United States Government Accountability Office

GAO Report to the Committee on Finance, 

U.S. Senate 

April 2007 

 

INTERNATIONAL 

TRADE 

Persistent Weaknesses 

in the In-Bond Cargo 

System Impede 

Customs and Border 

Protection’s Ability to 

Address Revenue, 

Trade, and Security 

Concerns 

On May 18, 2007, the Web version of this report was amended to 

reflect the correct source line in the Highlights page graphic.

GAO-07-561 
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

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www.gao.gov/cgi-bin/getrpt?GAO-07-561.

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and methodology, click on the link above. 

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Highlights of GAO-07-561, a report to the 

Committee on Finance, U.S. Senate 

 

April 2007

INTERNATIONAL TRADE 

Persistent Weaknesses in the In-Bond 

Cargo System Impede Customs and 

Border Protection’s Ability to Address 

Revenue, Trade, and Security Concerns 

The in-bond system is designed to facilitate the flow of trade; however, CBP 

does not know the extent of the in-bond system’s use as a result of lax 

oversight. The system allows cargo to be transported from the arrival port, 

without appraisal or payment of duties, to another U.S. port for official entry 

into U.S. commerce or for exportation. Although the in-bond system is 

estimated to be widely used, CBP cannot assess the extent of program use 

because it collects little information on in-bond shipments and performs 

limited analysis of data that it does collect. 

Despite numerous program reviews and audits that identified problems in 

CBP’s management of the in-bond system, weaknesses persist and continue 

to impede CBP’s ability to ensure proper collection of trade revenue and 

management of trade risks. The major weakness is that CBP does not 

adequately monitor and track in-bond goods. In particular, it does not 

consistently reconcile in-bond documents issued at the arrival port with 

documents at the destination port to ensure that the cargo is either officially 

entered with appropriate duties or quotas applied, or is in fact exported. 

CBP records show that many in-bond cargo shipments remained 

unreconciled, or “open,” with one port reporting that 77 percent of its inbond transactions were open. Also, in-bond regulations provide unusual 

flexibility for the trade community, but create challenges for CBP in tracking 

movements. Finally, some CBP ports do not consistently perform in-bond 

compliance reviews which could identify weaknesses and possible solutions.

The limited information available on in-bond cargo also impedes CBP efforts 

to manage security risks and ensure proper targeting of inspections. In-bond 

goods transit the United States with a security score based on manifest 

information and do not use more accurate and detailed entry type 

information to re-score until and unless the cargo enters U.S. commerce. As 

a result, some higher risk cargo may not be identified for inspection, and 

scarce inspection resources may be used for some lower risk cargo. 

Port Estimates of Percentage of In-Bond Records Remaining Open in FY 2005 

Percentage of open records

Source: GAO analysis of CBP data.

Port location

0

10

20

30

40

50

60

70

80

Buffalo Newark JFK Seattle Blaine Laredo

The U.S. Customs and Border 

Protection (CBP) must strive to 

balance its competing goals of 

facilitating trade, providing port 

security, and collecting trade 

revenues. CBP’s in-bond system, 

which allows goods to transit the 

United States without formally 

entering U.S. commerce, must also 

balance these goals. In response to 

concerns that previously identified 

weaknesses in the in-bond system 

have not been remedied, GAO 

examined (1) the purpose of the inbond system and the extent of its 

use (2) CBP efforts to ensure that 

revenues are collected and trade 

concerns are minimized, and (3) 

CBP efforts to ensure that securityrelated inspections are properly 

targeted. GAO examined audit 

reports and agency documents, 

interviewed officials at CBP 

headquarters and at 10 CBP port 

offices. GAO also discussed the inbond system with trade groups 

impacted by the in-bond system. 

What GAO Recommends

GAO is recommending that the 

Commissioner of CBP take action 

in three areas (1) collect and use 

improved information on in-bond 

shipments to enable better 

informed decisions, (2) assess the 

systemic problems associated with 

identifying open in-bonds and take 

steps to resolve these problems, 

and (3) ensure that the compliance 

measurement system is performed 

to improve CBP’s in-bond 

management. DHS agreed with 

most of our recommendations in 

these three areas. 
Contents 

Letter 1

Results in Brief 2

Background 5

The In-Bond System Facilitates the Flow of Trade, but CBP Does 

Not Know the Extent of Its Use 7 

In-Bond System Management Weaknesses Impede CBP’s Ability to 

Ensure Proper Collection of Trade Revenues and Address Trade 

Concerns 17

Limited Information Collected on In-Bond Cargo Impedes CBP 

Efforts to Manage Security Risks 26 

Conclusions 30

Recommendations 31

Agency Comments and GAO Response 33 

Appendix I Objectives, Scope, and Methodology 37 

Appendix II Comments from the Department of Homeland 

Security 39 

GAO Comments 43 

Appendix III GAO Contact and Staff Acknowledgments 44 

Table 

Table 1: Comparison of Data Requirements for Entry Summary and 

In-Bond Forms 18 

Figures 

Figure 1: Process for IT, T&E, and IE In-Bond Movements 9 

Figure 2: Value of All U.S. Imports by Fiscal Year, 1998 to 2006 12 

Figure 3: Number and Percent of In-Bond Transactions by Type, 

October 2004 through March 2005 15 

Figure 4: Number of In-Bond Transactions by Type for Selected 

Ports in Fiscal Year 2005 16 

Figure 5: CBP Estimate of Percentage of In-Bond Records 

Remaining Open for Fiscal Year 2005 22 

Page i GAO-07-561 CBP In-Bond System
Figure 6: Change in ATS Target Score after Obtaining Entry 

Information for Selected Ports 29 

Abbreviations 

ACE Automated Commercial Environment 

ACS Automated Commercial System 

AMS Automated Manifest System 

ATS Automated Targeting System 

CBP Customs and Border Protection 

DHS Department of Homeland Security 

FDA Food and Drug Administration 

FTZ Foreign Trade Zone 

HTS Harmonized Trade Schedule 

ICE Immigration and Customs Enforcement 

IE Immediate Exportation 

IT Immediate Transportation 

OFO Office of Field Operations 

OIT Office of Information Technology 

T&E Transportation and Exportation 

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Page ii GAO-07-561 CBP In-Bond System
United States Government Accountability Office

Washington, DC 20548 

April 17, 2007

The Honorable Max Baucus 

Chairman 

The Honorable Charles E. Grassley 

Ranking Member 

Committee on Finance 

United State Senate 

The Honorable Max Baucus 

Chairman 

The Honorable Charles E. Grassley 

Ranking Member 

Committee on Finance 

United State Senate 

With the recent growth in global trade and U.S. imports, U.S. Customs and 

Border Protection (CBP) faces an increasingly heavy workload at the

nation’s ports. CBP has responsibilities related to facilitating trade, 

providing port security, and collecting trade-related revenues, which 

totaled about $28.5 billion in fiscal year 2006. To facilitate trade, the U.S. 

customs system allows imported cargo intended for either U.S. or foreign

markets to move from one U.S. port to another without being assessed 

U.S. duties or quotas and without officially entering U.S. commerce. This 

cargo referred to as an in-bond shipment—requires a responsible party to

be covered by a CBP-approved bond and agree to comply with applicable

regulations. Some CBP port officials have estimated that in-bond 

shipments represent from 30 percent to 60 percent of goods received at 

their ports. Over the past years, reports from GAO and other audit 

agencies have noted various internal control weaknesses in the CBP inbond shipment system. These weaknesses have sometimes allowed goods 

to be improperly diverted and sold in U.S. markets, thus avoiding duties 

and quotas and possibly also posing security risks. For example, according 

to an Immigration and Customs Enforcement (ICE) report, from 

September 1999 through December 2002, more than 7,500 in-bond 

shipments of wearing apparel were diverted from Los Angeles to 

customers throughout the United States, with an estimated loss of revenue 

to the United States of more than $100 million.

With the recent growth in global trade and U.S. imports, U.S. Customs and 

Border Protection (CBP) faces an increasingly heavy workload at the

nation’s ports. CBP has responsibilities related to facilitating trade, 

providing port security, and collecting trade-related revenues, which 

totaled about $28.5 billion in fiscal year 2006. To facilitate trade, the U.S. 

customs system allows imported cargo intended for either U.S. or foreign

markets to move from one U.S. port to another without being assessed 

U.S. duties or quotas and without officially entering U.S. commerce. This 

cargo referred to as an in-bond shipment—requires a responsible party to

be covered by a CBP-approved bond and agree to comply with applicable

regulations. Some CBP port officials have estimated that in-bond 

shipments represent from 30 percent to 60 percent of goods received at 

their ports. Over the past years, reports from GAO and other audit 

agencies have noted various internal control weaknesses in the CBP inbond shipment system. These weaknesses have sometimes allowed goods 

to be improperly diverted and sold in U.S. markets, thus avoiding duties 

and quotas and possibly also posing security risks. For example, according 

to an Immigration and Customs Enforcement (ICE) report, from 

September 1999 through December 2002, more than 7,500 in-bond 

shipments of wearing apparel were diverted from Los Angeles to 

customers throughout the United States, with an estimated loss of revenue 

to the United States of more than $100 million.

At your request, we addressed these issues (1) What is the in-bond system 

and to what extent is it used? (2) How has CBP managed the system to 

ensure that revenues are collected and trade concerns are minimized? and 

(3) How has CBP managed the system to ensure that security-related 

inspections are properly targeted? 

At your request, we addressed these issues (1) What is the in-bond system 

and to what extent is it used? (2) How has CBP managed the system to 

ensure that revenues are collected and trade concerns are minimized? and 

(3) How has CBP managed the system to ensure that security-related 

inspections are properly targeted? 

To meet these objectives, we reviewed project documentation and 

interviewed knowledgeable officials from CBP headquarters and selected

port locations. We interviewed officials and examined documents at the 

To meet these objectives, we reviewed project documentation and 

interviewed knowledgeable officials from CBP headquarters and selected

port locations. We interviewed officials and examined documents at the 

Page 1 GAO-07-561 CBP In-Bond System
six field operations offices processing the greatest numbers of in-bond 

transactions in 2005 (excluding in-bond transactions initiated by large 

couriers such as DHL, FedEx, and UPS). Major ports within those field 

operations offices include Buffalo, New York; Los Angeles and Long 

Beach, California; Laredo, Texas; Miami, Florida; New York, New York; 

Newark, New Jersey; and Blaine and Seattle, Washington. We also visited 

the Port of Dallas, Texas, which was identified by the Los Angeles CBP 

field office as a major inland destination port for in-bond goods. We 

examined CBP’s treatment of in-bond shipments in each of these ports and 

where possible we obtained data showing the number of in-bond 

documents processed. To identify previously identified in-bond internal 

control weaknesses, we reviewed GAO, Inspector General, and other audit 

reports on the in-bond program. We discussed the views of CBP 

headquarters and port management personnel regarding any revenue,

security, or other risks associated with processing in-bond cargo and with 

the actions taken to address these risks. We conducted our work in 

accordance with generally accepted government auditing standards. A 

detailed description of our scope and methodology is included in appendix

I of this report. 

