and release.

Besides the possible undetected contraband and undeclared merchandise 

entering the U.S., OIG estimated over $6.5 million in fines and penalties 

could have been assessed on the waybills. 

AUDIT OF U.S. CUSTOMS SERVICE'S AIR Page 7 
Customs Does Not Monitor The 

Use Of Automatic Release Feature 

Until the OIG audit, Customs did not have a systematic means of 

detecting or measuring the use of the automatic release feature in Air 

AMS. At the OIG' request, Customs OIT developed a computer-assis 

auditing tool that identified and extracted information on over 146,000 

air waybills entered into Air AMS in FY 1998 that lacked evidence of 

entry and Customs inspection or release in ACS. As indicated in Ch 

No. 2, two-thirds of those waybills were at 6 airports. 

Chart No. 2 


Universe Of Air Waybills In Air AMS 


Lacking Evidence Of Entry In.ACS 
 C 

FY 1998 

Others 

San Francisco 

6% 

Atlanta 

10% 

New York 

(JFrc) 

10% 

Source: U.S. Customs Service 

Los Angeles 

(LAX) 

16% 

Mami 

13% 

Chicago 

(ORD) 

12% 

The number of air waybills lacking evidence of entry at AMS airports ' 

FY 1998 is presented in Appendix 3. 

Using the computer program, Customs OIT identified 2,068 waybills a 

the above 6 airports for 7 randomly selected days in FY 1998 for audit 

testing purpose. The OIG reviewed manifest and entry information in 

ACS and eliminated 1,037 waybills where evidence of entry was found 

or where the waybills did not meet OIG selection criteria. The OIG also 

judgmentally eliminated low risk shipments such as informal entries, 

paper, documents and medical samples. The remaining 1,O31 waybills 

were referred to Customs for evidence of entry, inspection and release. 

Detailed information on the OIG sampling techniques, results and 

precision is presented in Appendices 1, 4 and 5. 

OIG-01-024 AUDIT OF U.S. CUSTOMS SERVICE'S AIR Page 
Merchandise Is 

Without Eviden 

Neither Customs nor the trade could provide evidence of entry, 

inspection and release on merchandise manifested on 55 waybills. 

Thirteen waybills were found in developing the audit methodolo 

the other 42 waybills were found in the random sample. 

The 42 waybills in the random sample that lacked evidence of entry or 

inspection represented 2 percent of the total sample of 2,068 waybills 

and 4.1 percent of 1,031 waybills referred to Customs. Projecting these 

results to the universe, the OIG estimated with 95 percent confidence 

that merchandise manifested on 3,053 air waybills in FY 1998 entered 

U.S. commerce without evidence of entry, inspection and release. 

Because of limitations in the computer program described below, the 

estimated number of waybills is understated and not a true indicator of 

the merchandise entering commerce without proper entry, inspection or 

release. 

Specifically, the computer program queried the Air AMS database by 

waybill number. However, there are actually three types of waybills: 

master, house and simple. 

A "master9,waybill is a summary document identifying the amount and 

identification number of underlying "house" waybills. A master waybill 

must have at least one house waybill but there is no limit to the number 

of house waybills that can be on a master waybill. The house waybill 

identifies the carrier, shipper, country of origin, type, weight, quantity 

and other general information on the merchandise. If an importer is 

importing 10 widgets going to 10 different consignees, the master 

waybill may have as many as 10 underlying house waybills. 

A "simple" waybill is similar to a house waybill. It is listed separately 

on the air carrier's manifest and provides information similar to that on a 

house waybill. Often, merchandise on a simple waybill is destined to a 

single consignee. If the 10 widgets were going to a single consignee 

they would probably be manifested on a simple waybill. 

The computer program could not differentiate between the type of 

waybill. It could only recognize where an air waybill did not match or 

reconcile to an entry. It could not identify whether those waybills were 

correctly entered into the system as a master or simple waybill. 

OIG-01-024 A IT OF U.S. CUSTOMS SER~ICE'SAIR 

For example, if a master waybill with 100 underlying house waybills was 

correctly entered into Air AMS and the computer program found no 

evidence of entry, the program would report the underlying house 

waybills as 100 audit exceptions. But if entered as a simple waybill, the 

program would report only 1 audit exception. 

The OIG was able to determine the correct type of waybill in the sample 

through an exhaustive and time-consuming review of ACS information 

and Customs documents. However, there was no practicable means to 

estimate which of the 3,053 waybills projected as lacking evidence of 

entry, inspection and release were simple or master waybills. 

As a result, the estimated 3,053 waybills are only an indicator of the 

problem but not a true measure of the amount of merchandise that 

entered into commerce without evidence of entry, inspection and release. 

However, the OIG believes the amount of merchandise that entered 

commerce could be substantial, especially if the waybills were masters. 

Detailed information on the projected number of air waybills lacking 

evidence of entry, inspection and release is presented in Appendix 6. 

Substantial Risks From Use 

Of Automatic Release Feature 

Quantifying the consequences of merchandise entering commerce without 

entry or inspection was also difficult. The merchandise was not 

available nor was the information in Air AMS sufficient to determine the 

nature and value of the merchandise, applicable trade laws or amounts 

due the Government. Thus, the OIG can only provide indicators of the 

risk of diminished enforcement efforts and lost revenues. 

The OIG could find no meaningful measure of the potential impact on 

Customs' trade enforcement and contraband interdiction efforts. 

However, the special automatic release feature presents opportunity to 

smuggle merchandise into the U.S. and the OIG believes the opportunity 

poses a meaningful threat to Customs' enforcement efforts. 

The waybill record in Air AMS does not adequately describe the 

merchandise or its value. However, the type, configuration, size and 

weight of some merchandise manifested on the 42 waybills lacking entry, 

inspection and release could provide opportunity to conceal and smuggle 

drugs and contraband through Los Angeles (LAX), John F. Ke~edy 

(JFK) and Miami International Airports; three high risk airports. 

016-01-024 A IT OF U.S. CUSTOMS SERVICE'S AIR Page 10 
At JFK, Customs issued a penalty notice on a waybill describing the 

merchandise only as 196 cartons of "footwear" weighing 

7,185 kilograms (15,807 pounds). 

At LAX, Customs issued penalty notices on two air waybills 

describing the merchandise only as 448 kilograms (985 pounds) of 

"flowers." These shipments present a risk because flowers have 

been used to smuggle drugs into the U.S. 

At JFK, Customs issued a penalty notice on an air waybill describing 

the merchandise only as 113 cartons of "miscellaneous freight" 

weighing 2,105 kilograms (4,631 pounds). In another instance at 

JFK, Customs issued a penalty on a master waybill with 3 house 

waybills describing the merchandise only as 188 cartons of "Parts." 

At Miami International, Customs issued a penalty notice on a waybill 

describing the merchandise only as 194 kilograms (426 pounds) of 

"documentos. " 

The merchandise relating to the 3,053 waybills may not have been 

selected for physical inspection because Customs often bases that 

decision on the entry information in the ACS, which in the case of those 

waybills, there would be none. 

Aside from the potential lost revenues from duties and tariffs, Customs 

issued 44 penalty notices amounting to $l36,918 against the interested 

parties of the 55 waybills lacking evidence of entry, inspection and 

release. Over $47,600 resulted from the methodology phase of the audit. 

The other $89,278 resulted from the random sample. 

Projecting the random sample results to the universe, OIG estimates with 

95 percent confidence that Customs could have assessed over 

$6.5 million in fines and penalties on those 3,053 waybills lacking 

evidence of entry, inspection and release. 

Summary and detailed information on the fines and penalties resulting 

from the audit is presented in Appendix 6, 7 and 8. 

- -

IT OF U.S. CUSTO S SERVICE'S AIR age 11 
-- 

The Government's Risk Of 

Lost Revenue Is Understated 

Customs' fmes and penalties are only tangential indicators of the 

consequences of misusing the AMS and understate the Government's 

true losses. Fines and penalties are punitive measures and do not 

compensate the Government for lost revenue from duties and tariffs that 

could have been collected at the time of entry. Nor do they compensate 

the Government for the hidden costs of quota violations, trademark 

infringements and other import restrictions and prohibitions. 

