AUDIT RESULTS

took entry 5 months to even establish a liquidated damages
case. Our review of New York case files also revealed
delays in converting 11 liquidated damages cases from
failure to file to late file cases. These delays ranged from
approximately 10 weeks to over 13 months.

Detroit

In Detroit, our review of 38 case files revealed delays of 3
or more months in establishing failure to file cases against
15 entries. Delays in establishing cases ranged from 3 to
42 months. Furthermore, the delay was more than a year
for seven of these entries. For two other cases, the FP&F
Office had requested that entry cancel the entries, as
FP&F had received documentation to support canceling
the entries. However, Entry had not canceled these
entries 6.5 and 11 months after FP&F made its request.
Additionally, Entry had established a case against one
other entry, but had neither mailed the Demand Notice nor
forwarded the case file to FP&F for processing.

New Orleans

Our review of New Orleans’ case files detected delays
and/or deficiencies on the part of the Entry branch for 27
of the 44 cases. Included among these delays and/or
deficiencies are:

e Fifteen instances where the failure to file or late file
case was not established timely. Delays ranged from 4
to 18 months. This included four late file cases that
were established 6 or more months after the entry
summary was submitted late.

e Five instances where failure to file cases were not
converted to late file cases until 5 or more months
after the entry summary was filed late.

« Five instances where the entry summary had been filed
between 89 and 284 (89, 131, 165, 250 and 284) days
late, yet Entry had never established failure to file
entry summary cases. Furthermore, for two of these
five, late file cases were not established until 3 and 6
months, respectively, after the entries were filed.

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Appendix 3

MAJOR CONTRIBUTORS TO THIS REPORT

Office of Inspector General

Donald P. Benson, Director, Program Audits
Richard B. Tyler, Audit Manager

Nicholas H. Dahl, Auditor-in-Charge

May Szeto, Auditor

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AUDIT RESULTS

Delays in New York/Newark

In New York/Newark, we tested 69 entries, including all 19 entries
on the Area’s BO7 report as unpaid entries and 50 entries randomly
selected from the B08 report. Our review disclosed that 12 of the 19
unpaid entries had not been processed in a timely and/or efficient
manner. Examples of processing delays and inefficiencies included:

e three entries, unpaid after 757, 413 and 333 days respectively,
for which Customs had taken no action in an attempt to collect
the money due and which remained unpaid 6 months after our
initial query; and

e anentry, unpaid after 170 days, for which Customs had sent out
four separate letters requesting the entry be paid. Even though
the entry had not been paid in response to any of these letters,
Customs did not establish a liquidated damages case until after we
requested information on its processing of the entry.

Also, we found 32 of the 50 entries selected from the B08 report had
not been processed timely and efficiently. Most of these entries were
on sections of the report that the Newark Entry team was responsible
for reviewing. As discussed above, this Entry team had not been
taking appropriate action to resolve the BO8 report prior to our audit.
For instance, a number of these entry summaries were overdue by
more than one year, yet they remained on the report.

After we requested information on the status of all 69 entries that we
selected from the BO7 and B08 reports, Customs established
liquidated damages cases against 32 of the entries in November 1997.
Again, processing delays have impacted Customs ability to collect all
moneys due in a timely and efficient manner. As of October 1998,
some type of resolution had been reached on only 13 of these 32
cases--six had been closed when it was determined there had been no
violation, and collections were received for the other seven.
Although only 13 of 32 have had some type of resolution, $38,357 in
duties and liquidated damages claims have been paid, and additional
demands of $12,906 have been made on seven of these cases. Also,
for the other 19 cases that remain open, demands totaling $40,057
have been made. While over $38,000 has been collected on these
cases, it is unknown how much of the outstanding demand amount of
approximately $53,000 will ever be collected by Customs.

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AUDIT RESULTS

Conclusion

Customs ability to collect all moneys due--both for duties owed and
liquidated damages claims--has been hindered by delays on the part
of entry personnel in establishing cases and FP&F in processing
cases. Delays at the ports we visited were primarily due to a lack of
local management attention. As a result of our audit, Customs has
begun to take some corrective action, but more is needed. We
believe that Customs needs to implement our recommendations listed
above. Better controls and more aggressive actions to collect
overdue payments should result in about $550,000 in additional
collections. When combined with the $292,477 already collected,
total estimated collections should total over $842,000.

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Audit Results

EXECUTIVE DIGEST

The offices were selected due to the large number of entries on their
BO7 and/or BO8 reports at the time of our audit. At these three offices,
we interviewed personnel involved in processing entries and liquidated
damages cases and reviewed extensive documentation related to these
matters. Audit work was performed from October 1997 to

September 1998.

Customs needs to improve its collections of overdue payments. We
found that: (1) prior to our audit, Customs personnel in Newark were
not reviewing the B08 report listing overdue entry summaries and,
therefore, were not taking action to seek payment; (2) at the other
locations we visited, even when Automated Commercial System (ACS)
exception reports (BO7 and B08 reports) were reviewed, effective action
to resolve exceptions and collect overdue payments was not always
taken; and (3) liquidated damages cases were not processed timely. As
a result, significant revenues were not being collected. For example,
after Customs personnel in Newark began reviewing the B08 report,
additional revenue collections of $292,477 have been received. We
believe that about $550,000 more will be collected in Newark and
Detroit if Customs acts aggressively and implements our
recommendations. This amounts to total estimated collections of over
$842,000 in the two locations.

We also found a major internal control deficiency in the New
York/Newark Area. Certain employees with the ability to cancel or
delete entries are also responsible for reviewing the weekly report
listing cancellations. This practice poses a significant risk that
inappropriate and fraudulent transactions could occur. While we did
not find any inappropriate transactions, we can not provide assurances
that all canceled and deleted entries were properly supported. We
believe this also needs attention.

OIG-00-028

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Appendix 2

MANAGEMENT RESPONSE

Finding 2. Reviews of Entry Cancellation and Deletion Reports Are Inadequate

This finding is specific to the New York/Newark Area Entry branch. U.S. Customs
concurs with this finding. Comments, corrective actions and time frames for completion
for each recommended action item are as follows:

Recommendation 1:

Limit the functional ability to cancel entries.

Customs Response:
The following actions have been taken by Customs management in New York:

The ACS function code ENCN, used to cancel entries, has been removed from the ACS
function code profiles of all supervisory entry officers and entry specialists in the New
York/Newark Area. The function has been limited to entry specialist team leaders only.

The ACS function code SSAD, used to delete selectivity records, has been removed
from the ACS function code profiles of all entry specialists and entry specialist team
leaders in the New York Newark Area. This function is now limited to supervisory entry
officers and supervisory inspectors only.

Entry specialists will review entry cancellation/deletion requests that are submitted to
U.S. Customs by the trade. Entry specialists will determine if a cancellation/deletion is
justified. If a cancellation is determined to be appropriate, the entry specialist will
present all documentation to the entry specialist team leader who will have the
functional capability to perform the cancellation. If a deletion is determined, the entry
specialist will present all documentation to the supervisory entry officer or supervisory
inspector, as appropriate, who will have the functional capability to perform the
deletion.