The in-bond system is designed to facilitate the flow of trade throughout 

the United States; however, CBP does not know the extent of use of the inbond system because it collects little information on in-bond shipments 

and performs limited analysis of data that are collected. The system allows 

cargo to be transported from the arrival port, without appraisement of the 

cargo or payment of duties, to another U.S. port for official entry1

 into U.S. 

commerce or for exportation. The trade community believes the 

flexibilities provided by the in-bond system are needed to facilitate trade,

particularly allowing it to avoid congestion and delays at U.S. seaports 

whose infrastructure has not kept up with the dramatic growth in trade. 

For example, CBP reported that import values increased from $881 billion 

in fiscal year 1998 to an estimated $1.82 trillion in fiscal year 2006. The inbond system is estimated to be widely used; according to CBP records 

between October 2004 and March 2005, over 6.5 million in-bond 

transactions were initiated nationwide. However, CBP cannot assess the 

Results in Brief 

 1

The term “official entry” is used throughout this report to refer to the CBP process where

importers or shipping agents are required to provide accurate appraisement and 

description of goods, as well as other detailed entry information for goods intended for 

consumption in the United Stated. Through this process CBP also assesses appropriate 

duties and taxes on imported goods that will enter the U.S. Commerce. 

Page 2 GAO-07-561 CBP In-Bond System
extent of the program because it does not collect accurate information on 

the value and volume of in-bond cargo, and its analysis of existing data is 

limited to the number of in-bond transactions. For example, CBP officials 

at the Port of Los Angeles estimated that 40 to 60 percent of all imports 

arriving at the port in 2005 were transported in-bond, but they were unable 

to provide reliable data to confirm this estimate. 

Despite numerous program reviews and audits that identified problems in 

CBP’s management of the in-bond system, weaknesses persist and 

continue to impede CBP’s ability to ensure proper collection of trade 

revenue and management of trade risks. The major weakness is that CBP 

does not adequately monitor and track in-bond goods; in particular, it does 

not consistently reconcile the in-bond documents issued at the arrival port 

with documents at the destination port, to ensure that the cargo is either 

officially entered, with appropriate duties or quotas applied, or is in fact 

exported. For example, one of the ports with the highest amount of inbond traffic reported that up to 77 percent of their in-bond cargo 

shipments remained unreconciled, or “open.” Several factors contribute to

CBP’s inability to monitor these shipments. One is that CBP does not 

collect appropriate data or analyze available data to adequately manage 

the in-bond system and identify risks associated with revenue loss and 

trade violations. As a result, the agency has not been able to implement 

compliance measurements to assess revenue gaps and the effectiveness of 

trade compliance controls. A second factor is that the in-bond regulations 

provide unusual flexibility for the trade community, but create challenges

for CBP. The regulations currently allow bonded carriers from 15 to 60 

days,2

 depending on the mode of shipment, to reach their final destination 

and allow them to change a shipment’s final destination without notifying 

CBP. Also, administrative errors by both shipping agents and CBP staff 

contribute to the high numbers of open in-bond records. Finally, CBP 

continues to inconsistently perform in-bond compliance exams, with some 

ports not performing these exams at all and other ports only recently

beginning to perform them. Results from these compliance exams, when 

consistently performed, can aid port and CBP management in identifying

system weaknesses. 

The limited information available on in-bond cargo impedes CBP efforts to 

manage associated security risks and ensure proper targeting of 

 2

The carrier has 60 days by vessel, 30 days by land, and 15 days by air to deliver the in-bond

cargo to the port of destination or exportation. (19 C.F.R. 18.2 and 19 C.F.R. 122.118.) 

Page 3 GAO-07-561 CBP In-Bond System
inspections. CBP uses information from the manifest as an input in 

developing an initial screening score to establish inspection priorities. 

However, information from the manifest may lack detail and reduce the

quality of targeting. Carriers of goods officially entering commerce are 

required to present more detailed information on entry documents. As a 

result, in-bond goods transit the United States after the initial targeting 

based on less detailed information than goods that have been officially 

entered with required information. In addition, scarce inspection 

resources are misdirected to in-bond goods that a security score based on 

better information might have shown did not warrant inspection. Recent 

CBP data for four large ports showed that security screening scores for 

cargo increased 23 percent of the time and decreased 47 percent of the 

time after information from entry documents had been considered. 

In this report, we are making recommendations in three general areas. 

First, to improve the level of detail in information available on in-bond 

cargo, we are making several recommendations to allow CBP to make 

better management decisions regarding trade, revenue, and security 

concerns. Second, to improve monitoring of in-bond cargo, we are 

recommending that CBP assess the systemic problems associated with 

identifying open in-bond transactions, take steps to resolve these 

problems, and improve the agency’s ability to track and close open inbond transactions. Third, to make the in-bond compliance measurement 

program a more effective monitoring tool, we are recommending that CBP 

ensure that compliance measurement exams are consistently conducted to 

inform CBP management of needed corrective actions. 

We provided a draft of this report to DHS for review by CBP and ICE, and 

DHS agreed with most of our recommendations in all three areas. In the 

area of improving in-bond information, DHS agreed with three of our five

recommendations. DHS disagreed with one recommendation, stating that

it would change the nature of in-bond transactions and increase costs. 

DHS was also concerned that another recommendation called for 

improved information in a system that would not enhance CBPs’ 

antiterrorism efforts. We modified our recommendations in these areas to

address DHS concerns. In the area of improving CBP monitoring of open 

in-bond transactions, DHS agreed with three of our five recommendations. 

DHS stated that CBP had met the intent of our recommendation to ensure 

that bondholders close in-bond documents within required time frames. 

We modified this recommendation to emphasize that a more systematic 

enforcement strategy is needed. DHS also disagreed with our 

recommendation that CBP should prioritize their efforts to close open inbonds based on risk. Given limited CBP resources and the high number of 

Page 4 GAO-07-561 CBP In-Bond System
open in-bond transactions, we maintained our recommendation regarding

the need for prioritization. In the area of improving CBP’s compliance 

measurement program, DHS agreed with our recommendations. CBP also 

provided technical comments, which we have incorporated in this report 

as appropriate. 

Provisions for the in-bond-type movements of cargo date back to the 

1800s, although current authority for in-bond movements is contained in 

the Tariff Act of 1930, as amended.3

 Under the current system, 

merchandise arriving from foreign countries can be authorized to move inbond, without appraisement of the merchandise or payment of duties, 

from a port of arrival to any other U.S. port to be officially entered into 

U.S. commerce or exported. Several parties can be involved in an in-bond

transaction, including the importer and shipping agents such as carriers 

and customs brokers. 

Background 

In-bond goods must be transported by a carrier covered by a CBPapproved bond that allows goods that have not yet entered U.S. commerce 

to move through the United States. Such carriers can move goods by ship, 

truck, rail, plane, or any combination of these. The bond is a contract 

given to ensure performance of obligations imposed by law or regulation

and guarantees payment to CBP if these obligations are not performed. 

The three parties involved in a CBP bond are (1) the principal, which can 

be an importer, broker, carrier, or other business entity; (2) a surety 

authorized by the Department of the Treasury to write CBP bonds, 

normally an insurance company; and (3) CBP, which would be the 

beneficiary of the bond if conditions are not met. If CBP finds that the 

bonded party has violated laws or regulations in moving the in-bond 

goods, it can take action to recover against the bond. 

CBP is the unified border agency within the Department of Homeland 

Security (DHS) charged with the mission of preventing terrorists and 

terrorist weapons from entering the United States, while also facilitating 

the flow of legitimate trade and travel. This agency, with its more than 

40,000 employees covering 308 ports of entry, is responsible for the inbond process and controls and protects the nation’s borders. CBP’s Office 

of Field Operations (OFO) is the primary CBP component responsible for 

enforcing customs, immigration, and agriculture laws and regulations at 

 3

Sections 552 and 553 of the Tarriff Act of 1930, as amended (19 U.S.C. 1552 and 1553). 

Page 5 GAO-07-561 CBP In-Bond System
U.S. borders, including in-bond regulations. OFO maintains programs at 20 

field operation offices, 308 ports of entry, and 14 preclearance stations in 

Canada and the Caribbean. Port directors oversee points of entry in their 

operational areas, where virtually all conveyances, passengers, and goods

legally enter and exit the United States. 

To carry out its trade-related obligations, CBP relies on information 

systems and management processes to help its staff track, control, and 

process all commercial goods imported into the United States. The agency 

is in the midst of modernizing its current trade processing system, the 

Automated Commercial System (ACS). CBP is currently replacing ACS 

with the Automated Commercial Environment (ACE) system in 11 

increments, referred to as “releases,” to be completed in approximately 

8 1/2 years. When the system is fully operational, it is expected to provide 

an improved technology foundation for CBP border security and trade 

activities. We have periodically reported on the development of the ACE 

system. Most recently, we reported that CBP faces long-standing 

management challenges and new risks associated with the development of 

ACE.4

Since the 1990s, a number of audits and program reviews completed by 

GAO, the Department of the Treasury Inspector General, independent 

public accounting firms, and others have identified weaknesses in the inbond system. Among weaknesses identified were problems in monitoring 

and tracking in-bond records and in targeting and inspecting in-bond 

shipments, and inconsistent performance of the in-bond system’s 

compliance measurement program.5

 A 2001 Department of the Treasury 

Inspector General audit of the U.S. Customs Service’s6

 financial statements 

for fiscal years 1999 and 2000 found that its inability to close open in-bond 

records because of administrative errors and lack of appropriate system 

 4

GAO, Information Technology: Customs Has Made Progress on Automated Commercial

Environment System, but It Faces Long-Standing Management Challenges and New

Risks, GAO-06-580 (Washington, D.C.: May 31, 2006). 

5

Two separate GAO reports completed in 1994 found that Customs could not readily 

determine the disposition of in-bond shipments. GAO, Financial Management: Control 

Weaknesses Limited Customs’ Ability to Ensure That Duties Were Properly Assessed,

GAO/AIMD-94-38, (Washington, D.C.: Mar. 7, 1994) and GAO, Financial Audit: 

Examination of Customs’ Fiscal Year 1993 Financial Statements GAO/AIMD-94-119, 

(Washington, D.C.: June 15, 1994). 