However, the merchandise relating to those 55 waybills that lacked entry 

and inspection had been released into commerce. Information in 

Customs' systems was not sufficient to determine the nature and value of 

the merchandise or to reconstruct the events surrounding the movement 

and release of the merchandise. Thus, it was not possible to 

retroactively determine the applicable duties, tariffs, quotas and other 

import restrictions. As such, fines and penalties were the usual sanctions 

for violating regulations. 

Federal regulation 19 CFR $171 provides Customs discretion in 

assessing fines and penalties. For the 55 waybills found in the audit, 

Customs inspectors could chose to assess or not assess fines or penalties. 

If they chose to assess, they could chose to assess based on failure to 

properly manifest or present merchandise for inspection or for failure to 

meet regulatory record keeping requirements. The fine or penalty for

not properly manifesting or presenting merchandise for inspection is 

based on the manifested weight of the merchandise; $10 per pound or 

$20 per kilogram. The fine or penalty for not keeping proper records is 

$1,000 per violation. If Customs finds a pattern, practice or history of 

non-compliance or regulatory violations, the fine or penalty can be 

substantially increased. 

Because the computer program could not detect incorrect information in 

the system or differentiate between types of waybills (master, house, or 

simple), the estimated number of waybills lacking evidence of entry was 

understated. This, in turn, understated the estimated fines and penalties 

that could have been assessed. 

There are other reasons within Customs9control why the fines and 

penalties assessed during the audit are understated. The decision to 

assess fines and penalties as well as the amount assessed was left to the 

discretion of the local Customs inspector. In 27 of 44 penalty notices 

issued on the 55 waybills lacking evidence of entry or release, the 

- -

OIG-01-024 A IT OF U.S. CUSTOMS SERVICE'S AIR Page 12 
-- 

inspectors assessed the $1,000 fine or penalty rather than the potentially 

more substantial fine or penalty based on the manifested weight. In 

addition, they were not always consistent in the fines and penalties 

assessed and some were reluctant to assess fines and penalties, as 

discussed further in Finding 2. 

Customs officials at the exit conference accepted the audit methodolo 

and the fines and penalties assessed in the audit. They agreed the fines 

and penalties assessed during the audit understated the Government's 

losses because the waybill information in the Air AMS was not sufficient 

to determine the true amount of duties, tariffs and other revenues due on 

the merchandise imported. 

In its response to the OIG report, Customs stated it did not agree with 

the characterization of the local permit-to-transfer as a "trick" of the 

ACS System and provided supplemental information describing the 

programming and controls over the transfer feature. To clarify, the 

does not consider the permits-to-transfer authorization a "trick" nor does 

it contest the need for such transfers. Instead, the "trick" referred to in 

this report relates to internal programming within AMS that allows cargo 

to be transferred to a non-AMS warehouse without reconciling waybill 

and entry information. Also, Customs' controls were mostly dependent 

on ineffective post audit procedures that, as discussed in Finding 2, were 

not in place or working as intended in those locations the OIG visited. 

Recommendation 1-1: 

The Commissioner of Customs should ensure the fines and penalties 

assessed as a result of the OIG audit were appropriate and the interest 

parties were not attempting to circumvent inspection of the merchandise 

as required by 19 CFR. 

Management Response and OIG Comment 

Customs concurred with and had taken or planned to take action the OIG

believes will address the recommendation. In March 1999, Customs 

enacted Treasury Decision 99-29 setting higher fines and penalties 

against the trade for cargo misdeliveries as well as new mitigation 

guidelines emphasizing the collection of duties, taxes and fees. 

Customs is also exploring the creation of a national post audit database to 

aid in spotting suspicious trends, inconsistencies or possible 

noncompliance by the trade and to share this information among ports. 

24 AUDIT OF U.S. CUSTO S SERVICESSAIR Page 13 
Because of the system programming and testing required, Customs 

expects to complete this action by October 2002. 

The Commissioner of Customs should ensure the prompt collection of 

the $136,918 of fines and penalties assessed in the OIG audit. 

Management Response and OIG Comment 

Customs concurred with and was taking action the OIG believes will 

address the recommendation. In its response, Customs stated the fines 

and penalties assessed in the audit have been or were in the process of 

being collected. 

OIG-01-024 AUDIT OF U.S. CUSTOMS SERVICE'S AIR Page 14 
tter Controls Ne 

nsure System Int 

Customs needs to establish better controls ove 


integrity of its cargo processing systems. The audit focus was 


on the special automatic release feature but the 


problems that could also threaten Customs9c 


Although Customs recognizes the system is 


utility has been compromised, it has done little to police the system or its 


users. As a result, the system is being misused, Customs enforcement 


efforts are being compromised and the Government is at risk of losing 


revenue. A third of the waybills reviewed by OIG co 


evidence of misuse, far exceeding Customs' tolerance levels. OIG 


estimated over $184.6 million in fines and penalties could have been 


assessed for system misuse in FY 1998. 


Air AMS Is Not User Friendly 

Customs officials acknowledged Air AMS is not a user-friendly system. 


It was designed to be a historical record of all activity relating to air 


waybills in the system. The information is entered the system by the 


trade, not Customs, and organized by a unique waybill number assigned 


by the trade. This information remains in active status for cargo 


processing control purposes for about 6 months after which it is 


transferred to an archive file. 


However, system problems make it difficult for Customs	to use it for 


inspection purposes. The system can not detect the 
entry of erroneous

waybill information and, thus, is unable to reconcile it to entry 


information. Unable to do so, it creates a "shell" 
r

A shell record is a temporary record that shows the system could not 


match entry and air waybill information. Howev 


provide conditional release of the merchandise w 


record will be corrected so it can match the entr 


information and eventually transfer the record to archives. If not 


corrected, shell records remain in the active database indefinitely. 


According to Customs, the trade often does not pr 


information or correct entry errors and mistakes ere is no check in 


Air AMS to ensure the trade does so. Customs 


waybills referred to Customs involved erroneou 


result in a shell record. In 48 of those instance 


OIG-01-024 A IT OF US GUSTO S SERVICE'S AIR age 15 
underlying house waybills was entered as a simple bill. In the other 30, 

the waybill number or CFS code was entered incorrectly. 

The shell records and other system problems hampered the development 

of the computer-assisted auditing tool, a process that took 6 months. For 

example, Air AMS has a special code to identify when merchandise is 

transferred to a non-AMS CFS. This special code was crucial to 

identifying the audit universe and selecting the sample. However, it was 

known only to a few in Customs. 

Failure to enter accurate and complete waybill information makes the 

system difficult to operate and control. It also compromises Customs' 

contraband interdiction efforts because those inspections are often based 

on manifest information, not entry information. Without accurate and 

complete waybill information, Customs contraband enforcement teams 

may not have the information to identify merchandise for inspection. 

Customs officials at the exit conference acknowledged that shell records 

were a problem in Air AMS and stated Customs had begun to clean them 

out of the system. This may prove difficult because neither the trade nor 

Customs may have the information needed to match incorrect and correct 

waybill records. Thus, it may have to eliminate the records using an 

arbitrary basis, such as record age. 

Furthermore, purging the existing shell records from the system does not 

address the root cause of the shell record problem; i-e., the trade is not 

properly using the system. 

The Trade Community Is Not 

Properly Entering Import 

Transactions In Air AMS

Unintended errors, mistakes and carelessness may explain some of the 

above problems. However, the lack of adequate controls in the Air 

AMS could compromise Customs' drug interdiction and trade 

enforcement efforts. 

Customs can authorize imported merchandise arriving by air to be either: 

(1) moved to another location within the port of entry, such as to a CFS 

(referred to as a local "permit-to-transfer"shipment), (2) moved "inAUDIT OF US CUSTOMS SERVICE'S AIR Page 16 
bond" to another port of entry (referred to a 

(3) remain on the aircraft for a later flight t 

(referred to as a "permit-to-proceed" ship 

unique programming codes that are to be 

type of movement authorized by Customs 

permit-to-proceed). 