Recommendation 2:
Institute procedures to ensure cancellation and deletion reports are reviewed on a

weekly basis by a disinterested party who does not have the ability to cancel or delete
entries.

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AUDIT RESULTS

¢ Two instances where Entry personnel had established
a case against the entry, but they had neither mailed
the Demand Notice to the violator nor had they
forwarded the case file to FP&F for processing.

While our review of FP&F case files was not statistically based,
it did provide substantial anecdotal evidence that the Entry
branches we visited were not processing overdue entries in a
timely manner. These processing delays negatively impact
Customs ability to timely collect moneys due. Furthermore,
lengthy delays increase the possibility that Customs may not
collect the moneys due at all.

As discussed previously, processing delays and deficiencies
existed because management has not taken adequate steps to
ensure the B08 report is reviewed and resolved in a timely
manner. For example, in Detroit, action had not been taken to
ensure requirements (i.e. proof of import) for establishing cases
have been met. Furthermore, Management Control Compliance
Reviews that might have detected processing deficiencies were
not comprehensive enough to provide adequate coverage of entry
processing. Reviews of entry processing provided only a cursory
review of Entry personnel efforts to resolve the BO8 report and
establish liquidated damages cases.

FP&F Case Processing Inconsistencies

Customs regulations, as described in 19 Code of Federal
Regulations 172, allow a bond principal 60 days, from the date
the notice of liability for liquidated damages is mailed, to file a
petition for relief. If the principal does not pay the claim,
arrange to pay the claim or file a petition within the 60-day
period, then the surety is notified of the claim. The surety then
has 60 days to file a petition for relief. If no response is received
from either the principal or the surety, Customs is to issue bills to
both parties demanding payment of the unpaid claims. While
there is no statutory requirement for reviewing petitions within a
certain time frame, the system used to track FP&F cases,
SEACATS, sets action due dates 90 days from the date a petition
is received.

Prior to the implementation of SEACATS, the FP&F module of
ACS automatically generated follow-up notices to sureties when

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AUDIT RESULTS

for the same merchandise or because merchandise never arrived.
Entries should only be canceled or deleted if the broker or importer
provides documentary proof supporting such action. The process of
canceling or deleting an entry is accomplished through the use of
ACS function codes Entry Cancellation (ENCN) or Cargo Selectivity
Delete (SSAD).

Both of these codes are defined in Customs Directive (CD)
099-5610-005, ACS Security Management Control Program, dated
July 22, 1993, as critical function codes, meaning these function
codes should be assigned only to qualified employees. According to
this directive, recommended users of the ENCN function code are
lead Customs aides and Entry branch supervisors. Recommended
users of SSAD are supervisory inspectors and Entry control
supervisors.

When an entry is canceled or deleted, it will appear on the
appropriate ACS exception report. Cancellations appear on the B06
report, ACS List of Rejected And Canceled Entries, and deletions
appear on the S21, Cargo Selectivity Weekly Selectivity Delete
Report. The B06 report lists all entry cancellations for the week. It
also provides the reason for the cancellations. The $21 report lists
entries that were processed through the ACS selectivity module that
were later deleted. This report also provides the reason for
deletions. Neither report is cumulative.

According to CD 099-5610-004, Resolving Certain ACS Exception
and Error Reports As They Relate To Entry Branches, dated June 18,
1993, the B06 report is to be reviewed on a weekly basis, and any
and all discrepancies are to be resolved. The directive also states
each Entry unit must maintain a file of all canceled entries with
supporting documents. The S21 report is not discussed in this
directive, as it is not considered to be an entry-related report.
According to the ACS Reports Handbook, typical users of this report
would be Inspection and Control and Operational Analysis staff
personnel. However, at certain locations, including New
York/Newark, some Entry unit personnel have the functional ability
to delete entries.

During our audit, we reviewed procedures for canceling and deleting
entries to determine whether controls were in place to reduce the risk
of inappropriate and/or fraudulent transactions. We found the
controls adequate in New Orleans and Detroit, but in the New
York/Newark Area weaknesses existed.

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AUDIT RESULTS

Our review of 38 case files in Detroit revealed a number of
processing delays on the part of FP&F. For example:

e Eleven cases where no follow-up action had been taken
when a broker or surety had not responded to a demand
notice within 60 days. At the time of our review, delays
since the issuance of demand notices were between 4.5
and 25 months.

e Ten cases where it took FP&F between 5 and 22 months
to respond to petitions for relief filed by the violator or
surety.

e One case where a demand on surety was not made until
30 months after the violator failed to respond to FP&F’s
request for documents.

e One case where FP&F returned a check to the violator
because it was for the wrong amount, yet even though a
new check was not submitted, FP&F had not taken any
action as of 9 months later.

FP&F officials informed us they did not have the resources to
generate manual notices for those cases where they did not
receive a timely response from the violator. We were also
informed that headquarters had not required the field locations
to manually issue demand notices. Additionally, there is no
statutory requirement for reviewing petitions within a certain
period of time. Due to other priorities and increased
workload, petitions have not been processed timely, according
to FP&F officials.

While FP&F was neither required to issue manually generated
follow-up notices nor to review petitions within a certain time
frame, failure to do so had contributed to a sizable backlog of
liquidated damages cases. For example, a February 1998
Action Past Due report for Detroit showed 704 cases where
no response had been received from the violator and no
further action had been taken by FP&F. There were also 498
cases where FP&F had not responded to a petition within 90
days. It should also be noted that FP&F had stopped
conducting Management Control Compliance Reviews of
Liquidated Damages Case Processing when SEACATS came

on-line in November 1996.

OIG-00-028

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Appendix 2

MANAGEMENT RESPONSE

Customs Response:

Supervisory entry officers in New York/Newark have been instructed to review and
annotate the BO6 (ACS List of Cancelled Entries) report on a weekly basis. Entry
specialist team leaders review and annotate the S21 (Weekly Selectivity Delete Report)
on a weekly basis

Recommendation 3:

Maintains documentation supporting entry cancellations and deletions for a reasonable
period of time.

Customs Response:

Entry Specialists in New York/Newark are now required to maintain all
cancellation/deletion documentation on site for 6 months. After 6 months, the
documentation will be batched in files and forwarded to Documents Control for storage

Recommendation 4:

Institutes appropriate management control reviews of entries canceled and deleted by
Entry branch personnel.

Customs Response:

The Self-Inspection Program worksheets are updated on a quarterly basis, and the next
update is scheduled for December 1999. The Office of Field Operations will ensure
that the next update included requirements for more comprehensive review of entries
canceled or deleted by Entry branch or inspectional personnel

U.S. Customs will also take action to issue a directive to all field offices to establish
national policy that will require a separation of duties between Customs employees who
have the functional capability to cancel! or delete entries, and Customs employees who
are responsible for reviewing the $21 and BO6 reports. The directive will also require
that all supporting documentation for entry cancellations and deletions be maintained
on-site for a reasonable period of time. Port Directors will be responsible for ensuring
that the reports are reviewed on a weekly basis, and that a separation of duties is in
place if staffing allows. The directive will be issued by December 31, 1999, and will be
referenced in the Self-Inspection worksheets.