6

On March 1, 2003, the U.S. Customs Service was transferred to the new Department of 

Homeland Security and became part of U.S. Customs and Border Protection (CBP).

Page 6 GAO-07-561 CBP In-Bond System
checks impeded its ability to ensure that goods moving in-bond were not 

substituted or diverted into U.S. commerce without proper assessment. 

The Financial Statement audits for fiscal years 2002 to 2006 by an 

independent public accounting firm cited CBP’s lack of a reliable process

for monitoring in-bond shipments and inconsistent performance of its 

compliance measurement program, known as Tinman. 

The recently enacted Security and Accountability for Every Port Act of 

2006 (SAFE Port Act) contains several provisions related to securing the

international cargo supply chain against potential terrorist acts. Some 

provisions relate to the movement of in-bond cargo. Title IV requires that 

CBP submit a report to several congressional committees by June 30, 2007, 

including an assessment of whether ports of arrival should require 

additional information for in-bond cargo, a plan for tracking in-bond cargo 

in the ACE system, and an assessment of how to ensure reconciliation of 

in-bond cargo between arrival port and destination port. The report must 

also contain an assessment of the feasibility of reducing transit time while 

traveling in-bond, an assessment of the resources needed to complete the 

reconciliation of in-bond entries, and an evaluation of the criteria for 

targeting and examining in-bond cargo. 

The in-bond system facilitates the flow of trade by allowing importers and 

shipping agents to choose the ports at which their cargo is officially 

entered into U.S. commerce and duties are paid or quotas are assessed. 

The in-bond system also covers cargo that is not intended for official entry 

into U.S. commerce—that is, cargo that arrives at U.S. ports, transits the 

United States for exporting to another country (such as goods arriving at 

Los Angeles and moving to Texas ports for exporting to Mexico). U.S. 

importers and shipping agents may elect to use the in-bond system for 

several reasons, and the in-bond system has become an integral part of the 

trade process for some industries. CBP information on the number of inbond transactions indicates that the in-bond system is widely used. 

However, CBP collects limited detailed information on the in-bond system 

and has done minimal analysis of the extent and patterns of its use. 

The in-bond system facilitates the flow of trade by allowing cargo to be 

transported from the arrival port, without payment of duties, to another 

U.S. port for official entry into U.S. commerce or for exportation. There 

are three types of in-bond movements that importers and shipping agents 

can use (see fig. 1). One type of in-bond movement, known as “Immediate 

Transportation” (IT), allows merchandise arriving at a U.S. port to be 

The In-Bond System 

Facilitates the Flow of 

Trade, but CBP Does 

Not Know the Extent 

of Its Use 

The In-Bond System 

Facilitates the Flow of 

Goods 

Page 7 GAO-07-561 CBP In-Bond System
transported to another U.S. port where it is entered into commerce. 

Alternatively, IT in-bond shipments can be admitted to a bonded 

warehouse or Foreign Trade Zone (FTZ).7

 A second type of in-bond 

movement, known as “Transportation and Exportation” (T&E), covers 

merchandise “in transit” through the United States; such merchandise 

arrives at a U.S. port and is allowed to be transported through the United

States and exported from another U.S. port without the payment of duties. 

A third type of in-bond movement relates to cargo arrivals that are 

unloaded at the U.S. port, but are to be immediately exported from that 

same port without payment of duties. This is known as “Immediate 

Exportation” (IE). 

 7

For merchandise that is admitted into a bonded warehouse or FTZ, duties and taxes are

deferred until the goods are withdrawn for consumption. Goods may also be withdrawn

from a bonded warehouse for export, thereby avoiding the payment of U.S. duties and

taxes. Goods admitted to an FTZ may be further processed and incorporated into new 

products, such as automobiles or refined petroleum products. 

Page 8 GAO-07-561 CBP In-Bond System
Figure 1: Process for IT, T&E, and IE In-Bond Movements 

Sources: GAO analysis of CBP information.

1. If importer chooses to use an electronic in-bond form, it must be transmitted prior to 

good arriving.

2. Cargo arrives at a U.S. port, and it is allowed to transit to another U.S. port without 

making official entry for the purpose of being exported,

(a) If it's a paper in-bond, in-bond form is submitted to CBP at this point.

3. Shipper has 15 to 60 days to transport cargo, and it is allowed to change destination 

without notifying CBP. 

4. Shipper has 2 days to report arrival and 15 days to export the cargo.

5. At this point cargo can be 

(a) exported, 

 (b) placed in a bonded warehouse or in a Foreign Trade Zone (FTZ), or 

 (c) issued a subsequent in-bond.

Process for Transportation and Exportation (T&E) in-bond: 

Process for Immediate Transportation (IT) in-bond: 

U.S. port 

of official 

entry

1. If importer chooses to use an electronic in-bond form, it must be transmitted prior to 

good arriving.

2. Cargo arrives at a U.S. port, and it is allowed to transit to another U.S. port without 

making official entry, 

(a) If it's a paper in-bond, in-bond form is submitted to Customs and Border 

Protection (CBP) at this point.

3. Shipper has 15 to 60 days to transport cargo, and it is allowed to change destination 

without notifying CBP. 

4. Shipper has 2 days to report arrival and 15 days to enter cargo.

5. At this point cargo can 

(a) make official entry, 

 (b) be placed in a bonded warehouse or in a Foreign Trade Zone (FTZ), or 

 (c) be issued a subsequent in-bond.

warehouse, 

factory, or store

Cargo 

arrives at U.S. 

port

Cargo 

arrives at U.S. 

port

U.S. port 

of export

Bonded 

warehouse or exported

Cargo 

exported

Cargo 

exported

1. If importer chooses to use an electronic in-bond form, it must be transmitted prior to 

good arriving.

2. Cargo arrives at U.S. Port, and it is exported from that same port without making 

official entry:

 (a) If it's a paper in-bond, in-bond form is submitted to CBP at this point.

Process for Immediate Export (IE) in-bond:

4 5

3

3

3

3

5

4 1 2

Cargo 

arrives

at U.S. 

port

1 2

2

1

Page 9 GAO-07-561 CBP In-Bond System
The in-bond system is governed by a system of statutes, regulations and 

procedures that provide importers and shipping agents considerable 

flexibility. CBP regulations allow importers and shipping agents the ability 

to initiate and close in-bond transactions, to extend transportation time 

frames, and to make revisions in their destinations. Some of the features 

that complicate administration of the in-bond system include the 

following: 

• Documentation for in-bond transactions may be provided electronically or

on paper by using the in-bond form (CBP Form 7512). 

• For electronic in-bond transactions, shipping agents initiate and submit 

the form electronically to CBP prior to arrival through the Automated 

Manifest System (AMS) and close the in-bond transaction once the 

cargo is officially entered or exported. 

• For paper in-bond transactions, in-bond form is received at CBP at the 

time the in-bond shipment arrives at the port; CBP staff must enter the 

information manually and are responsible for closing the in-bond 

transaction once it is entered or exported. 

• The in-bond system allows extended periods for transportation and 

reporting of cargo movements. 

• Once the in-bond shipment leaves the arrival port, the carrier has from 

15 to 60 days, depending on the mode of shipment, to transport the 

merchandise to the destination port.

• The carrier then has 2 working days from physical arrival at the 

destination port to report the arrival. 

• The carrier then has 15 days from the time of arrival at the destination 

port to officially enter cargo (if movement was an IT) or export (if a 

T&E). 

• Carriers are allowed to change the destination port while in transit without 

notifying CBP, with some limited exceptions. 

• At the destination port, liability for the shipment may be transferred to 

another carrier with the filing of a subsequent in-bond (IT, T&E, or IE), 

allowing shipments to continue to move without making official entry. 

Page 10 GAO-07-561 CBP In-Bond System
The in-bond system allows the trade community to avoid congestion and 

delays at U.S. seaports whose infrastructure has not kept up with the 

dramatic growth in trade volume. In-bond facilitates trade by allowing 

importers and shipping agents the flexibility to move cargo more 

efficiently. Trade community representatives who we interviewed 

indicated the in-bond system allows importers to overcome insufficient 

infrastructure and resources at CBP ports dealing with large volumes of 

cargo. Some CBP officials noted that if all cargo had to be entered at the

time of arrival, some busier ports would probably not have space and 

personnel to accommodate the volume. For example, CBP reports that the 

value of all U.S. imports has risen from $881 billion in fiscal year 1998 to 

an estimated $1.82 trillion in fiscal year 2006 (see fig. 2). These import 

amounts do not include in-bond shipments received at U.S. ports that are 

exported to other countries. According to CBP, about 1.2 million in-bond 

transactions were initiated in the Port of Los Angeles alone in fiscal year 

2005. CBP staff estimate that this accounts for 30 to 60 percent of all 

imports moving through the port; however, CBP was unable to provide 

reliable data to confirm this. 

The In-Bond System 

Provides Several 

Advantages to the Trade 

Community 

Page 11 GAO-07-561 CBP In-Bond System
Figure 2: Value of All U.S. Imports by Fiscal Year, 1998 to 2006 

The in-bond system allows importers and shipping agents considerable 

flexibility in moving goods. A customs broker provided an example of a 

case in which his company was dealing with imported shrimp that needed

to be examined by the Food and Drug Administration (FDA) in a timely 

manner before entering into U.S. commerce. The broker said that the 

shrimp was coming into New York, but both FDA and CBP had significant

delays in inspecting cargo there. The broker’s company transported the 

shrimp in-bond to a nearby inland port where FDA and CBP could process 

it more quickly. The shrimp was then sent back to market in New York. In 

addition, members of the American Trucking Association explained that

the in-bond system allows them to move cargo faster and provides the 

flexibility to choose the most convenient port to deliver goods. For 

example, the members are able to move mixed loads rapidly through the

border by avoiding the lengthy inspections that could be required for a 

variety of goods, and then deal with Customs arrival requirements at the 

destination port. 

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

2006 

projection

1998 1999 2000 2001 2002 2003 2004 2005

Dollars in billions

Fiscal year

Import value

Fiscal year projection

Source: CBP.

Page 12 GAO-07-561 CBP In-Bond System
The in-bond system has become an integral part of the trade process for 

some industries. Trade community representatives stated that larger 

importers use the in-bond system because they prefer to ship merchandise 

to central distribution warehouses to more conveniently enter the 

shipments, rather than dealing with multiple ports of arrival. Industries 

such as express consignment couriers also rely on the in-bond program for 

the expeditious movement of shipments as an integral part of the services

they offer. The in-bond system also allows importers to delay payment of 

trade duties. Using the in-bond system, importers do not pay applicable

import duties until the merchandise officially enters U.S. commerce—

which can be delayed from 15 to 60 days after it arrives at the initial U.S. 

port and an additional 15 days at the destination port. 