Customs reported the trade at all 6 airports 

"in-bond " shipment');or 

e trade to identify the 

-transfer, in-bond or 

ited were incorrectly 

coding merchandise moved to other ports of entry, including ikbond 

shipments, as permit-to-transfer shipment e Air AMS. In total, 206 

(20 percent) of the 1,031 air waybills the ferred to Customs 

involved in-bond shipments to other ports re recorded as permitto-transfer shipments. 

The trade was also using the permit-to-transfer code for permit-toproceed shipments. As presented in Appendix 3, the special program 

identified over 35,000 waybills where merchandise arrived in Anchorage 

in FY 1998 that lacked evidence of entry or Customs inspection and 

release in the ACS. However, Customs believed the merchandise on 

those 35,000 waybills should have been re as permit-to-proceed 

shipments instead of permit-to-transfer sh A Customs inspector 

in San Francisco told OIG it was common ractice to use ;the 

permit-to-transfer code for permit-to-pro 

Customs9tracking of the location and movement of merchandise 

becomes difficult when the local permit-to-tr fer code is used to move 

merchandise to another port of entry. Customs has unique codes in ACS 

to identify ports of entry and CFS facilities in order to track the 

movement and location of merchandise. The e for LAX is 2'720 and 

each CFS in the Los Angeles area has its own unique four-digit code. 

For example, assume the local permit-to-transfer code is used to move 

merchandise from LAX to JFK in New York where it will be transferred 

to a non-AMS CFS. Because the permit-to is a local transfer 

option, the waybill record in Air AMS will the merchandise was 

unloaded at LAX and transferred to a CFS s Angeles area. 

However, the system does not match or reconcile the CFS code to the 

port code and will not recognize the CFS is in New York. Consequently, 

if Customs at LAX selects the merchandise for inspection, it would find 

An in-bond shipment involves merchandise that arrives at an interim port of entry (e.g., LAX) but whose fmal

destination is another port of entry (eg, JFK). The merchandise can be unloaded in Eos Angeles and held for 

transportation to New York. However, the merchandise remains under a performance bond until it arrives in New 

York, entry documents are filed and the merchandise is inspected and released by Customs.. Hence, the name inbond shipment. 

IT OF US CUSTOMS SERVICE'S AIR Page 17 
after extensive effort that it was in, or on its way to, New York. 

Conversely, it is unlikely Customs at JFK would detect if entry 

documents were not filed because the only information in the system is in 

the air waybill record. Because of the special automatic release feature in 

Air AMS, the waybill record would show the merchandise was unlo 

in LAX, the waybills were matched or reconciled and the merchandise 

was released to a local CFS. Thus, it would be very difficult and time 

consuming for Customs at JFK to locate the merchandise or proof of 

entry; thereby providing opportunity to circumvent Customs enforcement 

targeting and inspection in both ports and avoid duties, tariffs, quotas or 

other import restrictions. 

Customs officials at the exit conference were very concerned the local 

permit-to-transfer code was being used to move merchandise to other 

ports of entry. They agreed that it would be very time consuming and 

difficult to track shipments for entry and inspection purposes if the trade 

improperly uses the local permit-to-transfer code because they "fall off 

Customs' radar screen." 

The OIG agrees with Customs. Because of the time and effort involv 

in tracking in-bond shipments, the OIG was forced to accept paper 

evidence that the trade filed an in-bond transfer authorization form for 

those 206 air waybills involving the use of the permit-to-transfer featur

However, Customs at the 6 ports could not provide any evidence to 

assure the OIG that the merchandise manifested on those 206 air wayb 

had been inspected by Customs prior to release at the final destination. 

Trade Compliance Not Enforced 

The OIG recognizes the special programming features in Air AMS are 

needed to quickly transfer merchandise off the busy airport tarmac. As 

such, OIG believes Customs needs to better monitor and control their use 

rather than eliminate them. 

Participation in the system is voluntary and encouraged. Customs 

expects the trade to use the system properly and maintain the integrity of 

the information entered into it. But Customs does not have adequate 

controls to prevent or detect the incorrect recording of merchandise 

movements in the system, maintain data integrity or enforce its 

expectations on the users. 

Federal regulation 19 CFR 54.7a states Customs personnel will not 

perform any reconciliation of Air AMS records, except in the post audit 

process. The regulation states it shall be the responsibility of the trade to

OIG-01-024 AUDIT OF US CUSTOMS SERVICE'S AIR Page 
correct and reconcile records. Customs expects users to use the syst 

for at least 90 percent of their activity and maintain an accuracy rate of 

at least 90 percent for information entered into AMS. 

Yet Customs has no systematic means to monitor and enforce compl 

with those expectations. The OIG found 339 instances of errors or 

misuse in the 1,031 waybills referred to Customs, an error rate of 

32.9 percent, far beyond Customs' 10 percent tolerance limit and 

demonstrating the extent of the problems in the system. 

Without a computerized means, monitoring was on a waybill by waybill 

basis. The only maintenance Customs performed was eliminating s 

records when transferring records to archive files. 

Instead, Customs relied on its carrier post audit function to ensure trade 

compliance with 19 CFR 54.7a and its cargo processing controls. 

carrier post audit group generally measures compliance by reviewi 

selected manifests, waybills and entry documents. Customs had a 

post audit group at each airport visited by OIG. 

The carrier post audit function was not an effective control over the 

system or indicator of trade compliance. The staffing of the groups 

visited by OIG was minimal. In one case, the group consisted o 

time and 1 part-time inspector. In another case, no staff was as 

the group for about six months in FY 1998. 

Given the level of staffing, the effort was minimal. In one case, the 

group had not performed any testing for 18 months. When testing w

performed, it usually did not address the possibility that entry docu 

were not submitted on manifested merchandise. At the airports vis 

the carrier post audit group was only verifying that information on 

selected entry documents matched infomation on the waybill. 

ensures the merchandise described on the entry document was 

manifested on the waybill. It does not ensure that entry docu 

submitted on all merchandise on the waybill. To provide th 

one would start with the waybill and verify it to the entry information, 

which OIG did in its audit. 

Customs officials at the exit conference were concerned carrier post 

audit groups were not verifying that merchandise manifested on the 

waybills was presented to Customs for entry and release. They sta 

Customs instructions require such testing. They also stated a new 

directive would be issued requiring waybill information be verified to 

entry information in ACS. 

IT OF US GUSTO S SERVICE'S 1 
The OIG also found indications that entry info ation was not alw 

entered into ACS. Because the merchandise for the 1,031 waybills 

referred to Customs was processed at a non-AMS CFS through paper 

entry documents, Customs inspectors were to manually enter infomation 

on those paper documents into the ACS. This evidences the merchandise 

was inspected and released by Customs. Yet, about 95 percent (976) of 

the 1,031 waybills referred were resolved through paper evidence of 

proper entry and release even though there was no electronic evidence in 

ACS. One explanation is that the information was not entered into ACS. 

Not entering entry information into ACS can impact Customs' 

enforcement efforts because physical inspections of merchandise are 

targeted through the ACS selectivity module. If the entry information on 

the 976 waybills was not in ACS, it is unlikely the merchandise would be 

selected for physical inspection under selectivity; thereby circumventing 

or compromising Customs' enforcement efforts. 

The magnitude of Air AMS and Customs' enforcement problems can be 

demonstrated by the fines and penalties that Customs did not assess. 

Customs reported that 284 (27.5 percent) of the 1,031 waybills referred 

involved the trade incorrectly entering information or using the system. 

e 55 waybills lacking evidence of entry or release increases the 

number of waybills to 339 or 32.9 percent. 

However, Customs assessed fines and penalties only on the 55 waybills 

where the trade could not provide evidence of entry, inspection and 

release. It did not assess fines and penalties on the other 284 waybills. 

As discussed in Finding 1, Customs inspectors can assess fines and 

penalties based on record keeping violations or on the declared weight of 

the merchandise manifested. 