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AUDIT RESULTS

10 entries. The March 1997 review included a finding that no
action had been taken on 2 of the 10 sampled entries. However,
no recommendation regarding this finding was included in the
recommendations section of the review report.

Among the 10 entries sampled for the January 1998 review were
one entry released in 1992 and three released in 1996. However,
even though the review identified that cases had not been
established, nor had the entries been canceled, this was not
identified as a deficiency. Thus, there was no recommendation
made that more timely action be taken to resolve these entries.

In New York/Newark, processing deficiencies existed because
management had not taken steps to ensure that the Newark Entry
team was properly reviewing and resolving the B08 report.
Responsibility for reviewing the report was new to the Newark Entry
team, as prior to Customs reorganization in 1995, the New York
Entry teams were responsible for these reviews. While functions
changed under the reorganization, Area management was ultimately
responsible for ensuring that required duties continued to be
accomplished. Furthermore, Management Control Compliance
Reviews that might have detected the Newark Entry team’s
deficiencies in processing the B08 report and establishing liquidated
damages cases were not comprehensive enough to provide adequate
coverage of the Area’s entry processing. Entry processing reviews
were only conducted twice a year, and each covered only one of the
five Entry teams in the Area. Additionally, the reviews called for
only a cursory review of the B08 report and did not evaluate whether
liquidated damages cases were being established timely. FP&F
conducted Liquidated Damages Case Processing reviews on an
annual basis. These annual reviews were limited to reviews of only
five open and five closed cases.

Review of FP&F Case Files Also Revealed Processing Deficiencies

The paragraphs above describe our testing of entries for which
liquidated damage cases had not yet been established. To
augment this testing, we also sampled liquidated damages cases
already established to see if similar delays occurred. Our sample
consisted of 45 liquidated damages case files maintained by the
FP&F Office in New York, 38 in Detroit and 44 in New Orleans.
These reviews provided additional evidence that Entry units did
not establish liquidated damages cases in a timely manner, and

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OBJECTIVES, SCOPE AND METHODOLOGY

The objective of this audit was to determine whether Customs has
taken appropriate action to minimize losses from those importers and
brokers who become delinquent in their duty payments. We focused
our efforts on reviewing activities of Customs personnel at the New
York/Newark Area office and the ports of Detroit and New Orleans.
These offices were selected due to the large number of entries on
their BO7 and/or BO8 reports. At the time of our audit, roughly 66
percent of all late entry summaries were from these three locations.
At the three offices, we interviewed personnel involved in processing
entries and liquidated damages cases, and tested entries from the BO7
and B08 reports. We also reviewed a significant number of FP&F
liquidated damages case files.

Additional fieldwork was conducted at Customs Accounting Services
Division located in Indianapolis. We also conducted preliminary
survey work at the port of Boston and Customs headquarters. We
performed our audit between October 1997 and September 1998.
Reports current at the time of our on-site reviews were utilized in
selecting entries and FP&F cases for review.

We documented and reviewed management controls associated with
Entry and FP&F operations, and conducted limited testing for
possible fraud. Except for the weaknesses cited in this report, we did
not identify any other weaknesses in management controls, nor did
we find any fraudulent transactions.

The audit was conducted in accordance with Government Auditing
Standards issued by the Comptroller General of the United States and
included such audit tests as were determined necessary.

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Appendix 2

MANAGEMENT RESPONSE

U.S. Customs Service
Response to OIG Draft Report of
Customs Efforts to Collect Overdue Payments

Finding 1. Revenue is Not Being Received Timely Because Customs Has Not
Taken Appropriate Steps to Collect Overdue Payments

U.S. Customs concurs with this finding. Comments, corrective actions and time frames
for completion of each recommended action item are as follows:

Recommendation 1:

Issue a memorandum to all ports emphasizing the importance of: (a) following
established Customs directives and guidelines in processing late and unpaid entry
summaries and liquidated damages cases and (b) conducting regular Management
Control Compliance Reviews.

Customs Response:

A memorandum will be issued to all Customs ports emphasizing the importance of
following Customs directive and guidelines in processing late and unpaid entry
summaries and liquidated damages cases. This memorandum will also emphasize the
importance of conducting regular Self-Inspections. The Office of Field Operations will
issue this memorandum no later than October 1, 1999.

On February 25, 1999 an Information Notice entitled Management Control Reviews and
Self-Inspections was issued to notify Customs field offices that the Self-Inspection
Program has replaced the Customs Management Contro! Review Program. The Self-
Inspection Program is now the official Customs response to the management controls
review strategy required by the FMFIA and Office of Management and Budget (OMB)
Circular A-123. A Customs Directive outlining the requirements for the new Self-
Inspection Program is currently being developed, and will be issued by December 31,
1999,

Recommendation 2:
Require Management Control Compliance Review checklists be updated to ensure

more comprehensive reviews of Entry's processing of entries and Fines, Penalties, and
Forfeiture’s processing of liquidated damages cases.

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AUDIT RESULTS

Entry personnel could not explain missing reports and supporting
documentation. However, it is reasonable to assume that missing
documentation is at least partially explained by the lack of
appropriate controls over the process of reviewing cancellation and
deletion reports.

Management Control Compliance Reviews Inadequate

Management Control Compliance Reviews did not provide
adequate coverage of entry cancellations or deletions.
Management Control Compliance Reviews of entry processing
call for the reviewer to check for weekly reconciliation of the
cancellation report by Entry supervisors for entries canceled by
Entry team employees. In addition, the reviewer should
determine, where necessary and possible, whether the assignment
of tasks allows for sufficient separation of duties. However, the
two most recent Management Control Compliance Reviews did
not identify that reports were not being reviewed by Entry
supervisors or that many weekly reports did not appear to have
been reviewed. The reviews also did not reveal that Entry
specialists and/or team leaders were responsible for both
canceling entries and reviewing the cancellation report.
Furthermore, even though Entry personnel were responsible for
deleting entries, there was no Management Control Review of
deletions performed by Entry personnel.

In our opinion, there is inadequate control over the cancellation and
deletion of entries in the New York/Newark Area. The combination
of allowing employees with the functional ability to cancel or delete
entries to also be responsible for reviewing cancellation and deletion
reports; the apparently inconsistent review of cancellation and
deletion reports; missing documentation supporting cancellations and
deletions; and inadequate Management Control Compliance Reviews,
precludes Customs from the assurance that all cancellations and
deletions are appropriate. While our review did not disclose
inappropriate or fraudulent transactions, we could not reach a
conclusion on many of the transactions we sampled because of the
lack of supporting documentation. Furthermore, we were left with
the belief that entries could be inappropriately canceled or deleted
without being detected in the review process.