The in-bond system is also fundamental to FTZ operation, in which foreign 

and domestic merchandise is considered to be outside of Customs’ 

territory.8

 The FTZ program was created in the 1930s to facilitate 

international trade and increase the global competitiveness of U.S.-based 

companies. There are currently 256 FTZs, and they are found in every 

state. Businesses using FTZs depend on the in-bond system to import 

certain types of merchandise into the zones without going through formal 

Customs entry procedures or paying import duties. Goods may either be

exported directly from FTZs or may enter U.S. commerce at which point 

appropriate duties are assessed. 

CBP has some data that indicate that the in-bond system is widely used, 

but it has not organized or analyzed its data to provide detailed 

information on the extent or patterns of use of the system. CBP’s data are 

limited to the number of in-bond transactions initiated and information 

contained on the in-bond form. While the form captures some shipment 

manifest information such as foreign port of lading, final foreign 

destination, port codes, and vessel information, it does not require 

appraisal value of in-bond cargo.9

 We requested that CBP provide data on 

the value and quantity of cargo transported in-bond, but CBP could not 

provide reliable data. CBP did not have existing reports on in-bond 

CBP Reports Extensive 

Use of the In-Bond System 

but Has Not Done Analysis 

of Its Use 

 8

Among the activities permitted in an FTZ are assembly or manufacturing of merchandise, 

as well as storing, packaging, and processing of cargo.

9

While there is a value field on the in-bond form (CBP Form 7512), the value provided is

most often what CBP describes as a “shipper’s valuation” for insurance purposes and not 

the actual value of goods. 

Page 13 GAO-07-561 CBP In-Bond System
shipments, the extent of the program or patterns of in-bond shipments. 

Any data we requested on the in-bond system had to be compiled 

specifically for us, in some cases by using estimates. A description of data 

limitations and the impact on managing the in-bond system is provided in 

the next section of this report. 

Using the number of in-bond transactions reported by CBP for the 6-month 

period of October 2004 to March 2005, we found that the system is widely 

used, and IT in-bond transactions are the most common type. CBP records 

show that during this period a total of about 6.5 million in-bond 

transactions were initiated nationwide. IT movements accounted for about 

4.5 million, T&E movements accounted for about 1.4 million, and IE 

movements accounted for about 0.6 million (see fig. 3). CBP data also 

showed that the in-bond system is widely used by couriers such as UPS 

and FedEx. Couriers accounted for almost half of all in-bond transactions 

initiated during this period. However, CBP is unable to calculate what 

share of U.S. imports is transported in-bond because the number of inbond transactions alone reveals limited information. A “transaction” can

be an entire shipping container or a single package. For example, the Port 

of Seattle recorded an increase of 30 percent in in-bond transactions 

between 2004 and 2005; however, staff explained that the value and 

volume of cargo moving in-bond did not change significantly. Port officials 

said that the increase in the number of transactions related to a change in

procedures—couriers were required to change from filing a single in-bond 

form for an entire truck to filing one for each package in the truck moving 

in-bond. 

Page 14 GAO-07-561 CBP In-Bond System
Figure 3: Number and Percent of In-Bond Transactions by Type, October 2004 

through March 2005 

According to CBP, the four field offices that process the largest numbers 

of in-bond movements are Los Angeles, New York, Miami, and Seattle. As 

part of our audit work, we visited and requested data from ports in these 

field offices with the highest numbers of in-bond transactions, as well as 

other ports with high numbers of in-bond transactions. Staff in all the 

ports we visited indicated having great difficulties in providing data on the 

in-bond system because of limitations with its Automated Commercial 

System (ACS). We requested data on the number of in-bond transactions 

for the past 5 years; however most ports were not able to provide data for

all 5 years. The most recent time period that the majority of ports were 

able to provide information was for fiscal year 2005. The information 

provided by some of these ports is summarized in figure 4. According to 

this information, the Los Angeles/Long Beach has the largest number of inbond transactions, and IT was the most prevalent type of in-bond 

transaction used. 

9%

22%

69%

Source: GAO analysis of CBP data.

IE

0.6 million

T & E

1.4 million

IT

4.5 million

Page 15 GAO-07-561 CBP In-Bond System
Figure 4: Number of In-Bond Transactions by Type for Selected Ports in Fiscal Year 

2005 

Note: The Port of Miami was unable to provide reliable data for fiscal year 2005. The Port of Dallas 

was unable to provide T&E and IE data. 

To assess the extent to which the in-bond system is used, we requested 

data on total imports from entry summary forms, since these forms 

provide complete information on imports and indicate if the in-bond 

system was used. This information would allow us to determine what 

percentage of all cargo intended for U.S. commerce is transported in-bond 

and make an accurate assessment of the extent of the in-bond system. 

CBP attempted to compile these data but was unable to provide this 

information. 

CBP does not include information on the extent that the in-bond system is 

used in its annual Performance and Accountability Report or Import Trade 

Trends. Without proper systems in place to inform management about inbond transactions, CBP is unable to properly evaluate the risks associated 

with in-bond transactions and make decisions about how to best manage 

the system. 

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

Los Angeles JFK Newark Seattle Blaine Buffalo Laredo

Number of in-bond transaction

Port

IE

T & E

IT

Source: GAO analysis of CBP data.

Page 16 GAO-07-561 CBP In-Bond System
Weaknesses in CBP’s management of the in-bond system continue to 

impede CBP’s ability to ensure proper collection of trade revenue and 

minimize trade risks. CBP does not collect adequate data or analyze 

existing data needed to effectively manage the system. As a result, CBP is 

not able to identify risks in the system associated with potential revenue

losses or trade violations, and thus it cannot implement compliance 

measures targeted at reducing these risks. CBP is unable to ensure that inbond shipments in fact enter U.S. commerce, with appropriate duties paid, 

due to management weaknesses related to tracking in-bond shipments and 

reconciling paperwork. CBP conducts in-bond reviews and audits to assist 

in identifying system weaknesses, but these continue to be inconsistently 

performed. 

CBP does not collect appropriate data to adequately manage the in-bond 

system. While the official entry summary form (CBP Form 7501)10 requires 

accurate information on description, value, and quantity of cargo, the inbond form (CBP Form 7512) allows estimates to be provided. The entry 

summary form requires the use of Harmonized Tariff Schedule (HTS)11

numbers to collect correct data on description, value, and quantity of trade 

imported for consumption in the United States. However, the data 

available to CBP for in-bond cargo are limited to the number of in-bond 

transactions initiated and the information contained on the in-bond form. 

CBP staff explained that while there is a value field on the in-bond form, 

the value provided is most often what it is described as a “shipper’s 

valuation” for insurance purposes and not the actual value of goods. CBP 

instructions for the in-bond form indicate that for IT movements, 

merchandise should be described in sufficient detail to enable the port 

director to estimate the duties and taxes, however, importers and shipping 

agents do not usually provide this level of information. Further, CBP 

officials noted that the in-bond form is often filled out by shipping agents 

In-Bond System

Management 

Weaknesses Impede 

CBP’s Ability to 

Ensure Proper 

Collection of Trade 

Revenues and 

Address Trade 

Concerns 

CBP Does Not Collect 

Adequate Data or Analyze 

Existing Data to Make Risk 

Management Decisions 

 10The official entry summary (CBP Form 7501) is used to complete the entry for 

consumption and determine and collect duties and taxes on goods imported into and 

intended for consumption in the Unites States. 

11The HTS of the United States is the primary resource used by CBP for determining tariff 

classification for goods imported into the United States. HTS classifies a good by assigning

a 10 digit tariff classification number, based on such things as its name and use, providing

CBP detailed information to identify items entering the United States. The HTS is based on 

the international Harmonized Commodity Coding and Classification System (Harmonized 

System) six-digit code, which has been establish by the World Customs Organization and is

used as the base for the tariff schedule for most countries. 

Page 17 GAO-07-561 CBP In-Bond System
who provide imprecise estimates of value and quantity and vague cargo 

descriptions. CBP at the headquarters level provides limited specific 

guidance to the ports regarding how to assess value and volume of in-bond 

traffic and any associated risks. Table 1 compares the data required for 

certain items in the official entry summary and in-bond forms. 

Table 1: Comparison of Data Requirements for Entry Summary and In-Bond Forms

Type of information 

Information required on 

entry summary form (7501) 

Information required on 

in-bond form (7512) 

Description Detailed cargo descriptions

using 10-digit HTS numbers 

General description of goods 

(HTS numbers not required) 

Value Accurate dollar amount required 

for assessment of duties 

Estimated value allowed 

Quantity Net quantity in specified HTS 

units 

Quantity in terms of the smallest 

external packaging unit, such as 

containers, boxes, etc. (HTS

units not required) 

Source: GAO analysis of CBP information. 

CBP has also not used existing data it collects on in-bond to identify risks 

in the system associated with potential revenue loss or trade violations. 

Port officials indicated the lack of data entered into the system limits the 

information that can be used for tracking in-bond cargo. For example, 

officials at a major port told us that often for transactions filed in hard 

copy, only about half of the more than 20 data elements in the form are 

entered into the ACS, due to the large quantity of in-bond shipments and 

relatively few officers to review them. In addition, CBP officials said that 

company names and numbers may not be accurately entered into the ACS, 

further complicating risk management decisions. Staff in CBP’s Office of 

Information Technology (OIT) explained that they are not generally 

required to provide management, at the port or national level, with 

existing data on the extent of the in-bond system and patterns of trade 

among in-bond ports. According to staff, if any information is requested by

management about in-bond transactions, it is handled on an ad hoc basis. 

In addition, according to OIT staff, ACS is inefficient in creating records 

that allow analysis of the extent to which the in-bond system is used, of 

trade flows, and diversion risks. Creating any type of report on the in-bond 

system is laborious and time consuming. OIT staff indicated that the ACE 

system under development to replace ACS should provide better 

information to aid in managing the in-bond system. 

Page 18 GAO-07-561 CBP In-Bond System
Lack of accurate information on the value of in-bond cargo prevents CBP 

from accurately determining the extent of any lost revenue. CBP staff 

explained that regulations do not require the appraisement of in-bond 

cargo; such appraisal and collection of duties occurs when the cargo is 

entered at the destination port. CBP officials noted that they do not 

require importers and shipping agents to provide accurate value 

information on the in-bond form because it is not required under 

legislation or current CBP in-bond regulations. Further, CBP does not 

collect and report data showing the trade patterns for in-bond use. If CBP 

knew which ports receive the most in-bond cargo from the major U.S. 

ports it could better prioritize its oversight of the system. However, CBP 

does not consider information on main receiving ports in managing the 

system. In addition to allowing CBP to determine potential loss of revenue, 

obtaining accurate information on value, specific category of merchandise, 

and trade patterns could help CBP focus efforts on monitoring in-bond 

cargo with high revenue.