Based on the sample results, the OIG estimates, with 95 percent 

confidence, that the trade incorrectly entered information on 

approximately 20,000 waybills in the Air AMS during FY 1998. Had 

the $1,000 fine and penalty been assessed on this projected number of 

waybills for record keeping violations, over $20.2 million in fines and 

penalties, could have been assessed in FY 1998.

Had fines and penalties been assessed based on the higher of $1,000 or 

declared weight of the merchandise, the OIG estimates over $184.6 

ERV R 
million in fines and penalties could have been assessed during that 

period. 

The $6.5 million of projected fines and penalties on waybills lacking 

evidence of entry, inspection and release by Customs are not included in 

the above estimates. 

Detailed information on the OIG estimates of fines and penalties that 

could have been assessed in FY 1998 is presented in Appendix 9. 

Custom Is Reluctant To 

Assess Fines hd Penalties 

Customs inspectors did not always assess fines and penalties for 

violations in a consistent manner. One inspector stated the fines and 

penalties assessed for lack of evidence of entry or release would not have 

been assessed if the OIG had not been involved. Another told the OIG 

that it was not worth the effort because the fines and penalties are often 

mitigated down or dismissed altogether. 

In addition to often assessing the lesser fine or penalty, Customs 

inspectors were not always consistent in their assessments. 

* 	 Inspectors in one airport chose to assess a fine or penalty for a 

violation while inspectors at another airport chose not to assess a 

fine or penalty for the same violation. 

* 	 When dealing with multiple violations by the same party, some 

inspectors chose to assess $1,000 for each violation. In some 

cases, they assessed as much as $10,000. However, other 

inspectors chose to combine multiple violations into a single 

violation and assess only a $1,000 fine or penalty. 

* 	 Customs inspectors at one airport choose not to assess fines or 

penalties until they accumulated 100 violations by a party; at 

which time they assessed only $1,000. 

The senior Customs official at the exit conference acknowledged the 

discretion exercised by Customs inspectors in assessing fines and 

penalties. He commented Customs prefers to promote voluntary trade 

compliance rather than forced compliance through punitive measures. 

IT OF US CUSTOMS SERVICE'S AIR Page 21 
-- 

The OIG does not disagree with the desire to promote voluntary 

compliance. However, an unwillingness to apply fines, penalties or 

other sanctions may promote and encourage further non-compliance. 

System Users Need Training 

Customs officials at the exit conference believed system users needed 

more training in Air AMS and the 01G agreed. Some Customs 

inspectors told the OIG they had only limited knowledge in the system 

and its functions. The number of exceptions found by the OIG supports 

the need for more and better training for all users, including Customs. 

System Problems May Extend 

To Other Cargo Movements 

Many problems found by the OIG were systemic to Air AMS but not 

necessarily unique to the environment audited. Because of the limited 

audit scope, OIG can not provide Customs any assurances that similar 

problems are not occurring in other cargo processing environments. 

The OIG audit focused on merchandise transferred from an AMS air 

carrier to a non-AMS CFS because it was considered the most vulnerable 

to misuse of the special programming features in Air AMS. However, 

this was only one of the four types of transfers. The other three were 

transfers between: (1) an AMS carrier and an AMS CFS (a total 

electronic environment), (2) a non-AMS carrier to an AMS CFS (a paper 

to electronic environment), and (3) a non-AMS carrier to a non-AMS 

CFS (a total paper environment). 

Customs officials at the exit conference generally agreed that there was 

reason for concern over the OIG findings. One official commented that 

Customs was supposed to have fixed similar problems the last time it 

reviewed AMS. They also agreed with the need for better controls to 

ensure the integrity of the system. They were especially receptive to 

providing more training to system users and enforcing Customs' 

expectations over its users. However, they questioned the need for 

Customs to determine if the problems extended to other types of 

environments. They believed Customs should be able to rely on the OIG 

results rather than perform their own risk assessment. 

-. -

OIG-01-024 A IT OF US CUSTOMS SERVICE'S AIR Page 22 
Be A Useful Tool To Customs 

The computer program developed by OIT for the OIG could be very 

useful to Customs especially at higher risk ports of entry. It is very 

flexible and can target and extract any data element in the AMS 

including date of arrival, type and quantity of merchandise, port of 

entry, carrier, CFS, importer and country of origin. As such, it could be 

extremely useful for discerning unusual and suspicious activities as well 

as special management projects, such as risk assessments. 

Customs officials at some airports were interested in the program. One 

official stated Customs could use it periodically as an indicator of trade 

compliance or to determine the need for further research or investigation 

of an individual or company suspected of violating Customs regulations. 

The program also may have investigative applications. The OIG used it 

to audit the AMS system. However, the OIT representatives at the exit 

conference explained that the program can target individual carriers, 

CFS operators, brokers, importers or other interested parties for 

suspicious or illegal activities. 

Customs officials at the exit conference expressed interest in the 

computer program. The OIT representatives at the exit conference 

explained it was available to anyone in Customs. 

The OIG recognizes Customs may not have the resources to apply the 

program in all ports or to follow up on exceptions, as the OIG did in its 

audit. However, the OIG believes it could provide port directors at the 

higher risk airports a useful tool if modified to target local concerns and 

applied judiciously and periodically. It could also be used in Customs 

special projects such as the "Tin Man" project to measure the 

compliance with in-bond shipment requirements. 

While Customs officials at the exit conference were in general agreement 

with the OIG findings and the need for better control, they commented 

that addressing the problems becomes an issue of resource allocation; 

i.e., where does Customs place its scarce resources? 

The OIG appreciates Customs' staffing situation. The OIG recognizes 

ACS is nearing its capacity and design limits and that Customs is seeking 

funding for a new automated system. However, the OIG believes the 

special program could provide an interim control over Air AMS, 

especially at higher risk ports of entry, until the new system is 

016-01-024 A IT OF US CIJSTO Page 23 
developed. The OIG also believes Customs will need to incorporate 

controls over the Air AMS special programming features into its new 

automated cargo processing system. The Customs officials agreed. 

Recornendation 

Recommendation 


The Commissioner of Customs should establish controls to measure trade 

community compliance with Air AMS requirements, especially over the 

use of special programming features for automatic release and local 

permits-to-transfer to ensure all merchandise is inspected prior to release 

into the commerce. 

Management Res~onseand OIG Comment 

Customs concurred with and planned to take action the OIG believes will 

address the recommendation. In the near-term, Customs will monitor all 

system transmissions for correct use of the special programming features 

during the first 45 days of a carrier's Air AMS participation. Any 

deficiencies will be referred to the Customs Client Representative for 

corrective action. After the initial 45 days, Customs inspectors will 

perform cursory audits of the carriers' use of the special programming 

features including a mandatory post audit of a new Air AMS participant 

activities in the first six months. Subsequent audits will be performed

based on Customs' results. Customs expects to implement these controls 

by March 2001. 

Customs also plans to introduce a post audit compliance review process 

employing scientifically based random sampling of qualifying air 

waybills to promote better control and compliance from the trade. This 

would be similar to the automated random sampling used for in-bond 

movements. Because of the system programming and testing required, 

Customs expects to complete this action in October 2002. 

The Commissioner of Customs should provide all system users, 

including Customs inspectors, more and better training over the use of 

Air AMS to improve the quality and usefulness of system information.

Management Response and OIG Comment 

Customs concurred with and was taking action the OIG believes will 

address the recommendation. Customs has completed a user guide for 

the Air AMS and developed training for its personnel. Three training 
- - - - -- -- -- -- - -- -- - -- -- 

sessions have been conducted since August 2000 and additional sessions 

will be scheduled in the upcoming year. Customs also provided training 

to its Client Representatives who will assist carriers, de-consolidators 

and freight forwarders on Air AMS issues. 

Recommendation 2-3: 

The Commissioner of Customs should monitor the trade's use of the Air 

AMS and take appropriate action, including fines, penalties, and other 

sanction as necessary, to enforce trade compliance with Customs' quality 

expectations. 