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TABLE OF CONTENTS

EXECUTIVE DIGEST i
BACKGROUND 0.00.00... 000ccccccccccec cece eect eee teat teense nee nennneneeees 1
OBJECTIVES, SCOPE AND METHODOLOGY ................0ee 3
AUDIT RESULTS..........0..00 ccc eect e seers teeta nena ene 4

Finding 1 Revenue Is Not Being Received Timely Because Customs Has
Not Taken Appropriate Steps To Collect Overdue Payments............... 4

Finding 2 Reviews Of Entry Cancellation And Deletion Reports Are Inadequate... 18

APPENDICES
Appendix 1 Abbreviations ................cccceeeeceseeeeee sees eeeeeeeeaueeeesunneeeeeees 24
Appendix 2 Management Response ...............ccccseeeeeeseeeeecseeeeee esse eeeneeeaes 25
Appendix 3. Major Contributors to this Report ............000..c..ssseeeeesseeeeeeeees 30
Appendix 4 Report Distribution ..............0.. cece cece cc eeeeceeece ences eeseneeenesenes 31
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EXECUTIVE DIGEST

Recommendations

We made recommendations aimed at improving Customs review and
collection of overdue payments. For example, we recommended that
Customs: (1) issue guidance emphasizing the importance of processing
late and unpaid entry summaries and liquidated damage cases, (2)
update its internal review programs and (3) establish new liquidated
damage cases as necessary. We also made a recommendation to
improve the internal controls in New York/Newark.

Management Response and OIG Comment

Customs concurred with our findings and recommendations and has
implemented, or is in the process of implementing, corrective actions
which meet or exceed the requirements of our recommendations.

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AUDIT RESULTS

also revealed inconsistencies in processing established liquidated
damages cases by Detroit and New York FP&F personnel.

Delays in Establishing Cases

Customs regulations require that entry summary documentation
be filed, with estimated duties attached, within 10 working days
after the time of entry. Typically, Entry units, as part of their
attempt to resolve entries listed on the BO8 report, will send a
letter to the broker requesting that the broker either file the
overdue entry summary or provide proof the entry should be
canceled. These letters usually request a response within 5 to 15
days. Since entries do not appear on the BO8 report until they are
2 weeks overdue, it would seem reasonable to expect entries to be
as late as 6 weeks overdue before a case is established for failing
to comply with Customs regulations.

Customs regulations state that, if an entry summary is filed late,
an immediate demand for liquidated damages should be made.
Therefore, it would seem that once an entry summary is filed
late, cases should be established quickly. When an importer or
broker files an entry summary in response to a failure to file
entry summary case issued by entry personnel, entry personnel
then convert the case to a late file case. Late file cases can be
closed if the violator pays what is known as an Option 1 amount.
The Option 1 amount on these cases is equal to $200 plus penalty
interest on the amount that was due on the entry. Usually, this is
significantly less than the demand amount shown on the CF
5955A, Demand Notice.

Our review of FP&F case files in New York, Detroit and New
Orleans revealed delays on the part of Entry personnel in
establishing both failure to file and late filing of entry summary
cases, and also in converting failure to file cases to late file cases
after the entry summary was filed.

New York

In New York, our review of 45 case files revealed delays
of more than 10 weeks in establishing either a failure to
file or a late filing case for 11 entries. Delays in
establishing cases ranged from 2.5 to 22 months. This
included a lengthy delay of 5 months to establish a late file
case. In other words, once this entry was filed late, it

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BACKGROUND

Liquidated Damages Incurred and Demand for Payment (referred to
throughout this report as Demand Notice). Entry personnel mail
these penalty notices to the violator, then forward the case file to the
Fines, Penalties and Forfeitures (FP&F) office.

The FP&F office is responsible for administrative processing and
tracking of all liquidated damages cases. The importer or broker has
60 days to either file a petition for relief or make payment of the
assessed amount. If the importer or broker files a petition, and
Customs finds there are extenuating circumstances that warrant
mitigation, relief is granted as prescribed by Customs guidelines. If
the importer neither files a petition for relief nor makes payment, a
copy of the CF 5955A is sent to the surety (bond guarantor). The
surety then has 60 days to either file a petition for relief or make
payment of the assessed amount. If no response is received from
either the bond principal (importer) or the surety, Customs is to issue
bills to both parties demanding payment of the unpaid claims.

OIG-00-028

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AUDIT RESULTS

Finding 2. Reviews Of Entry Cancellation And Deletion Reports Are
Inadequate

Recommendation

Reviews of entry cancellation and deletion reports in the New
York/Newark Area do not provide adequate assurance that all
cancellations and deletions are appropriate. Specifically, our audit
revealed that Entry specialists and team leaders, who have the
functional ability to cancel entries, are also responsible for reviewing
the weekly report that lists entry cancellations. Also, Entry
supervisors, who are responsible for processing entry deletions, are
also responsible for reviewing the weekly report that lists entry
deletions. Furthermore, our review of entry cancellation and
deletion reports and supporting documentation identified reports that
revealed no evidence of review, and cancellations and deletions listed
on the reports for which there was no supporting documentation.

These conditions exist because management has not ensured
appropriate management controls have been effectively implemented
and followed. Allowing employees who have the functional ability to
cancel or delete entries to also be responsible for reviewing the
reports, decreases control over the process and increases the risk of
inappropriate and possibly fraudulent transactions. While our review
did not reveal any inappropriate or fraudulent transactions, neither
did it provide assurance that all canceled and deleted entries were
properly supported and reviewed.

We recommend the Commissioner of Customs ensures that the
New York/Newark Area Entry branch management takes the
following actions:

1. Limits the functional ability to cancel entries.
2. Institutes procedures to ensure cancellation and deletion
reports are reviewed on a weekly basis by a disinterested

party who does not have the ability to cancel or delete entries.

3. Maintains documentation supporting entry cancellations and
deletions for a reasonable period of time.

4. Institutes appropriate management control reviews of entries
canceled and deleted by Entry branch personnel.

OIG-00-028

U.S. CUSTOMS SERVICE EFFORTS TO
COLLECT OVERDUE PAYMENTS Page 18


U.S. CUSTOMS SERVICE
EFFORTS TO COLLECT
OVERDUE PAYMENTS

OIG-00-028 January 4, 2000

Office of Inspector General

Peer’

United States Department of the Treasury



AUDIT RESULTS

2. Require Management Control Compliance Review checklists be
updated to ensure more comprehensive reviews of Entry’s
processing of entries and Fines, Penalties, and Forfeiture’s
processing of liquidated damages cases.

3. Ensure action is taken to establish liquidated damages cases, as
appropriate, against backlogged entries in New York/Newark and
Detroit.

Management Response and OIG Comment

Customs concurred with this finding and has satisfactorily
implemented our recommendation. Customs will issue a
memorandum to all ports emphasizing the importance of following
Customs guidelines in processing late and unpaid entries and
liquidated damages cases. Customs will also perform reviews under
a recently enacted Self-Inspection Program to assess the timeliness
and effectiveness of the processing of entries and liquidated damages
cases. At New York/Newark and Detroit, action has been taken to
resolve backlogs and to establish additional liquidated damages cases.