CBP’s data management weaknesses impede its ability to target in-bond 

cargo for trade violations at the arrival port. Currently, CBP uses the 

Stratified Compliance Exam and the Cargo Selectivity System for trade 

compliance purposes, such as identifying intellectual property rights 

violations and revenue collection. The Stratified Compliance Examination 

randomly selects cargo making official entry into the United States for 

physical inspection, while the Cargo Selectivity System uses criteria to 

evaluate information from an entry summary and then selects cargo for 

inspection. Both systems use entry information for cargo entering into U.S 

commerce at the arrival port to initiate the exams. Because in-bond cargo 

does not make official entry at the arriving port, the Stratified Compliance 

Examination is not applied to in-bond cargo being exported and is not 

initiated for in-bond goods entering at other U.S. ports until official entry 

occurs. Without proper targeting of in-bond shipments at the arrival port,

cargo transiting to another U.S. port for official entry or exportation may 

be diverted and stay in the United States, contraband or goods violating 

intellectual property rights laws could be smuggled, duties may be unpaid, 

or quotas could be violated. In fiscal year 2006 about 30 percent of seizure 

value for intellectual property rights violations were associated with 

shipments that had moved through the in-bond system. Examples of some 

past diversions that involved use of the in-bond system include: 

Data Collection Limitations 

Impede CBP’s Assessment of 

Potential Revenue Losses 

CBP Also Cannot Accurately 

Assess Potential Trade 

Violations 

• From September 1999 through December 2002, more than 7,500 shipments 

of wearing apparel shipped to Los Angeles from China and Hong Kong 

were smuggled into the United States. The in-bond documents were filed 

in Los Angeles for export to Mexico via Laredo, Texas. However, the 

Page 19 GAO-07-561 CBP In-Bond System
goods were diverted from Los Angeles to customers throughout the United 

States. The declared foreign value of shipments was in excess of $600 

million, and estimated loss of revenue to U.S. Customs was more than 

$100 million. 

• In 2006, CBP seized 77 containers of counterfeit athletic shoes and 

designer clothing with an estimated domestic value of nearly 

$70 million. These containers entered the Los Angeles seaport, and inbond documents were filed for eventual export to Mexico. The goods 

moved in-bond through California and Arizona before being seized by ICE 

agents. 

While CBP performs a security screen for all arriving cargo, it does not 

have a formal targeting system to identify trade concerns specific to inbond cargo. However, in some instances, CBP port officers do take steps 

to target in-bond shipments on an ad-hoc basis. In most of the ports we 

visited, port officials said that for in-bond shipments filed using the paper

in-bond form, cargo is often selected by CBP officers at the time 

documentation is presented to the port office. CBP officers inputting the 

in-bond data from the paper forms into the system may select cargo for 

inspection based on experience and available information. Cargo moving

in-bond for which the in-bond form was filed electronically is not screened 

by CBP officers for these types of additional inspections, because approval 

of these transactions is automated and officers do not regularly access this 

information. 

CBP often cannot ensure that cargo officially entered U.S. commerce, or 

was exported, because many in-bond transaction records remain open 

with uncertain disposition. An open in-bond record occurs when a paper 

or electronic transaction has been initiated at the arrival port for an inbond shipment but the record has not been completed, or closed, because 

CBP has not recorded the shipment’s official entry at the destination port. 

An open in-bond transaction record that is never closed represents an 

internal control weakness in that there is no control in place to ensure that

open items are closed or to determine whether potential revenue losses or 

trade violations have occurred. As previous audit reports have noted, the 

number of open in-bond records is substantial, however, CBP does not 

have accurate measures of the number of open records. Several factors 

contribute to the high number of open in-bond records. CBP does not 

appear to have placed a priority on reducing the number of open in-bond 

records, in that it has not consistently reconciled open records. In 

addition, CBP’s in-bond regulations that were intended to provide 

Numerous Open In-Bond 

Records Reflect Lack of 

Control of In-Bond 

Movements 

Page 20 GAO-07-561 CBP In-Bond System
flexibility to business result in it being more difficult to track in-bond 

transaction. Finally, administrative errors by both CBP and the trade 

industry add to the numbers of open in-bond records. CBP has recently 

issued directives to address some of these issues, but it is too early to 

judge their effectiveness. 

Previous audit reports have noted that the high number of open in-bond 

records impedes CBP efforts to track in-bond shipments and ensure that 

they have properly entered U.S. commerce. An open in-bond record 

indicates a risk that cargo could have been diverted without paying 

applicable duties or in violation of trade regulations or quotas. Without 

data on the value and volume of in-bond cargo, and information on the 

number of in-bond records that remain open, CBP is not able to account

for them or set a high priority on tracking open in-bonds with high duties. 

We reported this problem in 1994, 1997, and 2004 and made 

recommendations to CBP for improving the monitoring of in-bond 

shipments. However, in our current review, we found large numbers of 

open in-bond records at all the ports we visited, and CBP admits that there 

are many open in-bond records nationwide. 

Of the 10 ports we visited, only 6 were able to provide fiscal year 2005 data 

on the number of open in-bond records in their systems. As figure 5 shows, 

for the six ports that provided data, the percentage of open in-bond 

transactions for fiscal year 2005, ran as high as 77 percent at one location.

The other four ports, including Los Angeles—the port with the largest 

estimated number of in-bond transactions—were unable to provide 

reliable data on the number of open in-bond records. Without consistent 

evaluation and reliable data on overdue shipments, CBP cannot account

for in-bond shipments that failed to meet time requirements and trade 

regulations. CBP attributed some of the open in-bond records to systemic 

problems that do not show in-bonds as closed even after they have been 

completed. 

Number of Open In-Bond 

Records Is Substantial, but CBP 

Lacks Accurate Data 

Page 21 GAO-07-561 CBP In-Bond System
Figure 5: CBP Estimate of Percentage of In-Bond Records Remaining Open for

Fiscal Year 2005 

Ports that we visited have not consistently performed several CBP 

designated reviews intended to resolve open in-bond records. For 

example, CBP reports such as the Monthly List of In-Bond Shipments 

Delivered Late for Export (MO2), along with the Monthly List of In-Bond 

Shipments Delivered Late (MO6) and the Monthly List of In-Bond 

Shipments Overdue (MO7), are designed to notify ports of in-bond 

shipments that are delivered late for exportation, are delivered late, or are 

overdue for delivery.12 We found most of the ports we visited had not 

regularly conducted these reviews since CBP increased emphasis on 

security after September 11, 2001. Since issuance of a June 2006 CBP 

headquarters directive requiring ports to track exportation in-bond 

transactions in a timely manner, most ports we visited had reinstituted this 

0

10

20

30

40

50

60

70

80

Buffalo Newark JFK Seattle Blaine Laredo

Percentage of open records

Source: GAO analysis of CBP data.

Port location

CBP Has Not Consistently 

Reconciled Open In-Bond 

Records 

 12The MO reports provide the ports with data on paperless and conventional in-bond 

movements that are overdue (MO7), delivered late (MO6), or delivered late for export 

(MO2). In-bond movements that are considered overdue will appear on the MO7 report if 

they have not arrived at the destination port within 90 days of departure. In-bond

movements that have not been exported by the expiration of the lay order period in the

destination port will appear on the MO2 report and should receive priority, according to the

OFO Guide for In-bond Cargo handbook. 

Page 22 GAO-07-561 CBP In-Bond System
type of review. Officials at ports we visited stated that these reviews were 

very time consuming and labor intensive. 

CBP officials observed that there are many systemic problems with the 

existing data system (ACS) used to generate these monthly lists of in-bond 

transactions needing reconciliation. Officials noted that some in-bond 

transactions appearing as open on these reports have already been closed. 

Port officials also noted the difficult and time-consuming nature of 

working with the ACS system. For example, staff in the Seattle Field Office

explained that because of limitations with the system, it took 50 working 

hours to extract the data we had requested on the number of in-bond 

transactions at their port. Furthermore, some of the data was incomplete 

and contained other limitations. 

According to CBP officials, the ACS was originally designed in 1984 and 

has been increasingly difficult and expensive to operate, maintain, and 

enhance due to its antiquated hardware and software and limited 

processing capacity. CBP is in the process of replacing ACS with the ACE 

system in 11 increments, referred to as “releases,” with a scheduled 

completion in approximately 8 1/2 years. The first three releases are 

deployed and operating, and the fourth release is currently being 

deployed. Other releases are in various states of definition and

deployment. CBP headquarters officials stated that they were aware of 

problems in ACS, but they cited restrictions placed on funding for changes 

to the legacy ACS as impeding changes to the system. 

CBP’s in-bond regulations provide considerable flexibility for the importer 

and shipping agents, but such flexibility complicates CBP’s monitoring of 

in-bond movements. Some CBP regulations governing in-bond movements 

make it difficult for CBP officers at the ports to track in-bond shipments 

and ensure their proper disposition. For example, under the regulations an 

importer or shipping agent can initiate an in-bond shipment by ground 

transport to one U.S. port and then decide to initiate another in-bond 

transaction to transport that same cargo to another U.S. port, allowing an 

additional 30 days to transport cargo. When the cargo finally reaches its 

ultimate destination and the most recent in-bond transaction is closed, all 

previous in-bond transactions associated with that cargo remain open. In 

other cases, the regulations allow an importer or shipping agent to 

transport cargo in-bond to a U.S. border port, place it in a warehouse, and 

obtain a second in-bond transaction for exportation once a buyer is 

located abroad. Depending on the mode of transport, regulations currently 

allow bonded carriers from 15 to 60 days to reach their final destination 

and allow them, with some exceptions, to change a shipment’s final 

Regulations Provide Trade 

Flexibility but Complicate 

CBP’s Monitoring of In-Bond 

Movements 

Page 23 GAO-07-561 CBP In-Bond System
destination without notifying CBP. Port officials stated that this makes it 

impossible to know whether an in-bond shipment arrived at its declared 

destination until a record appears later on an unresolved in-bond report. 

For an in-bond shipment moving, for example, from Los Angeles to Laredo

intended for export to Mexico, the importer or shipping agent may at the 

last minute change the port used for export; the CBP staff at the new 

destination port would not know that they should expect such shipments 

and thus would not be able to whether ensure the shipments actually 

exited the United States.