Management Res~onseand OIG Comment 

Customs concurred with and has taken or plans to take action the OIG 

believes will address the recommendation. As discussed in 

Recommendation 2-1, Customs plans to monitor Air AMS participants' 

activities, initially through periodic reviews and post audits and 

eventually through statistical sampling methods similar to that used for 

in-bond movements. As discussed in Recommendation 1-1, Customs 

enacted Treasury Decision 99-29 in March 1999 which provide new 

guidelines for assessing higher amounts of fines, penalties and liquidating 

damages as well as new mitigation procedures emphasizing the collection 

of duties, taxes and fees. Customs believes these actions will result in 

vigorous enforcement of trade compliance. Customs expects these 

controls to be implemented by October 2001. 

Recommendation 2-4: 

The Commissioner of Customs should determine the extent to which the 

control problems associated with the local permit-to-transfer 

programming feature in Air AMS affects other Customs programs, 

reporting, and special projects-such as the Tin Man Project-and take 

corrective action. 

Management Response and OIG Comment 

Customs concurred with and plans to take action the OIG believes will 

address the recommendation. In the short term, Customs plans to audit 

as many permits-to-transfer as its staffing will allow. Systemic problems 

noted will by referred to the Customs Client Representative for 

corrective action. Problems that are criminal in nature will be referred 

to enforcement personnel. Other audits will be performed based on the 

results of these initial audits. This special audit effort along with 

- - -- - - - - -

OIG-01-024 AUDIT OF US CUSTOMS SERVICE'S AIR MS Page 25 
increased uniform post audits will be addressed in a 

Customs expects to publish in March 2001. 

mid-term, it intends to develop an edit check that 


a local permit-to-transfer authorization when a CFS does not match 


Customs also intends to make programming changes to Air AMS. In the 

status code in Air AMS for air waybills being tr 


de-consolidators. These waybills would be ke new status code 


until waybill is matched to an entry and "recon 


the local port of entry code. Because of the progr 

required, Customs expects this control to be imple 

January 2002. In the longer term, Customs is co 

of the major programming considerations and certain complications 

within ACS, Customs expects to implement this p ing change by 

January 2002. 

Recommendation 

The Commissioner of Customs should perform a 

determine the extent to which the problems identi 

occurring in the other types of merchandise move within Air AMS 

and take action to address those problems. 

Manaeement Rest~onseand OIG Comment 


Customs concurred with and was taking or planned 


OIG believes will address the recommendation. In 


stated it had identified the permits-to-transfer and i 


areas where corrective action was required. Customs' OIT was 


performing an analysis of those areas. Because of 


programming and testing required, Customs expect 


completed in January 2002. 


Recommendation 

The Commissioner of Customs should ensure ade 

manifesting and merchandise entry processes are 

design and development of any new automated cargo processing system. 

Management Response and OIG Comment 

Customs concurred with and planned to take actio the OIG believes 

will address the recommendation. In its response 

stated it would consider the Air AMS issues rep0 

AUDIT OF US CUSTOMS SE Page 26 
corrective actions taken in its planning of a new automated cargo 

processing system. 

Recommendation 2-7: 

The Commissioner of Customs should consider identifying the control 

deficiencies with Air AMS as a material weakness under the Department 

of the Treasury Federal Managers' Financial Integrity Act process. 

Management Response and OIG Comment 

Customs concurred with the OIG recommendation and stated in its 

response that it was performing an analysis regarding the control 

deficiencies reported by the OIG. Customs expected to complete the 

analysis in October 2000. 

OIG-01-024 AUDIT OF US CUSTO S SERVICE'S AIR AMS age 27 
Air Waybill 

Automated Broker 

Interface (ABI) 

Cargo Manifest 

Confidence Interval 

Expected Error 

In-Bond Shipment 

Informal Entry 

Lower Error Level (LEL) 

Permit-to-proceed 

p Value 

Upper Error Level (UIEL) 

ent that describes 

on an aircraft and other pertinent 

A module within ACS that allows brokers and importers to 


electronically communicate with C 


entry documents and obtaining ins 


Air carrier summary document co of all individual 


air waybills for cargo onboard an . Required of air 


carrier on or before an aircraft's 


The probability an estimate lies withima a specified range 


given desired precision. Generally state in conjunction 


with precision; e.g. 95% confidence #us or minus 5%. 


The amount of error that will be tolerated in sampling 


estimates. Commonly referred to as precision. Can be 


calculated in absolute (numbers 


terms depending on how results 


should fall within actual lower a 


Movement of cargo from the first port 


f'iial destination port. Entry or export documents are 


required at destination port. 


Incoming cargo with declared value of lnot more than 


$2,000. No entry documents required by Customs. Cargo 


can be released through Section 1321 af 119 USC. 


The lower amount of error that will be 


sampling estimate. 


Authorization to move cargo from fist 


destination port. Permitted only where eargo does not 


leave the aircraft. 


Authorization to move cargo under ban from a sarrier to 


a CFS within the same port. 


The variation in or proportion of quaEirtaaive characteristics 


of a population or universe. Used to ine sample size 


for attribute sampling. Generally, 50% is a conservative 


p Value if population variation is not well known. 


The higher amount of error that will be 


sampling estimate. 


IT OF US CUSTOMS SERVICE' age 2 
The audit objective was to determine if Customs controls were adequate to ensure inspection of 

all arriving air cargo prior to its release into commerce as required by 19 CFR. The OIG 

focused on arriving air cargo reported (manifested) on Customs Air AMS and transferred to a 

non-AMS CFS for which there was no evidence of entry or clearance in ACS; i.e., an 

electronic manifest to a paper entry document. The OIG then focused on the potential impact 

on Customs' revenue collections, trade compliance and contraband enforcement efforts of the 

electronically manifested air cargo not being properly inspected or released by Customs. 

The audit was conducted in accordance with the Government Auditing Standards issued by 

Comptroller General of the United States and included such tests that were deemed necessary. 

The OIG fieldwork was conducted between September 1998 and October 1999 at Customs': 

(1) Headquarters in Washington, DC; (2) Office of Information And Technology (OIT) in 

Newington, Virginia; and (3) offices at airports in Los Angeles and San Francisco, California; 

Miami, Florida; Chicago, Illinois; New York City, New York; and Atlanta, Georgia. 

At Customs Headquarters and OIT, the OIG obtained, reviewed and discussed with program 

officials background information on the Air AMS program. The OIG obtained information on 

the level of AMS program participation by air carriers and CFSs at 27 of the 29 AMS aip 

as well as the processes, procedures, programming codes and controls over manifesting, 

transferring and releasing of cargo within the Air AMS and ACS. The OIG did not include 

its audit 2 AMS courier hubs in Ontario, California, and Charlotte, North Carolina, because

those hubs were mostly engaged in electronic manifesting and entry. 

At the 01G9srequest, the Customs OIT programming group in Newington, Virginia, 

developed a program that could match the AMS manifest information to the cargo entry 

information in the ACS. With this special program, Customs was able to identify and extract 

information on air waybills at the 27 AMS airports for merchandise manifested on the AMS ' 

FY 1998 and transferred to a non-AMS warehouse for which there was no evidence of entry 

release in the ACS. Customs provided the OIG access to ACS. With the aid of Customs sta 

at LAX, OIG performed parallel testing to ensure the validity of the program and audit 

methodology. However, the OIG was not able to check the completeness of the data provid 

by OIT. Program and methodology development required 6 months. 

The OIG selected 6 AMS airports for audit testing purposes. The period for audit testing 

purposes was FY 1998. The 6 airports selected represented about two-thirds of the FY 1998 

Air AMS waybills identified by the Customs program as having no evidence of entry or 

release. The OIG did not select the Anchorage airport even though it was first on the list 

because most cargo arriving at that airport was reportedly moving to other airports in the lower 

48 states under permit to proceed authorizations. 