Details
New York/Newark Entry Team Was Not Resolving the
B08 Report On a Regular Basis

Prior to our audit, the New York/Newark Area Entry team located in
Newark‘ was neither reviewing the ACS BO8 report, nor attempting
to resolve the listed entries, on a consistent basis. Rather than
reviewing the report, they were sending a copy of the report to the
applicable brokers once or twice a month seeking explanations for the
listed entries. Even if the broker did not respond, Entry would not
establish liquidated damages cases. Due to these processing
inconsistencies, sizable backlogs of entries existed on the B08 reports
that the Newark Entry team was responsible for reviewing. As of
October 25, 1997, these BO8 reports contained 1,126 entries.

Coincidental with our initial on-site review, the Newark Entry team
had been instructed to begin reviewing the report on a weekly basis
and to start establishing liquidated damages cases when they did not
receive timely responses from the broker. Due to the sizable backlog

* There are five entry teams in Customs New York/Newark Area - four in New York City and one in

Newark, NJ. The information included in this section only refers to the team located in Newark.

OIG-00-028 U.S. CUSTOMS SERVICE EFFORTS TO
COLLECT OVERDUE PAYMENTS Page 5



AUDIT RESULTS

Finding 1. Revenue Is Not Being Received Timely Because Customs Has
Not Taken Appropriate Steps To Collect Overdue Payments

Recommendation

Customs has not taken appropriate steps to collect overdue payments.
At the Customs locations we visited, overdue payments for imported
goods were not being effectively collected, and liquidated damages
claims were neither established consistently nor processed timely.
Specifically, we found

e prior to our audit, the Newark Entry team was not reviewing the
Automated Commercial System (ACS) exception report listing
overdue entry summaries;

e even when ACS exception reports were reviewed, timely and
consistent action to resolve exceptions was not taken by the Entry
branches in New York/Newark, Detroit, and New Orleans; and,

e once liquidated damages cases were established by Entry
branches, FP&F processing of the cases was not timely or
consistent in New York/Newark and Detroit.

These conditions, which existed primarily due to a lack of local
management attention, have hindered Customs ability to collect
revenue due to the Government. For example, as a result of our
audit, collections totaling $292,477 have already been realized in
New York/Newark. We believe that about $550,000 more could be
collected if Customs acts aggressively to collect overdue payments in
New York/Newark and Detroit. This includes $321,977 in New
York/Newark and $228,006 in Detroit. Thus, in total, we estimate
that Customs will realize just over $842,000 in collections from these
overdue payments ($292,477 collected plus $550,000 estimated).

We recommend that the Commissioner of Customs take the following
actions:

1. Issue a memorandum to all ports emphasizing the importance of
(a) following established Customs directives and guidelines in
processing late and unpaid entry summaries and liquidated
damages cases, and (b) conducting regular Management Control
Compliance Reviews.

OIG-00-028

U.S. CUSTOMS SERVICE EFFORTS TO
COLLECT OVERDUE PAYMENTS Page 4


Appendix 2

MANAGEMENT RESPONSE

UNITED STATES GOVERNMENT DEPARTMENT OF THE TREASURY

Memorandum UNITED STATES CUSTOMS SERVICE

DATE: September 2, 1999
FILE: AUD-1-OP SMT
MEMORANDUM FOR DENNIS S. SCHINDEL
ASSISTANT INSPECTOR GENERAL FOR AUDIT
FROM: Director, Office of Planning

SUBJECT: United States Customs Service Efforts to Collect
Overdue Payments

Thank you for providing us a copy of your draft audit report of Customs Efforts to
Collect Overdue Payments. We have reviewed it and generally agree with its findings
and would like to have the attached comments incorporated into your final report. The
attached response does not warrant protection under the Freedom of Information Act.

Once again, we appreciate the opportunity to respond to your draft response. If you
have any questions, please have a member of your staff contact Ms. Brenda Brockman

at (202) 927-1507
wii RIS ~
Vy

Attachment

Cc: Chief of Staff

OIG-00-028 U.S. CUSTOMS SERVICE EFFORTS TO
COLLECT OVERDUE PAYMENTS Page 25


, Appendix 1

ABBREVIATIONS

ACS Automated Commercial System

BO7 report ACS List of Unpaid and Rejected Entries

BO8 report Late Report: These Entry Releases Have No
Follow-up Summaries

CD Customs Directive
CF Customs Form
ENCN Entry Cancellation
FP&F Fines, Penalties and Forfeitures
SEACATS _ Seized Assets Case Tracking System
SSAD Selectivity Delete
OIG-00-028 U.S. CUSTOMS SERVICE EFFORTS TO

COLLECT OVERDUE PAYMENTS Page 24


BACKGROUND

The mission of the United States Customs Service (Customs) is to
ensure that all goods and persons entering and exiting the United
States (U.S.) do so in accordance with all U.S. laws and regulations.
A major responsibility in fulfilling this mission is assessing and
collecting Customs duties, excise taxes, fees and penalties due on
imported merchandise. The Office of Field Operations is the
organizational unit responsible for managing and establishing the
policies, procedures and systems related to processing merchandise
that enters the U.S. at each of Customs 301 ports of entry. Through
the management of these ports of entry, Office of Field Operations is
responsible for assessing and collecting duties. In Fiscal Year 1998,
Customs collected about $19 billion in duty revenues and processed
over 9 million import entries.

To enter imported merchandise into commerce, an importer, or a
broker acting on behalf of an importer, files a Customs Form (CF)
3461, Entry/Immediate Delivery. Within 10 working days of
merchandise release, the importer or broker is required to file an
entry summary using a CF 7501, Entry Summary. The entry
summary provides line item descriptions of the type, quantity and
value of the imported merchandise. Payment for the estimated
duties, taxes and fees owed is to accompany the entry summary.

If payment and/or an entry summary is not filed, then the entries
appear on one of the two following internally generated reports: ACS
List of Unpaid and Rejected Entries’ (BOT Report) and Late Report:
These Entry Releases Have No Follow-Up Summaries (B08 Report).
As an important internal control, Customs policy requires these
reports to be reviewed weekly in an attempt to reach resolution and
to establish liquidated damages® cases against the importer or broker.

Liquidated damages cases for “failure to file entry summary” or for
“late filing of an entry summary” are typically initiated by Entry
branch personnel. Entry personnel open cases utilizing Customs
automated Seized Assets Case Tracking System (SEACATS). After
opening the case, they generate a CF 5955A, Notice of Penalty or

? ACS refers to Automated Commercial System.

> Liquidated Damages: Monetary assessments made for breach of one or more conditions in bonds posted
with Customs to ensure protection of revenue or to guarantee compliance with laws and regulations
administered by Customs.

OIG-00-028 U.S. CUSTOMS SERVICE EFFORTS TO
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AUDIT RESULTS

no response was received from the violator. Also, bills were
automatically generated when the surety did not respond. When
SEACATS came on-line, these features were not functional.