Administrative errors by shipping agents and by CBP staff contribute to 

the high numbers of open in-bonds. According to CBP officials, most open 

in-bond records remain unresolved because of administrative or 

procedural errors. CBP officials said that carriers have high staff turnover 

and do not provide personnel with adequate training in in-bond 

procedures. For example, the in-bond system depends on importer and 

shipping agents personnel to file the correct paperwork. For in-bond 

transactions filed electronically, the system allows carriers and brokers to 

initiate, process, and close in-bond transactions without CBP involvement,

and CBP officials told us that many of these individuals do not follow the 

proper steps to close in-bond transactions. For in-bond transactions that 

are filed in paper format, CBP officers are responsible for closing them at 

the destination port (where the cargo makes official entry). According to

CBP, personnel sometimes make administrative errors and do not 

properly close the in-bond transactions or may not process the documents 

at all. 

To address some of the issues surrounding open in-bond transactions, in 

March 2006, CBP issued several directives to the field describing systemic 

changes made to the in-bond section in ACS. The first of these changes 

requires second-leg in-bond records13 to reference the first leg of the inbond movement so that when the second in-bond transactions is closed, 

the first in-bond transactions will be closed as well. The second change 

requires the bill-of-lading field on the in-bond form to be filled in to 

facilitate the tracking of in-bond shipments and ensure that the bill of 

lading and in-bond transactions are posted and closed out. Furthermore, in 

June 2006, CBP issued a directive requiring ports to track in-bond 

Administrative Errors 

Contribute to High Number of 

Open In-Bond Records

CBP Recently Issued Directives 

to Address Open In-Bond 

Records, but It Is Too Early to 

Determine Their Effectiveness 

 13Cargo for which a second in-bond is issued after it reaches the port where it is expected

to enter U.S. commerce or be exported. 

Page 24 GAO-07-561 CBP In-Bond System
transactions in a timely manner by monitoring records that appear on the 

system’s monthly in-bond status reports. 

CBP instituted a compliance measurement program in 1998 known as 

Tinman14 to help track in-bond movements, protect revenues, and perform 

risk assessments. However, ports do not consistently perform the reviews 

required under the program and CBP headquarters does not collect 

national data describing the results of these reviews. Due to the 

inconsistent performance of the physical inspections and post-audits 

called for by this system, as well as the limited collection and use of the 

data these reviews provide, CBP is unable to fully determine compliance 

within the in-bond system and therefore potential trade and revenue risks 

associated with the system. 

While conducting our port visits, we found that some ports just recently 

began conducting physical examinations and completing post-audits 

required under Tinman because they previously did not have the resources 

available to support these duties after September 11, 2001. Tinman was 

designed to improve the tracking and monitoring of in-bond cargo by 

initiating compliance examinations of cargo and post-audits. Every week, 

ports are supposed to query the system to determine if a Tinman exam has 

been designated. After a port has been notified of an exam or audit, the 

mechanics of the examination are left to the discretion of the port.15 The 

Department of the Treasury Inspector General and its’ independent 

auditor noted in their fiscal year 2002 financial audit that Tinman 

inspections and post-audits had been suspended in fiscal year 2002 to

allocate resources to other mission objectives. Although we found the 

ports making efforts to complete the Tinman exams during our audit 

work, the fact that the ports were not completing these physical 

CBP Has Not Consistently 

Performed Its Compliance 

Measurement Program 

Reviews and Has Not Used 

Its Results to Manage the 

Program 

 14Originally, the Tinman module in ACS was designed in response to a 1994 GAO report, 

where we found that the U.S. Customs Service did not have a reliable means of monitoring

the movement of in-bond shipments from one port to another because the data were not

properly maintained. GAO, Financial Management: Control Weaknesses Limited

Customs’ Ability to Ensure That Duties Were Properly Assessed (GAO/AIMD-94-38, 

Mar. 7, 1994). 

15Headquarters staff assign the Tinman exams and post-audits on a weekly basis. They 

determine the ports where the exam is to be conducted, the in-bond type, and whether the

tasking is a destination or origin exam. In the case of post-audits, the specific in-bond 

number that is to be reviewed will also be provided. After the Tinman exams are assigned, 

it is at the discretion of the ports to determine the mechanics of the exam (e.g., which bond 

is to be reviewed, which station, etc.). 

Page 25 GAO-07-561 CBP In-Bond System
inspections and audits suggests that CBP has not been able to effectively

measure revenue gaps or the effectiveness of controls over trade 

compliance to the in-bond process. 

Moreover, no policies or procedures exist at the headquarters level to 

monitor or use the results of the Tinman inspections and audits to improve 

the management of the system. For example, we made repeated requests 

to CBP to obtain national data on the number of Tinman inspections and 

post-audits that were generated, completed, and that resulted in some sort 

of negative findings over the past 5 years, but we were provided little 

information on the results of these audits and no summary conclusions. 

We were also told that, at the headquarters level, reports generated from 

Tinman are not routinely produced and that there is no overall report that 

management could use to evaluate trade compliance and determine 

overall risks to the in-bond system. Therefore, CBP management would 

have to rely on a review of port-by-port results, and it would be difficult 

and labor intensive to determine if the results of the audits or inspections 

showed an overall compliance issue.

CBP does not collect detailed information on in-bond cargo that could aid 

in identifying cargo posing a security risk and promote effective use of 

inspection resources. CBP uses the Automated Targeting System (ATS) as 

one mechanism within its multilayered security strategy for monitoring 

cargo arriving at U.S. ports. Manifest information for all cargo arriving at 

U.S. ports, including in-bond cargo, is part of the ATS security score. For 

regular cargo, the ATS score is updated with more detailed information as 

the cargo makes official entry at the arrival port, but ATS scores are not 

updated for T&E in-bond cargo and are not updated for IT in-bond goods 

until official entry occurs. As a result, in-bond goods transit the United 

States without having the most accurate ATS security score, posing a 

potential security risk, and potentially misdirecting scarce inspection 

resources to goods that otherwise would not warrant inspection. 

Limited Information 

Collected on In-Bond 

Cargo Impedes CBP 

Efforts to Manage 

Security Risks 

Page 26 GAO-07-561 CBP In-Bond System
CBP has developed a multilayered security strategy to manage the risk 

associated with the movement of cargo, including in-bond cargo. The ATS 

is a key component of this multilayered security strategy.16 ATS is a 

complex model of weighted rules CBP officers use to help decide which 

cargo to inspect. CBP uses ATS to review documentation for arriving 

shipments and assign a risk score for each shipment arriving in the United

States. CBP officers located at the ports then use these ATS scores to help

decide on the need for and extent of cargo inspections. We have 

previously reported on improvements needed in ATS targeting of cargo

inspections.17

The CBP risk management strategy includes taking steps such as using 

ATS to limit potential security risks without unduly interfering with the 

flow of commerce. The Congress and the President have endorsed risk 

management, which involves a strategy of helping policymakers make 

decisions about assessing risks, allocating resources, and taking actions 

under conditions of uncertainty. The CBP Fiscal Year 2006 Performance 

and Accountability Report states its priority mission in part as “preventing 

terrorists and terrorist weapons from entering the United States, while 

also facilitating the flow of legitimate trade and travel.” CBP uses ATS as 

part of its risk management strategy of identifying cargo warranting 

inspection based on risk and maintains that it would be impossible to 

inspect all arriving cargo without disrupting the flow of commerce. 

CBP uses information it receives on all cargo arriving at U.S. ports, 

including in-bond cargo, as input for ATS scoring to aid in identifying 

security risks and setting inspection priorities. Although the requirements 

vary by mode of transportation (sea, air, rail, and truck), federal law 

generally requires carriers to submit manifest information prior to goods 

arriving at U.S. ports. For example, CBP generally requires ocean carriers 

Automated Targeting 

System Is Part of the CBP 

Multilayered Security 

Strategy for Cargo Arriving 

at U.S. Ports 

CBP Uses Manifest 

Information for All Cargo, 

Including In-Bond Cargo, 

to Aid in ATS Scoring and 

in Prioritizing Inspections 

 16Other features of CBP’s multilayer security strategy include a compliance measurement 

program that supplements ATS by randomly selecting shipments to be inspected to

determine whether the shipment complies with supply chain security and trade laws; the 

Container Security Initiative (CSI) whereby CBP places staff at foreign ports to work with 

foreign counterparts to inspect high-risk cargo before it is shipped to the United States; and

the Customs-Trade Partnership Against Terrorism (C-TPAT), which is a cooperative 

program between CBP and members of the international trade community in which private 

companies agree to take action to improve the security of their supply chains. 

17GAO, Homeland Security: Summary of Challenges Faced in Targeting Oceangoing Cargo

Containers for Inspection, GAO-04-557T (Washington, D.C.: Mar. 31, 2004).

Page 27 GAO-07-561 CBP In-Bond System
to submit manifest information to CBP 24 hours before cargo shipped in 

containers is loaded on a ship at a foreign port.18 CBP requires air carriers 

to submit manifest information at departure or 4 hours before arrival at a 

U.S. airport. These cargo manifests are prepared by the carrier and are 

composed of bills of lading, which include a description of the shipment. 

ATS analyzes the electronic data related to individual shipments and ranks 

them in order of risk to develop an ATS score for each shipment. CBP 

officers located at the ports then use ATS scores to help them make 

inspection decisions. 

CBP adjusts the ATS score assigned to arriving cargo when it receives the 

more detailed information for cargo making official entry at the arrival 

port. For example, CBP would have an ATS score for sea cargo arriving in

Los Angeles based on the ship’s manifest information but would adjust the 

ATS score when more detailed information is included on the entry 

documents. CBP generally requires importers and shipping agents to 

provide entry documentation for items arriving in the United States within 

15 calendar days of arrival so that it is not warehoused at the port 

indefinitely. This entry information often provides more detailed 

information on contents than does the manifest information. For in-bond 

cargo, such adjustments are made at the destination port, or are not made 

at all for cargo that is intended to be exported. 

Entry information sometimes changes the ATS security score from that 

based on manifest information. CBP provided data for four major ports19

comparing the ATS score given cargo based on the bill of lading to the ATS 

score given after goods made official entry (see fig. 6). This data show that 

 18Cargo manifest transmission requirements are located in regulations promulgated under

Section 343 of the Trade Act of 2002, Pub. L. No. 107-210, as amended by section 108 of the 

Maritime Transportation Security Act of 2002, Pub. L. No. 107-295. Cargo manifests are 

prepared by the carrier and are composed of bills of lading for each shipment loaded on a 

vessel to describe the contents of the shipments. Bills of lading are documents issued by a

carrier describing the goods, the details of the intended voyage, and the conditions of

transportation. Under 19 C.F.R. § 4.7(b)(4), ocean carriers carrying bulk and break bulk

cargo are not required to submit a manifest 24 hours before the cargo is loaded at a foreign 

port, provided, in the case of break bulk cargo, that they receive an exemption from CBP.