OIG-01-024 A IT OF US CUSTOMS SE Page 
Using the services of a statistician, the OIG employed attribute sampling techniques to €

determine the number and related fines and penalties on those air waybills for which proper €

entry or release was not found and to compare the results achieved at one AMS airport to €

another AMS airport. The OIG randomly selected 7 days from a Julian calendar to dete €

the sample for audit testing purposes. The OIG set a conservative pValue of 50 percent to €

achieve a much larger than needed sample. €

The OIG used a 95 percent confidence interval to determine the level of precision expected 

from the sampled data. The audit methodology used a single decision (a yes or no conditia 

to determine an exception to Customs' business processes and inspections. Audit control 

were set at 1.96 standard deviations above and below the mean which means 95 percent o 

sample was expected to fall within those limits. Overall precision achieved for all 6 AMS 

airports was a LEL of 1 percent and an UEL of 3 percent, within expectations and suitable for 

projection purposes. 

Customs OIT group provided detailed information on 2,068 air waybills for the 7 days at the 

airports where the special program found cargo was transferred to a non AMS warehouse 

for which no evidence of entry or clearance was found in the ACS. The OIG reviewed the 

information in the ACS on all 2,068 waybills in the sample and eliminated those where an 

entry was found and those that were in-bond movements, duplicate records, deleted recor 

shell records and low risk cargo, such as paper, documents and medical materials. After 

elimination, 1,03 1waybills required proof of entry and/or release. 

The OIG provided the Customs directors at the 6 selected airports detailed information on

remaining 1,031 waybills and requested them to provide proof of entry and inspection or 

release by Customs. The directors reported their results to the OIG and provided all 

documentation relating to those air waybills where proof of entry or release was not found 

fines and penalties were assessed. The OIG visited or telephoned Customs at the 6 airports 

review and discuss the fines and penalties assessed and to verify at least 10percent of those 

waybills where Customs reported finding evidence of entry or release. 

The OIG used the random sample results at the 6 airports for two projections. The first €

projection estimated the number of waybills in the 1998universe that lacked evidence of €

proper entry or release at those 6 airports and the related total fines or penalties. The nu €

of waybills lacking evidence of entry or release and the related fines and penalties at the o €

21 AMS airports were estimated based on the combined results of the 6 selected airports. €

The second projection estimated the magnitude of the misuse of the Air AMS in FY 1998 €

quantified the monetary impact in terms of potential fines and penalties. The OIG identified €

016-01-024 A IT OF US CUSTOMS SERVICE'S AIR 

the waybills in the sample containing errors or evidence of misuse and calculated an error or 


exception rate for the random sample. This exception rate was used to estimate the 


waybills with evidence of errors or misuse of the system in FY 1998. The OIG use 


results to determine a range of fines and penalties Customs could have but elected 


the trade for misusing AMS. The lower range or estimate was based on a $1,000 fine 


penalty for failing to maintain proper records. The higher range was based on a fine an 


penalty calculated as the greater of the $1,000 record keeping fine or the fine based on 


declared weight of the manifested merchandise. 


Because the cargo had been released into commerce and information in the Air AMS was 


inadequate, the OIG was not able to determine lost revenues from duties and tariffs, viol 


of trade laws or instances of contraband smuggling. 


Because the audit focused on the system, the size of the audit sample was not sufficient for 


OIG to detect possible pattern and practice of improper or illegal activity by individual 


carriers, CFS operators, brokers, importers or other interested parties involved in the 


importation of merchandise. 

ROG AR 


Port €

Code €

3126 

2720 

5206 

3901 

4701 

1704 

2801 

3801 

3205 

0417 

4601 

5401 

3029 

2006 

4102 

5501 

3501 

2910 

4503 

2811 

1808 

4913 

2722 

5309 

4103 

1108 

1801 

1512 

2721 

U.S. Customs Service €

Air AMS Program Participation €

As Of September 30, 1998 €

Air Number of Warehouses 

Airport Location Carriers (1) AMS Non-AMS Total 

Anchorage, AK €

Los Angeles, CA (LAX) €

Miami, FL €

Chicago, IL (09Hare) €

New York City, NY (WK) 


Atlanta, GA €

San Francisco, CA €

Detroit, MI €

Honolulu, HI 


Boston, MA €

Newark, NJ €

Washington, DC €(Dulles)

Seattle, WA €

Memphis, TN €

Cincinnati, OH €

Dallas-Fort Worth, TX €

Minneapolis-Saint Paul, MN €

Portland, OR €

Saint Louis, €MO

Oakland, CA €

Orlando, FL €

San Juan, PR €

Las Vegas, NV 


Houston, TX €

Columbus, OH €

Philadelphia, PA €

Tampa, FL €

Charlotte, NC €

Ontario, CA €

Total - 29 Airports 127 -861 988

(1) 	 In total, 56 air carriers participated in the Air AMS program. Many of the 

carriers participated at more than one airport. 

Source: U.S. Customs Service €

IT OF U.S. CUSTOMS SERVICE'S AIR Page 32 €
AIR A 

U.S. Customs Service 


Universe Of Waybills In Air AMS 


With No Evidence Of Entry Or Release In ACS 


Fiscal Year 1998 


Port 

Code Airwrt Location 

Anchorage, AK 


Los Angeles, CA (LAX) 


Miami, FL 


Chicago, IL (O'Hare) 


New York City, NY (JFK) 


Atlanta, GA 
 !

San Francisco, CA 


Detroit, MI 


Honolulu, HI €

Boston, MA 


Newark, NJ 


Washington, DC (Dulles) 


Seattle, WA 


Memphis, TN 


Cincinnati, OM 


Dallas-Fort Worth, TX 


Minneapolis-Saint Paul, MN 


Portland, OR 


Saint Louis, MO 


Oakland, CA 


Orlando, FL 


San Juan, PR 


Las Vegas, NV 


Houston, TX 


Columbus, OH 


Philadelphia, PA 


Tampa, FL 


Total - 27 Airports (1) 

Waybills Percent 

35,581 24.3 

22,727 15.5 

18,525 12.7 

17,878 f 2.2 

14,986 10.2 

14,650 10.0 

8,236 5.6 

3,911 2.7 

2,901 2.0 

2,762 1.9 

1,115 .8 

599 04 

552 .4 

436 03 

365 e2 

349 02 

322 02 

179 .1 

100 01 

84 01 

66 01 

5 0 

3 0 

3 0 

2 0 

0 0 

-

0 -

0

146,337 1OOeO 

(1) 	 Appendix excludes AMS courier hubs at airports in Ontario, CA, and 

Charlotte, NC. 

Source: 	 Office Of Information And Technology 

U.S. Customs Service 

OIG-01-024 AUDIT OF U.S. CUSTOMS SERVICE'S AIR Page 33 
-- 

- 

U.S. Customs Service 

OIG Random Sample Of 

TOTAL SA.MPLE 

OIG ELIMINATIONS: 

Entries Found €

Low Risk Shipments €

Others €

WAYBILLS NEEDING €

EVIDENCE OF ENTRY €

Legend: €

Needing Evidence Of Entry Or Release 

Fiscal Year 1998 

-

LAX -MIA JFK ATL SF0 -

Totals Percent

479 421 

(55) (3) 

(122) (242) 

@ l.9 

302 172 €

LAX Los Angela International Airport €

MIA Miami International Airport €

ORD O'Hare International Airport (Chicago) €

JFK John F. Kennedy International Airport (New York City) €

ATL Hartsfield International Airport (Atlanta) €

SF0 San Francisco International Airport €

Sampling Methodology: €

The OIG randomly selected 7 days in FY 1998 for audit testing purposes at the €

above six AMS airports. For each of those airports, Customs identified those €

waybills manifested in AMS that had been transferred to a non-AMS warehouse but €

for which there was no evidence in the ACS of entry or release. The OIG reviewed €

ACS for those 2,068 waybills and eliminated those waybills associated with informal €

entries, in-bond shipments, duplicate records, deleted records, shell records and low €

risk cargo such as documents, medical material, paper, etc. The OIG then €

requested each airport director to provide evidence of proper release or entry for €

the remaining 1,031 waybills. €

Source: . Office Of The Inspector General 

- -- -

OIG-01-024 A IT OF U.S. CUSTO Page 34 
Appendix 5 

U. S. Customs Service €

OIG Random Sampling Precision €

Fiscal Year 1998 €

Precision (2) 