Our review of case files showed that the FP&F office in New
Orleans was adequately following up on their cases. However, in
New York and Detroit there were many processing inconsistencies.
These FP&F offices were not sending follow-up notices to sureties
when violators were not responding to the initial demand notice
within 60 days. Nor were they responding to petitions filed by
brokers or sureties in a timely manner.

New York

In New York, we noted that for 12 of 45 cases, FP&F had not
taken any action when the violator had not responded to the
initial demand notice within 60 days. Delays noted varied
from 76 to 189 days. FP&F officials in New York informed
us that their policy was to either send, via certified mail,
manually generated follow-up notices to sureties or place a
courtesy telephone call when they did not receive a response
from the violator. However, our review revealed no

instances where the surety was notified when there had not
been a timely response from the bond principal.

For one other case, we noted that Customs had issued bills to
the surety starting in September 1996. The bills noted the
claim was delinquent and that if not settled immediately,
sanctions and legal action would be considered. However,
even though the surety had not responded with either a
payment or a petition for relief, FP&F took no further action
until May 1997, and payment was not received until August
1997.

A May 1998, FP&F Case Listing Log for New York’s FP&F
office showed 316 cases where the violator had not responded
to the initial demand within 60 days and no further action had
been taken by FP&F. The log also showed 51 cases where
the surety had not responded to a follow-up notice within 60
days and FP&F had taken no follow-up action.

Detroit

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AUDIT RESULTS

OIG-00-028

Separation of Duty Concerns

Entry Cancellations

We discovered that on some New York/Newark Area Entry teams,
Entry specialists, who have the functional ability to cancel entries,
are also responsible for conducting the weekly reviews of the
cancellation report. The Entry specialists on these teams are
responsible for reviewing the report on a rotating basis. The Entry
supervisor for these teams stated that specialists are supposed to
obtain authorization from either him or a team leader before they
cancel entries. However, since they have the functional ability to
cancel entries without obtaining authorization, there is nothing to
prevent them from doing so. This creates a situation where entry
specialists could be canceling entries at the same time they are
responsible for reviewing, and ensuring the appropriateness of, the
cancellation report.

Delegating both the authority to cancel entries and responsibility for
reviewing the cancellation report to Entry specialists is a concern.
While management might deem delegating the authority to cancel
entries to Entry specialists instrumental to successfully accomplishing
the branch’s mission, they should ensure that the appropriate
separation of duties are in place over the review of the cancellation
report.

On other Entry teams, the team leader is responsible for both
canceling entries and weekly review of the B06 report. Again, this is
a situation where there is no separation of duties. Responsibility for
reviewing the report should be delegated to an individual who does
not have the ability to cancel entries.

Entry Deletions

A similar situation exists concerning entry deletions. For four of the
five Entry teams in the New York/Newark Area, the two Entry
supervisors are responsible for deleting entries. One of the
supervisors stated he reviews the weekly deletion report. However,
since he is reviewing deletions he processed, there is no separation of
duties between the process of deleting entries and reviewing the
deletion report. The other supervisor stated she does not review the
S21 report. She does, however, keep the report on file with the
applicable supporting documentation. On the other Entry team, the

U.S. CUSTOMS SERVICE EFFORTS TO
COLLECT OVERDUE PAYMENTS Page 21


EXECUTIVE DIGEST

Overview

The United States Customs Service’s (Customs) ports of entry are
responsible for collecting duties, taxes, fees, and, applicable penalties
on merchandise imported into the United States. This is done through
the process of an importer, or a broker acting on behalf of an importer,
filing an entry document before merchandise can be released. Within
10 working days of merchandise release, the importer or broker must
file a detailed entry summary accompanied by payment of any duties,
taxes and fees due. In the event that an entry summary is filed without
payment, or not filed at all, Customs should take action to establish a
liquidated damages case seeking payment of any duties, taxes and fees
due, plus an additional penalty amount.

The principal internal control in this process involves Customs officials
at the ports of entry reviewing two internally generated reports that list
unpaid entries and entries with no follow-up entry summaries. Customs
policy requires that these reports, entitled ACS List of Unpaid and
Rejected Entries (BO7 report)’ and Late Report: These Entry Releases
Have No Follow-Up Summaries (B08 report), be reviewed weekly in an
attempt to reach resolution and to establish liquidated damages cases
against the importer or broker.

This report addresses Customs efforts to collect overdue payments and
liquidated damages through their review of the BO7 and BO8 reports.
We conducted this audit as part of the Office of Inspector General’s
continuing review of Customs program activity.

Objectives, Scope and Methodology

The objective of this audit was to determine whether Customs has taken
appropriate action to minimize losses from those importers and brokers
who become delinquent in their duty payments. We focused our efforts
on reviewing activities of Customs personnel at the New York/Newark
Area office and the ports of Detroit and New Orleans.

1 ACS refers to Automated Commercial System.

OIG-00-028

U.S. CUSTOMS SERVICE EFFORTS TO
COLLECT OVERDUE PAYMENTS Page i


AUDIT RESULTS

OIG-00-028

Delays in Detroit

The BO8 report for Detroit contained a significant number of entries.
As of February 1, 1998, there were 535 entries on the report,
including 423 (79.1 percent) that were more than 8 weeks overdue.
Detroit Entry teams only review the BO8 report once a month.
Rather than reviewing the B08 report on a weekly basis, the Detroit
Entry teams instead review the B15 report, 4 Week Extract Late
Report: These Entry Releases Have No Follow-Up Summaries,
weekly. This non-cumulative report lists entries 4 weeks after cargo
is released, if no entry summary has been filed.

In Detroit, we tested 50 entries randomly selected from the port’s
February 1, 1998, BO8 Report, and found 42 had not been processed
in a timely and/or efficient manner. As of April 1998, the Entry
branch had neither reached resolution nor established liquidated
damages cases against 32 entries with release dates ranging from
April 1992 to November 1997. This included eight entries for which
the Entry branch had sent letters to the broker requesting the entries
be submitted. The brokers had not responded with either the entry
summary or proof the entry should be canceled for any of these
entries. Also, these letters were either sent to the brokers months
after the entry summary was due or had been sent months before our
review, and entry personnel had taken no follow-up action when they
did not receive a response. Examples included:

¢ one entry, released in August 1996, for which the letter to the
broker requesting the entry be submitted was not sent until
January 20, 1998; and

e another entry, released in August 1997, for which the letter was
sent on November 6, 1997. Even though entry did not receive a
response, no further action had been taken as of April 1998.

The other 24 entries for which no liquidated damages cases were
established involves a situation unique to Detroit. In Detroit, due to
a local policy initiated by the FP&F officer, Entry personnel do not
establish liquidated damages cases without proof of import--usually a
manifest. In these 24 instances, Entry personnel had requested proof
of import from the Customs inspection stations but had received no
response. These requests, dating back to 1996, include the
following:

U.S. CUSTOMS SERVICE EFFORTS TO
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AUDIT RESULTS

Additionally, $55,577 remains due on the 352 established late file
cases. These projections total $321,977.