Rather, these ocean carriers must present their manifests 24 hours prior to arrival in the 

United States if they use CBP’s Automated Manifest System (AMS), a system designed to

control imported merchandise from the time the carrier’s cargo manifest is submitted to

CBP until the cargo is properly entered and released by CBP. If a carrier does not use AMS, 

the carrier must submit the manifest to CBP upon arrival. 

19The four major ports included in the CBP analysis were Los Angeles, Long Beach, 

Newark, and New York. 

Page 28 GAO-07-561 CBP In-Bond System
for the four ports, the ATS score based on the bill-of-lading information 

stayed the same an average of 30 percent of the time after being updated 

with entry information. However, for the four ports, ATS scores increased 

an average of 23 percent of the time and decreased in an average of 47 

percent of the time. A higher ATS score can result in higher priority being

given to cargo for inspection than otherwise would be given based solely

on the bill-of-lading information. A lower ATS score can result in cargo 

being given a lower priority for inspection and potentially shift inspection 

resources to cargo deemed a higher security risk.

Figure 6: Change in ATS Target Score after Obtaining Entry Information for 

Selected Ports 

In-bond cargo transits the United States without an updated ATS 

inspection priority score because it does not make official entry at the 

arrival port, and in-bond documents do not contain detailed data similar to 

entry documents used to update the ATS score. CBP officers with security 

responsibilities at several of the ports we visited observed that the lack of

entry information for in-bond cargo meant that they did not have 

additional information for ATS scoring that would help them assess the 

need for inspection. Although in-bond cargo is given an ATS score based 

on manifest information, this score is not generally updated prior to the 

movement of these goods within the United States. For example, the ATS 

scores for IT in-bond transactions, which represent about 70 percent of all 

in-bond documents, are not updated until the cargo makes official entry at 

23%

30%

47%

Source: GAO analysis of CBP data.

Increased

Same

Decreased

In-Bond Cargo Transits the 

United States without an 

Updated ATS Score 

Page 29 GAO-07-561 CBP In-Bond System
another U.S. port. T&E in-bond cargo, which represents about 22 percent 

of in-bond documents, does not make official entry, so additional entry 

data are not available to update an ATS score. The in-bond form, required 

for in-bond movement, does not have the same level of detail contained in

entry documents, and data from the form is not used to update ATS 

scores. As a result, in-bond goods transit the United States without having 

the most accurate ATS security score, posing a potential security risk, and 

potentially misdirecting scarce inspection resources to goods that 

otherwise would not warrant inspection. 

In managing the in-bond system, CBP must strive to balance its goals of 

facilitating the efficient movement of cargo, ensuring effective revenue 

collection, and providing a secure trade environment. The in-bond 

system’s overall objective is to facilitate global and domestic trade. 

However, the in-bond system poses risk to CBP’s other goals of revenue 

collection and trade security. CBP will be less able to fulfill its revenue 

collecting responsibilities if in-bond goods are diverted and make illegal

entry without the payment of applicable taxes or trade tariffs. CBP may 

also be less able to fulfill its trade-security responsibilities because the 

information collected for in-bond movements across the United States is 

less detailed than that collected for goods entering at their arrival port. 

We found that CBP’s ability to assess and manage the risks of the in-bond 

cargo system is impaired by both (1) the limited information it collects on 

in-bond cargo and (2) the limited analysis it performs on available 

information. With the tremendous volume of trade coming through U.S. 

ports, CBP needs detailed information and accurate monitoring systems to 

set priorities for targeting and tracking cargo shipments that have security 

or revenue interest. However, CBP does not currently collect detailed 

information on the value or type of in-bond cargo being transported 

through U.S. ports; the in-bond form asks only for a general description. 

As a result, CBP does not have the information needed to set priorities for 

targeting and tracking cargo moving within the in-bond program, so as to 

concentrate on cargo of highest security, law enforcement, or revenue 

impact. 

CBP has also failed to perform even the most basic analyses of available 

information. CBP was not able to tell us, for example, the extent of the 

system’s use, what products are shipped in-bond, or what shipments are 

expected for entry (and thus expected revenue collection from applicable

trade duties) at inland ports. Despite prior audit recommendations, 

important management weaknesses persist in CBP’s tracking of in-bond 

Conclusions 

Page 30 GAO-07-561 CBP In-Bond System
cargo, with the result that CBP still does not know whether in-bond cargo 

shipments of greatest security or revenue interest are in fact entered into 

U.S. commerce or exported as required. In particular, CBP continues to 

have high numbers of open in-bond transactions with uncertain 

disposition. 

CBP is currently addressing the requirements of the SAFE Port Act, which 

focuses on many of the same issues discussed in this report. CBP must 

submit a report to the Congress by June 30, 2007. In addition, CBP is in the 

midst of a multiyear development of its new ACE system, which it expects 

to have improved capability to track in-bond documents. However, the 

system is not expected to be fully implemented before 4 to 5 years. CBP 

has also recently issued administrative directives to improve in-bond 

document tracking. However, these directives address only some of the inbond system weaknesses. Therefore, we believe several additional 

changes are needed in a timely manner to resolve persistent weaknesses in 

the in-bond system, consistent with the SAFE Port Act. 

To improve management of the in-bond program through better informed 

decisions affecting trade, revenue collection, and security goals, we 

recommend that the Secretary of Homeland Security, acting through the 

CBP Commissioner, take the following actions: 

Recommendations 

1. With respect to collecting more detailed information on in-bond cargo, 

• For all in-bond goods to be eligible for a consumption entry into the 

United States, require additional information on the in-bond form (CBP 

Form 7512) at the time of arrival. This information should include data 

elements that provide a more precise description of the cargo and that 

further identify the entities involved in the movement of these goods. 

As part of this effort, CBP should—6 months after implementation of 

new data requirements—report to Congress whether the enhanced data

obtained are adequate to address security and trade concerns for inbond transactions or whether current CBP authority should be 

adjusted. 

• For all goods to be exported, revise the in-bond form (CBP Form 7512) 

to include the six-digit code from the Harmonized Commodity Coding 

and Classification System (Harmonized System). 

• Use information collected in the revised in-bond form to ensure that 

the new ACE system can generate reports useful to CBP management 

Page 31 GAO-07-561 CBP In-Bond System
in making prioritized, risk-based management decisions related to 

revenue and security risks. 

• Use information from the revised in-bond form as input to the Cargo 

Selectivity process at the arrival port instead of limiting this process to 

cargo that has made entry for consumption, to ensure that in-bond 

shipments are adequately tracked between the arrival and destination 

ports. 

• Use information from the revised in-bond form to update ATS security 

scores for in-bond movements at the arrival port instead of delaying 

this process until after cargo has been transported through the United 

States to the destination port. 

2. With respect to improving monitoring of cargo moving within the inbond system, 

• Conduct an analysis of the extent of use of the in-bond system and the 

patterns of shipments within the system. 

• Assess the systemic problems causing open in-bond transactions and 

impeding their identification. Make adjustments to ACE and provide 

appropriate tools to eliminate these problems and improve the capacity 

of CBP officers, importers, and shipping agents to track and close open 

in-bond transactions. 

• Revise in-bond regulations to reduce the time allowed for transporting 

cargo and to limit the ability of carriers to change the final destination 

for cargo without CBP knowledge. 

• Develop a more systematic enforcement strategy to increase 

bondholder compliance in closing out open in-bond transactions within 

required time frames. 

• Prioritize closing in-bond records for shipments with high potential 

risks of security, law enforcement, and revenue loss, using updated 

information from the in-bond form. 

3. To make the in-bond compliance measurement program a more 

effective tool for monitoring compliance with in-bond regulations, 

• Ensure that the current compliance measurement program (Tinman) or 

any updated commercial compliance tool is consistently conducted by 

Page 32 GAO-07-561 CBP In-Bond System
the ports so as to inform CBP national and port management of needed

corrective actions. 

We provided a draft of this report to DHS for review by CBP and ICE. We 

received official written comments from DHS, which are printed in 

appendix II. We made 11 recommendations to improve the management of 

the in-bond system in three general areas (1) improving the level of 

information available on in-bond cargo, (2) improving monitoring of inbond cargo, and (3) improving the efficiency of in-bond compliance 

measurement programs. DHS agreed with seven of our recommendations, 

disagreed with three, and stated that one has already been implemented. 

DHS also provided technical comments, which we have incorporated in

this report as appropriate. 

Regarding the first area of recommendations—for improving the level of

information available on in-bond cargo—DHS agreed with three of our 

recommendations and disagreed with two. DHS agreed with our 

recommendation to revise the in-bond form to contain more information, 

with respect to goods that are to be exported. DHS also agreed with the 

recommendation that CBP ensure that the new ACE system can generate

reports useful to CBP in making prioritized, risk-based management 

decisions related to revenue and security risks. Additionally, DHS agreed 

with the recommendation that it use information from the revised in-bond

form to update ATS security scores for in-bond movements at the port of

arrival instead of delaying this process until after the cargo has been 

transported through the United States to the destination port.

However, DHS disagreed with our recommendation to require the 10-digit 

HTS number for in-bond cargo to be eligible for import into the United 

States. DHS stated that this would lead to a major legal problem and 

represent a revolutionary change in the in the way in-bond business is 

done. DHS stated that requiring the10-digit HTS number would require 

Customs Brokers to file in-bond entries and bar carriers from doing so. 

DHS stated that cost to the owner of the goods would rise because of the 

mandated added party to the filing. We remain concerned that in-bond 

cargo routinely transits the United States without a detailed description of 

the cargo and the entities involved in the movement of these goods. 

Therefore, we have revised our recommendation to call for additional 

information to be collected for all in-bond goods to be eligible for a 

consumption entry into the United States, in lieu of the 10-digit HTS 

number. This information should include data elements that provide a 

more precise description of the cargo and that further identify the entities 

involved in the movement of these goods. In addition, we recommend 

Agency Comments 

and GAO Response 

Page 33 GAO-07-561 CBP In-Bond System
that—6 months after the implementation of these new data 

requirements—CBP report to Congress whether the enhanced data 

obtained are adequate to address security and trade concerns for in-bond 

transactions or whether its current authority should be adjusted. 