Airport (1) Universe Percent Sample Expected EL Actual ITEL 

LAX 479 5.41 

MIA - 421 5.70 

ORI) 404 5.80 

JFK 304 634 €

ATL 293 6.65 €

SF0 167 8.49 €

Subtotal €

Others (21) €

Totals €

(1) See Appendix 4 for Airport Legend. €

(2) See Glossary for Definitions. €

Ex~lanationof Sam~linePrecision: €

OIG sampling was based on 95% confidence level i5% and a 50% pValue. sed on size of €

the individual airport and total sample, the OIG calculated the expected error level (EL) and €

compared it to the actual lo\\ er (LEI,) and upper (ITEL)error levels €achieve

instance, the expected error level was between the actual lower and upper €e

indicating the sampling results could be used to statistically project and for €

for FY 1998. As a result, the OIG is 95 percent confidant its projected results for FY 1998 are €

within 5% (k)of the actual amounts. €

Source: Office Of The Inspector General 

IT OF U.S. CUSTOMS SERVICE'S AIR AMS Page 35 
- 

Airport (1) 

Lfi (2) 

MIA 

ORD 

JFK 

ATL 

SF0 

Subtotal 

Others (3) 

Totals 

U.S. Customs Service 

Projected Fines And Penalties On Universe Of 

S Air Waybills Lacking Evidence Of Entry Or Release 

Fiscal Year 1998 

Sample Results Projected Results 

Number of Amount sf Number of Amount of 

Waybills Fines & Penalties Waybills Fines & Penalties 

-55 $136,918 3,053 $6,517,619 

(1) See Appendix 4 for Airport Legend. 

(2) LAX random sample fmes and penalties include $47,640 of fmes and penalties that were 

assessed during methodology testing but not used to project to LAX universe. 

(3) The 21 airports exclude AMS airports (courier hubs) at Ontario, CA and Charlotte, NC. 

Source: Office Of The Inspector General 

OIG-01-024 AUDIT OF U.S. CUSTO S SERVICE'S AIR AIMS Page 36 
Airport (1) Arrival Date 

LAX  02/15/98 

02/15/98 

09/09/98 

12/17/97 

12/17/97 

MIA 

JFK 

ATL 02115/98 

Fiscal Year 1998 

Customs Case Number Fin. enalties 121 

1999272030016101 

1999272030016201 

1999272030016301 

1999272020203501 

19992'72020203401 

Port Total 

2000520630000401 

2000520630000501 

Port Total 

1999470130042301 

1999470120377901 

1999470120378101 

1999470120378001 

1999470130042401 

1999470130042701 

1999470130042901 

1999470130042801 

1999470130042201 

1999470130042501 

1999470120379701 

1999470130042601 

1999470120378301 

1999470120379501 

1999470120378201 

1999470120379601 

1999470120378401 

1999470120379401 

1999470120378501 

1999470120379001 

1999470120379101 

1999470120379301 

1999470120379201 

Port Total 

1999170420043401 

Grand Total 

(1) See Appendix 4 for Airport Legend. 

(2)  Fines and penalties assessed for violating 19 CFR, including 

arrival, hold merchandise, file accurate manifest and keep ram-&. No penalties 

were assessed by Customs at ORD or SFO. 

Source: US. Customs Service 

IT OF U.S. CUSTOMS SE Page 37 
U.S. Customs Service €

Fines And Penalties Assessed By Customs €

During OIG Methodology Testing €

Fiscal Year 1998 €

Airport (1) Arrival Date Customs Case Number Fines & Penalties (2) 

LAX $ 5,000 

1,Ooa' 

1,000 

1,000 €

1,000 

5,000 

1,m 

1,m 

1,m 

1,000 

1900 

26,300 

2,340 €

Grand Total $47.640 €

(1) See Appendix 4 for Airport Legend. 

(2)  Fines and penalties assessed for violating 19 CFR, including failure to report 

arrival, hold merchandise, fie accurate manifest and keep records. Fines and 

penalties assessed in methodology testing were not used to project sampling results 

to LAX universe. 

Source: U.S. Customs Service 

IT OF U.S. GUSTO S SERVICE'S AIR AlMS Page 3 

A revenue enhancement is an action recommended in an OIG audit report which would, if 

implemented, enhance the General Fund receipts of the Federal Government, usually without 

having any budgetary impact on any of the Department of the Treasury's appropriations. The 

following potential revenue enhancement will be recorded in the Inventory, Tracking and 

Closure system (ITC) upon issuance of our final report. The potential revenue enhancement 

will also be included in the OIG Semiannual Report to the Congress. 

Potential Revenue 

Recommendation Number Enhancement 

Finding 1- Recommendation 2 $136,918 

The above recommendation relates to fine and penalties that were assessed by Customs as a €

result of this audit. It is Customs management's responsibility to record the actual revenue €

enhancements realized in the ITC for the collection of these fine and penalty assessments. €

IT OF U.S. CUSTOMS SERVICE'S AIR €
-- 

DATE: 

FILE: AUB-I-OP MD 

MEMORANDUM FOR DENNIS SCHlNDfL 

ASSISTANT INSPECTOR GENERAL 

FROM: 	 Director, 

Office of Planning 

SUBJECT: 	 Draft Audit Report on the United States Customs 

Service'!, Alr Automated Manifest Program 

Thank you for providing us with a copy of your draft report entitled "U.S. 

Customs Service's Air Automated Manifest System " (Air AMS) ansl the 

opportunity to dfscuss the issues in this reportCustoms concurs that the substance of the OIG review is accurate and 

does not disagree with its general or technicat amtent, except for 

treatment of local transfers being described asa mck"of the ACS 

system. Customs has taken a number of steps to address the issues 

identifled during your review. These steps, and additional on-going 

actions, are outtined in the attached document, as are Customs 

comments on this draft report. Additionatly, a supplemental page 

outlining informatian about local transfer authoflzations is included as a 

separate attachment, 

We have determined that the information in the audit does not warrant 

protection under the freedom of InformationAd. 

If you have any questions regarding the attached comments. please have 

a member of your staff contact Ms. Brenda Bmckrnan at (202)927-1507. 

Attachments 

OIG-01-024 IT OF U.S. CUSTOMS SERVICE'S FalT Page 41 
Page 2 of 8I 

Recommendation f -1 

The Commissioner of Customs shoufd ensure the fines and penalties 

assessed as a result of the 01G audit were appropriate and the interested 

to circumvent in ection of the merchandise 

as required by I9 CFR. 

_II 

Comment: 

Custums mcurs with this recommendatfun and does not drspute the 

statistics calected during the OIG audit Customs emphasizes to the field 

the importance of assessingfines and penalties correctly and without 

prejudice. Since the OIG audit, Customs has enacted new regulations, 

with Treasury Decision 99-29. that outline the execution of fines and 

penalties, as well as new mitigation guidelines that emphasize collection 

of duties, taxes and fees. 

In determining circumvention by another party to avoid Customs fines and 

penalties. Customs is expiaring mattion of a national post audit database 

and associated reports or query capabilities. This would aid in spotting 

suspicious trends or inconsistencies from the trade that would signify the 

possibility of noncompliance. The infamation gathered from these 

reports could be shared within the port and between ports as part of a 

national database. 

The creation of such a database will require programming within the ACS 

system. Expected date of completion will be October 2002. The target 

date is based on programming and testing that would be required before 

actual implementation. 

-

Recornmen

The Commissioner of Customs should ensure the prompt collection of the 

$136.9 18 of fines and penalties assess in the OfGaudit. 

016-01-024 A IT OF U.S. CUSTOMS SERVICE'S Page 42 €
Customs concurs 

To ensure that ures are being adhered to. Headquarters 


is updating e P ,emphasizing p 


guidelines to give field penomel consktent instruction during an audit 


inquiry. Customs is also planning to indude in the directive that any 

penafties uncovered during a post audit shoutd not be discretionary and 

should be pursued. 