Detroit

If the Detroit Entry branch was able to establish liquidated damages
cases against the backlog of entries on their BO8 report--either
because the inspection stations started to provide requested manifests
or because the FP&F Officer altered policy to allow it--significant
revenue collections could be realized. For example, if the Entry
branch determined cases should be established against the entries on
their report, collections of $228,006 could be expected (535 cases X
89.3 percent of cases not canceled X $477).’ However, since the
Entry branch follows FP&F guidelines against establishing cases
without proof of import and since the inspection stations have not
provided proof of import for those entries we tested, these collections
might never be realized.

Need for Better Management Oversight

In Detroit, cases have not been established timely or efficiently
because management has not taken steps to ensure requirements
for establishing cases have been met. Namely, action has not
been taken to ensure manifests, or other proof of import, are
provided in a timely manner to entry personnel. Furthermore,
Management Control Compliance Reviews that might have
detected the Entry branch’s deficiencies in establishing liquidated
damages cases did not adequately assess the branch’s entry
processing.

The Management Control checklist for review of the B08 report
asks whether (1) a request was made to the broker for submission
of the entry; (2) a liquidated damages case was issued; and (3) if
a case was not issued, was the entry canceled with proper
documentation. While these seem to be valid questions, the
sample reviewed is only 10 entries, and when answers to these
review questions are negative, further action does not appear to
be taken. For example, the latest reviews that we obtained,
conducted in March 1997 and January 1998, each covered only

? The 89.3 percent collection rate utilized is the same as that detailed on p. 6 for Newark. The $477 figure is
comprised of: $165, which was the average collection per entry in Detroit during fiscal year 1998; $112 in
interest, which is 68 percent of the average entry collection-this is the same percentage as was computed in
Newark; and, the $200 Option 1 amount due on failure to file cases.

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Page 2

We have made recommendations to improve the collection of
overdue payments and internal controls. In responding to our
draft report, you detailed a set of corrective actions that,
when fully implemented, will satisfactorily address our
recommendations.

We would like to extend our appreciation to Customs for the
cooperation and courtesies extended to our staff during the
review. If you have any questions, please contact me at
(202) 927-5400, or a member of your staff may contact
Donald Benson, Director, Program Audits, at (617) 223-8640.

cc: William A. Keefer, Assistant Commissioner, Office of
Internal Affairs
Brenda A. Brockman, Director, Evaluation Oversight Staff,
Office of Planning

Attachment


Appendix 4

REPORT DISTRIBUTION

U.S. Department of the Treasury
Office of Budget, Departmental Offices
Office of Strategic Planning and Evaluations, Departmental Offices
Office of Accounting and Internal Control, Departmental Offices
U.S. Customs Service
Commissioner
Assistant Commissioner, Field Operations

Assistant Commissioner, Finance
Assistant Commissioner, Regulations and Rulings

Office of Management and Budget

Budget Examiner

OIG-00-028 U.S. CUSTOMS SERVICE EFFORTS TO
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AUDIT RESULTS

Management Response and OIG Comment

Details

Customs concurred with our finding and has taken corrective
actions which meet or exceed the requirements of our
recommendation. For example, Customs management in New
York no longer allow supervisory Entry officers and Entry
specialists to cancel entries. Similarly, other selectivity functions
have been removed from inappropriate personnel. Customs has
also instituted procedures to ensure that cancellation/deletion
requests submitted by the trade are adequately reviewed, and has
taken action to ensure that canceled and deleted reports are
reviewed, by appropriate personnel, on a weekly basis. In
addition, Customs will maintain cancellation/deletion
documentation on site for 6 months, before sending the
documents to storage. Also, Customs will ensure that internal
reviews of canceled and deleted entries will be conducted as part
of their Self-Inspection Program. Finally, Customs will issue a
national directive establishing policy requiring separation of
duties between employees who cancel and delete entries, and
employees who are responsible for reviewing
cancellation/deletion reports.

Internal Controls

Office of Management and Budget Circular A-123 provides guidance
to Federal managers on improving the accountability and
effectiveness of Federal operations. This circular calls for agency
managers to incorporate basic management controls in the procedures
that govern their programs and operations.

Included among basic management controls are standards covering
delegation of authority, separation of duties and supervision. These
standards include ensuring that appropriate authority, responsibility
and accountability are defined and delegated to accomplish the
mission of the organization. Additionally, key duties and
responsibilities in authorizing, processing, recording and reviewing
official agency transactions should be separated among individuals.
Managers should exercise oversight to ensure individuals do not
exceed or abuse their assigned authorities.

Entry branch employees cancel or delete entries for a number of
reasons, typically because an entry was inadvertently submitted twice

OIG-00-028

U.S. CUSTOMS SERVICE EFFORTS TO
COLLECT OVERDUE PAYMENTS Page 19


DEPARTMENT OF THE TREASURY
WASHINGTON, D.c. 20220

January 3, 2000

OFFICE OF
INSPECTOR GENERAL

MEMORANDUM FOR RAYMOND W. KELLY, COMMISSIONER

UNITED STATES CUSTOMS [nn feb

FROM: Dennis S. Schindel Lb. Pome
Assistant Inspector General for Audit

SUBJECT: United States Customs Service Efforts
To Collect Overdue Payments

The attached report addresses the efforts of the U.S. Customs
Service to collect overdue payments from importers and brokers
who become delinquent in paying duty. The audit was conducted
at Customs headquarters in Washington, D.C.; the Accounting
Services Division in Indianapolis, IN; and at the ports of New
York/Newark, Detroit, and New Orleans.

We found that Customs was not aggressively collecting overdue
payments at the ports we visited. In addition, liquidated
damages claims were neither established consistently nor
processed timely. For example, prior to our audit, the Newark
Entry team was not reviewing the Automated Commercial System
Exception Report that lists overdue entry summaries. Even
when reviewed, we did not find consistent action to resolve
the exceptions at any of the ports we visited. Also, once
liquidated damages cases were established by Entry branches,
Fines, Penalties and Forfeitures processing of the cases was
not timely or consistent in New York/Newark and Detroit.

As a result of our audit, collections of $292,477 have already
been realized. In addition, if Customs acts aggressively, we
believe that approximately $550,000 more will be collected in
Detroit and Newark. This amounts to total estimated
collections of over $842,000 in the two locations.

Second, we found reviews of entry cancellation and deletion
reports in the New York/Newark Area do not provide assurance
that all cancellations and deletions are appropriate.
Specifically, Entry specialists and team leaders with the
functional ab. ty to cancel entries are also responsible for
reviewing the weekly report that lists entry cancellations.
We believe this is a major internal control weakness.
Allowing the same employees to both review the reports and
cancel or delete entries, decreases control over the process,
and increases the risk of inappropriate and possibly
fraudulent transactions.



Appendix 2

MANAGEMENT RESPONSE

Customs Response:

The Self-Inspection Program worksheets are updated on a quarterly basis, and the next
update is scheduled for December 1999. The Office of Field Operations will ensure
that the next Self-Inspection worksheet update includes requirements for
comprehensive review of the BO7 report (ACS List of Unpaid/Rejected Entries) and BO8
(Entry Releases with No Follow-up Summaries) report. The updates will also address
the appropriate and timely assessment and processing of liquidated damages cases by
field Entry offices and the Fines, Penalties, and Forfeitures office (FP&F)

Recommendation 3:

Ensure action is taken to establish liquidated damages cases, as appropriate, against
backlogged entries in New York/Newark and Detroit.