DHS also disagreed with our recommendation that revised in-bond 

information should be used in CBPs’ Stratified Compliance Examination 

and Cargo Selectivity processes. DHS stated that these exams apply only 

to cargo for which official entry has been made. We revised this 

recommendation to focus on using the additional information in CBP’s 

Cargo Selectivity process. CBP’s current inability to track in-bond 

shipments and the examples of notable trade and revenue violations 

including in-bond cargo provide strong evidence of the need to identify 

potential trade and revenue risks for in-bond cargo. The revised 

recommendation indicates that CBP should use information from the 

amended in-bond form as input to the Cargo Selectivity process at the 

arrival port instead of limiting this process to cargo that has made entry 

for consumption. 

Regarding the second area of recommendations—for improving the 

monitoring of in-bond cargo—DHS agreed with three of our 

recommendations, stated that one has already been implemented, and 

disagreed with one. DHS agreed to conduct an analysis of the extent of the 

in-bond system and patterns of shipment within the system. DHS also 

agreed that a systematic assessment of problems causing open in-bond 

transactions should be used to improve ACE and assist CBP officers and 

the trade in closing in-bond transactions. DHS agreed with our 

recommendation and is planning to revise in-bond regulations to reduce 

the time allowed for transporting cargo and to limit carriers’ ability to 

change the final destination for in-bond cargo. 

Regarding our recommendation to develop requirements, including 

penalties to ensure that bondholders close in-bond documents, DHS 

responded that these requirements already exist. We note, however, that

the high number of open in-bond transactions indicates a persistent 

problem. We modified the wording of this recommendation to emphasize 

that CBP should develop a more systematic enforcement strategy in order 

to increase bondholder compliance in closing out open in-bond 

transactions within required time frames. 

DHS disagreed with our recommendation to prioritize their activities 

related to closing open in-bond transactions with potentially high security, 

law enforcement, and revenue risks. DHS stated that they already employ 

Page 34 GAO-07-561 CBP In-Bond System
risk-based targeting for all shipments, including in-bond cargo. However, 

we did not observe CBP efforts to prioritize closing open in-bond 

transactions based on risk. Open in-bond transactions appear on CBP 

reports without any designation of the importance of individual records. 

With limited resources available, we believe that CBP should prioritize its 

monitoring of open in-bond transactions to those that pose the most 

significant risks to revenue collection and other trade risks, and so we 

have not modified our recommendation. 

With respect to the third area of recommendations—for improving CBP’s 

compliance measurement program—DHS agreed with our 

recommendation to ensure that the program is consistently conducted by

the ports. DHS stated that CBP management will issue updated guidance 

to the field emphasizing the importance of conducting these audits in a 

timely manner and accurately reporting their findings. 

In our recommendations, we attempted to find a balance between the 

commercial interests of the various parties involved in international trade 

and the CBP requirements for information and structure in order to ensure 

that security goals, as well as revenue and law enforcement goals, are 

achieved. One of the persistent challenges of the in-bond program is that 

the unusual flexibility that the program provides to the trade community—

the limited information required, the time periods and lax notification 

requirements for shipments transiting the United States, and the ability to 

use multiple in-bond transactions for a single shipment—all exacerbate 

the challenges for CBP in performing its security and trade enforcement 

duties. 

As the report details, persistent weaknesses in the in-bond system existed 

long before customs functions shifted to DHS and now create new 

challenges for DHS in ensuring security of shipments entering the United

States. While DHS disagrees with three of our recommendations, we 

believe that the evidence of weakness in the system overwhelmingly 

demonstrates that a coherent set of modifications is needed. 

As agreed with your office, unless you publicly announce the contents of

this report earlier, we plan no further distribution until 30 days from the 

report date. At that time, we will send copies of this report to interested 

congressional committees as well as the Secretary of Homeland Security. 

We will also make copies of this report available to others upon request. In

addition, the report will be available at no charge on the GAO Web site at 

http://www.gao.gov. 

Page 35 GAO-07-561 CBP In-Bond System
If you or your staff have any questions about this report, please contact me 

at (202) 512-4347 or yagerl@gao.gov. Contact points for our Office of 

Congressional Relations and Public Affairs may be found on the last page 

of this report. GAO staff who made major contributions to this report are 

listed in appendix III. 

Loren Yager, Director 

International Affairs and Trade 

Page 36 GAO-07-561 CBP In-Bond System
Appendix I: Objectives, Scope, and Appendix I: Objectives, Scope, and Methodology 

Methodology 

To determine how the in-bond program addresses its trade, revenue, and 

cargo security functions, we examined relevant documents and conducted 

interviews to answer the following questions: (1) What is the in-bond 

system and to what extent is it used? (2) How has Customs Border 

Protection (CBP) managed the system to ensure that revenues are 

collected and trade concerns are minimized? and (3) How has CBP 

managed the system to ensure that security-related inspections are 

properly targeted? 

To obtain an understanding of the CBP in-bond system and assess the 

extent of its use, we analyzed laws, regulations, and relevant CBP policies, 

procedures, and related documents. We interviewed officials and 

examined documents at CBP headquarters and at six district port offices, 

including Buffalo, New York; Los Angeles/Long Beach, California; Laredo, 

Texas; Miami, Florida; New York, New York /Newark, New Jersey; and 

Seattle, Washington. Our work at the Seattle port district office included 

work at its Blaine, Washington, border port. We also visited the Port of 

Dallas, Texas, which is a major inland destination port for in-bond goods.

We also discussed industry views of the in-bond program with the National 

Brokers and Forwarders Association of America, Association of American 

Railroads, American Trucking Association, and National Association of 

Foreign Trade Zones. The six CBP district offices we visited processed the 

greatest numbers of noncourier in-bond transactions from October 2004 to 

March 2005. We used data from this period because CBP officials stated 

that they had recently assembled data for this period and that would pose 

a substantial work load for them to obtain more recent 2006 data. 

To determine how CBP has managed the system to address revenue and 

trade concerns, we examined in-bond guidance, policies, procedures, and 

practices at CBP headquarters and at the ports visited. To identify 

previously identified weaknesses in CBP’s management of trade and

revenue concerns related to the in-bond program, we examined audit 

reports by GAO, DHS Inspector General and public accounting firms. We 

noted internal control weaknesses in the in-bond program identified in 

previous audit reports and discussed these weaknesses with CBP 

headquarters and port officials. We discussed views of CBP headquarters 

and port management personnel regarding any trade related and revenue

risks associated with processing in-bond cargo and discussed actions 

taken to address these risks. We reviewed our previous work that assessed 

CBP’s data reliability and internal controls. We found some 

inconsistencies between various data sets we received and reported these

inconsistencies to CBP. These inconsistencies, however, did not indicate

Page 37 GAO-07-561 CBP In-Bond System
Appendix I: Objectives, Scope, and 

Methodology 

major discrepancies in the data, and for purposes of reporting on general

in-bond issues, we found CBP’s data sufficiently reliable. 

To determine how CBP has managed the system to ensure that securityrelated inspections are properly targeted, we examined CBP procedures 

for targeting security inspections of in-bond cargo and discussed these 

practices at CBP headquarters and at the ports visited. To assess the 

impact of not having entry information for in-bond cargo, we obtained 

data showing the impact of this information on the ATS security score 

assigned. We discussed views of CBP headquarters and port management 

personnel on security-related concerns associated with in-bond 

processing. 

We conducted our work from January 2006 through February 2007 in 

accordance with generally accepted government auditing standards. 

Page 38 GAO-07-561 CBP In-Bond System
Appendix II: Comments from the Department Appendix II: Comments from the Department of Homeland Security

of Homeland Security 

Note: GAO comments 

supplementing those in 

the report text appear at 

the end of this appendix. 

See comment 1. 

Page 39 GAO-07-561 CBP In-Bond System
Appendix II: Comments from the Department 

of Homeland Security

See comment 2. 

Page 40 GAO-07-561 CBP In-Bond System
Appendix II: Comments from the Department 

of Homeland Security

See comment 3. 

See comment 4. 

Page 41 GAO-07-561 CBP In-Bond System
Appendix II: Comments from the Department 

of Homeland Security

Page 42 GAO-07-561 CBP In-Bond System
Appendix II: Comments from the Department 

of Homeland Security

The following are GAO’s comments on the Department of Homeland 

Security letter dated April 2, 2007. 

1. We remain concerned that in-bond cargo routinely transits the United 

States without detailed descriptive information and may pose trade, 

revenue and security risks. However, in recognition of the legal 

concerns raised by DHS, we revised our recommendation to obtain 

additional information on in-bond cargo without requiring the 10 digit 

HTS number. In addition, we recommended that CBP—after 6 months 

of the implementation of new data requirements—report to Congress 

whether the enhance data obtained are adequate to address security 

and trade concerns or whether their current authority needs to be 

adjusted. 

GAO Comments 

2. We revised this recommendation to focus on using the additional 

information in CBPs’ Cargo Selectivity process. Since the Stratified 

Compliance Examination represents a randomly generated trade 

compliance exam at cargo entry, CBP can develop similar information 

for in-bond cargo when it implements our recommendation to improve 

it’s Tinman compliance measurement program. The revised 

recommendation indicates that CBP should use information from the 

amended in-bond form as input to the Cargo Selectivity process at the 

arrival port instead of limiting this process to cargo that has made 

entry for consumption. 

3. We modified the wording of this recommendation to state that CBP 

should develop a more systematic enforcement strategy in order to 

increase bondholder compliance in closing out open in-bond 

transactions. Although CBP has authority to issue penalties to 

bondholders for failure to close in-bond transactions, we noted a high 

number of open in-bond transactions at many CBP ports. CBP should 

consider strengthening its regulations to clearly communicate to 

bondholders their responsibility to close open in-bond transactions 

and increase enforcement of requirements to reduce the number of 

open in-bond transactions. 

4. We did not observe CBP efforts to prioritize closing open in-bond 

transactions based on the potential risk. Open in-bond records appear 

on CBP reports without any designation of the importance of 

individual records. With limited resources available, CBP should place 

a high priority on monitoring and closing open in-bonds transactions 

that pose the most significant risks. 

Page 43 GAO-07-561 CBP In-Bond System
Appendix III: GAO

A

 Contact and Staff 

cknowledgments 

Page 44 GAO-07-561

Appendix III: GAO Contact and Staff 

Acknowledgments 

GAO Contact Loren Yager, (202) 512-4128, or yagerl@gao.gov

In addition to the individual named above, Virginia Hughes, Assistant 

Director; Francisco Enriquez; Timothy Fairbanks; and Jessica Kaczmarek; 

made significant contributions to this report. Ernie Jackson, Karen Deans, 

Etana Finkler, and Stan Kostyla also provided assistance. 

CBP In-Bond System

Staff 

Acknowledgments 

(320369) 
GAO’s Mission The Government Accountability Office, the audit, evaluation and 

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