To aid in the collection of assessed penalties and dairns for liquidated 

damages, Customs recently promulgated surety sanction procedures. 

These procedures glve early notice of claims to sureties who assist in the 

encouragement af case resolution with their bond prindpals. As a result, 

many cases have been settled. 

The items addressed in this r mmendation are presently being 

implemented. Expected date of completion will be March 2001. 

Recommendation2-9 

Ths Cornmissioner of Customs should establish controls to measure 


trade community compliance with Air AMS requirements. es 

the use of spectal programmingfeatures for automatic release and local 


permits-to-transferto ensure all merchandise is inspected prior to release 


into the commerce. 


Comment: €

Customs concurs with this recommendation and will implement the 

following short-term deliverable controls: (1 ) Customs can closely 

monitor ail carrier transmissions for correct use of the permit-to-transfer, 

in-bond. and purrnit to proceed fundions during the first 45 days of AAMS 

participation. If deficiencies are found, referrals to the appropriate Client 

Representativescan be made for immediate corrective adion; 

(2)AAMS inspectors can perfom cursory audits on AAMS carriers 

targeting the three movements described above: and (3)Mandatory post 

audits can be performedwithin the first 6 months of new camer AAMS 

participationto ensure continued compliance. Subsequent audits should 

be performed according to results of the initiat audit. 

016-01-024 AUDIT OF U.S, CUSTOMS SERVICE'S AIR 

-- 

The short-te 

with the iss 

The target date fw the mid to long term contrds is October 2002. The 

target date is based on programming and testing that would be requir 

before actual implementation. 

The Commissioner of Customs should pmvlde al system users. induding 

Customs Inspectom. more and better training over the use of Air AMS to 

Improve the quality and usefulness of system information. 

Comment: 

Customs conarm with the recommendation. Customs has recently 

completed an Air Automated Manifest System user Guide and develop 

classroom training on AAMS for Customs personnel. A team of national 

trainers has been created to conduct thistraining. Three classes have 

been conducted since inception in August 2000. The first class was a 

Srain the trainer" class for instructon. The second two classes provided 

training for field inspectors. Additional desses will be scheduled in this 

and coming fiscal years. 

The Cl~entRepresentative Branch of Customs has also received training 

in Air AMS In September 2000. The Client Representatives have recently 

been assign to assist the Trade with AAMS issues. Each carrier. 

deconsolidator. and freight forward s an sssigned Client 

Representatbe ta assist them with S issues. 

dressed ;in this n are presently bein 

. Expected dat is October 2007. 

IT OF U.S. CUSTOMS Page 
of Customs should manito 

Comment: 

Customs concurs with the recommendation. In the fast year. Customs 

enacted Treasury Dedsion 99-29. (March 2000)which outlines new 

guidelines for the assessment of fines and penabs. liquidated damages 

for cargo rntsdeliveriesand general order me These guidelines 

also allow fo of higher fine ama authorize field 

personnel to es on violattons ne 

regulation. The directive also outlines new rn n procedures that 

emphasize the collection of duties, taxes and . By uti11zing these 

guidelines. this signifi that Customs is making a vigorous effort in the 

enforcement of trade compliance. 

The items addressed in this recommendation are presently being 

implemented. Expected date of completion is October 2001. 

The Commissioner of Customs should determine the extent to which the 

control problems associated with the local permit-to-transfer programming 

feature in Air AMS affects other Customs programs. rting, and 

special projects-such as the Tin Man Pmject-and take corrective action. 

Comment: 

Customs conatrs with the recommendation. A short-term deliverable 

contml would be to conduct as many post audits of local transfers to nonautomated deconsalidaton as ailowed by staffing. Any identified 

problems relating to the local transfer function should be referred to the 

carrier or deconsotidator's respective Client Representathe for corrective 

action if systemic in nature or to enfarcement personnel if criminal in 

nature. Future audits would be dependent on results of the initial audits. 

Thjs itemwill be addrassed along with the increase of uniform post audits 

along with the publication of the Post audit Ditectjve in March 2001. 

AAMS currently does not have an edit that will reject the local transfer if 

the FIRMS wde is not wlhin the transfer port. A mid-terrn deliverable 

~0ntt0lto prevent e neous permit-to-transfer autho tions when the 

OIG-01-024 A IT OF U,S, CUSTOMS SERVICE'S AIR Page 45 
2. The target ate is based on 

uired before actual 

implementation. 

identified in this report 

vements within Air 

Comment:-
-- 

ANAG ON €

The Commission €

-* 

Comments: €

Customs concurswith this recommendation andwill consider the s 

and subsequent conective actionsin its planningfor a new autorn 

cargo processingsystem. 

A target date concerningthis issue is not applicable at this time. 

ioner of Customs should consider identifying the co 

ithAir 'MS as a materialweakness underthe Dep 

of the Treasury F era1Managers' Financial Integrity Act process. 

Comment: .-

Customs cancurs with this tecommendatim and is currently 

an analysis regarding this issue. The analysis is scheduled for 

completion by October 30.2000. 

016-01-024 A IT OF U.S. CUSTOMS SE €
+he Air Automated Manifest 

this manifest system. When 

to transfer) from an canier to a nonlautomated de 

AAMS will "raconcii . This does not releasethe freig 

mmmerce of the US., but a nsfer of the height 

premises to the deconsolida . the intent of the t 

waybill was to indicate to the in at the bRls being trans 

automated facility could not be electronically for entry 

Permit-to-lransfer sumo-atlon is granted wtth e "1-F locei t 


message that is sent to the carrier. It is not a "16 General E 


is an authorizationfor &ease into the come 


will maintain a pa trail of Me freight, requiring an entry or ent €

release is autho into the commerce of the US. Post Audit €

visit these non-automated sites to ensure compliance with t €

of nreretrandtse. 


A feature of Sefectivlty processing allowed for 

manifest when the entry matched an air waybill i 

lready marked as 'reconciled"; the matching of 

e a change in the air waybill record. Due to this b 

"undocumentedfeature"of AAMS, it has not always been utilize 

audit of the non-automated decunsolkjators. Post Audits of this 

expected to focus on rev of the paper documents (transfe 

orders, etc.) at the demnsolidator'sprern-s. 

OIG-01-024 A IT OF U.S. CUSTOMS SEWICE'S Page 
Office €Of The Inspector General 

Benny WeLee, Regional Inspector General for Audit (San Francisco) 

icklander, Audit Manager 

Gale H. Dwyer, Auditor-In-Charge 

Paul D. Thomas, Auditor 

Heshmat Ansari Ph.D, Statistician

OIG-01-024 AUDIT OF U. CUSTOMS SERVICE'S AIR Page 49 
U.S. Department Of The Treasury 

Office of the Under Secretary of the Treasury for Enforcement 


Office of the Assistant Secretary for Management and Chief Financial Officer 


Office of Strategic Planning and Evaluation 


Office of Accounting and Internal Control 


U.S. Custom Service 

Commissioner 


Assistant Commissioner, Office of Field Operations 


Assistant Commissioner, Office of Information and Technology 


Assistant Commissioner, Office of Internal Affairs 


Executive Director, Field Operations, Office of Field Operations 


Director, Trade Programs, Office of Field Operations 


Director, ACS Application Development, Office of Information and Technology 


Director, Office of Planning, Office of the Commissioner 


Director, Customs Management Center - South Pacific 


Director, Customs Management Center - Mid Pacific 


Director, Customs Management Center - Mid America 


Director, Customs Management Center - New York 


Director, Customs Management Center - South Atlantic 


Director, Customs Management Center - South Florida 


Port Director, Los Angeles International Airport, Los Angeles, CA 


Port Director, San Francisco International Airport, San Francisco, CA 


Port Director, O'Hare International Airport, Chicago, IL 


Port Director, Atlanta - Hartsfield International Airport, Atlanta, 
GA

Port Director, Miami International Airport, Miami, FL 


Area Director, JFK International Airport, New York City, NY 


Office Of Management And Budget 

OIG Budget Examiner 

IT OF U.S. CUSTO S SERVICE'S AIR Page 50