Customs Response:

Customs management in New York/Newark and Detroit have taken action to resolve
pending listings on their BO8 reports, and to ensure that liquidated damages cases are
being initiated, when appropriate.

Customs management in New York has taken steps since July of 1998 to ensure that
the Newark Entry team has aggressively approached the resolution of pending listings
on the B08 report. To illustrate this, the BO8 report for port code 4671, which was
identified in the OIG report, has been reduced from 1371 entries on May 16, 1998 to
566 entries as of March 13, 1999. This represents a recovery of $233,900.00 in duty,
interest, and liquidated damages Option 1 amounts. It is estimated that the remaining
566 cases will recover $189,600.00 in duty, interest, and Option 1 amounts.

Customs management in Detroit now requires that the Detroit Entry teams review and
resolve only the BO8 report, rather than attempting to resolve both the B15 report (4
Week Extract Late Report -- These Entry Releases Have No Follow-Up Summaries)
and the BO8 report. In an effort to improve accountability and consistency, the BOS
report will be reviewed and resolved by a designated Entry Specialist for a 3-month
period. The Entry teams have established a notification letter to respond. If no
response is received within 10 calendar days, liquidated damages will be issued.
Standard operating procedures for working later reports have been revised to include
standard terminology that must be used to indicate the status of the items reported.
Entry supervisors will review the reports that are worked by their teams on a monthly
basis to ensure that the reports are being processed timely.

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AUDIT RESULTS

team leader is responsible for deleting entries. Documentation
supporting the deletions is maintained; however, the $21 report is
neither obtained nor reviewed.

Since Entry supervisors and team leaders are responsible for both
processing entry deletions and for reviewing/maintaining supporting
documentation, there is no independent review of the $21 report to
ensure deletions are properly supported. Given the critical nature of
both the cancellation and deletion functions, it would seem that
controls should be in place to ensure that an individual without these
functional capabilities is responsible for reviewing the applicable
reports.

Concerns with Review of Cancellation and Deletion Reports

We reviewed cancellation and deletion reports covering a
6-month period (March-August 1998). Our review did not
provide assurance that all cancellations and deletions have been
appropriate. While the documentation we were able to review
supported the applicable cancellations and deletions, support for
many cancellations and deletions was not available for review.
Additionally, many of the reports we requested were not
obtained, and of those that were obtained, many did not appear to
have been reviewed. Specifically, we found:

e Thirteen of the 48 cancellation reports we reviewed did not
appear to have been reviewed. Also, 30 other cancellation
reports were not provided for review. (Note: We requested
26 reports from each of three teams.)

e None of the 22 deletion reports we reviewed appeared to have
been reviewed. Also, 30 other deletion reports were not
provided. (Note: We requested 26 reports from each of the
two entry supervisors in New York.)

e Supporting documentation was obtained for only 64 of the
261 (24.5 percent) entries that we selected for further review
from the cancellation reports.

e Supporting documentation was obtained for only 13 of the
105 (12.4 percent) entries that we selected for further review
from the deletion reports.

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AUDIT RESULTS

of entries on the report, however, this has been a slow process. For
instance, on a follow-up site visit, we obtained a May 16, 1998,

BO8 report that listed 1,371 entries, an increase of almost 250 entries
from the time of our initial visit. This large backlog of entries still
existed because Newark Entry personnel had decided to allow the
brokers until June 30, 1998, to respond to their research request,
since there were so many entries involved.

Utilizing a July 11, 1998, B08 report, the Newark Entry team started
establishing liquidated damages cases for “failure to file entry
summary timely.” As of April 1999, Entry personnel had
established 802 “failure to file entry summary timely” cases and 352
late file cases. Three hundred and fifty four of the 802 failure to file
cases have been closed (316 after payments were received and 38
after Customs determined there was no violation), and 448 are still
open.° Collections received on these 316 cases total $210,598.°
Customs has also received collections totaling $43,522 on the 352
late file cases. Total collections received on these cases equal
$254,120.

Entry Branches Not Establishing Liquidated Damages Cases Timely

In addition to the Newark Entry team not reviewing the B08 report,
we found other delays in establishing liquidated damages cases even
when the BO7 and BO8 reports were reviewed. Testing we conducted
in New York/Newark resulted in the establishment of 32 additional
liquidated damages cases and revenue collections totaling $38,357.
When combined with the $254,120 discussed above, New
York/Newark has received collections totaling $292,477 on cases
established in response to our review. In Detroit, 42 of 50 entries we
tested had not been processed timely. In New Orleans, we did not
test the BO7 and BO8 reports, because Entry personnel, prior to our
on site review, had “cleared” their previous large backlog of entries.
Instead, we gauged the New Orleans Entry branch processing of late
entry summaries by reviewing established FP&F cases (See pages 11
and 13 below). Details on our testing in New York/Newark and
Detroit follow.

5 Collections have been received on 316 of 354 failure to file cases, while the remaining 38 have been
canceled. This translates to a collection rate of 89.3 percent (316 divided by 354).
6 The average collection received on these 316 cases was $666 ($210,598 divided by 316). This $666

includes duties, taxes, fees, interest and penalty amounts.
vam a A

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AUDIT RESULTS

e Entry personnel twice requested the manifest from the Customs
inspection station--once in June 1996 and again in March 1997--
for an entry that was released in March 1996. Even though no
response was received, Entry personnel took no other action,
such as requesting the broker submit the entry.

e Entry personnel sent multiple requests to both the broker and the
Customs inspection station for a number of entries released in
1996 and 1997 and received no responses. However, since port
policy is to not issue liquidated damages cases without proof of
import, no action has been taken to establish failure to file entry
summary cases against these overdue entries, as Customs
inspection stations have not provided proof of import.

The other 10 entries that we believed were processed either untimely
or inefficiently included eight entries for which liquidated damages
cases were established. These cases were established only after
significant delays. For example, late file liquidated damages cases
were established against three entries after the entry summaries were
filed. However, these entry summaries were filed between 6 and 10
months late and entry had not taken action to establish failure to file
entry summary cases against these entries between the time they were
due and when they were filed. Failure to file entry summary cases
were established against five entries. However, these cases were not
established until the entry summaries were between 7 and 12 months
overdue. The other two entries were filed late, yet entry did not
establish late file liquidated damages cases.

Significant Revenue to be Realized

We believe additional revenue of about $550,000 will be realized if
Customs acts aggressively to collect overdue payments remaining in
New York/Newark and Detroit. This includes an estimated
$321,977 in New York/Newark and $228,006 in Detroit.

New York/Newark

In addition to the $254,120 already collected by Newark, it is our
belief that significant additional revenues will now be realized. For
example, if Customs receives collections equal to $666 per case
(footnote 6), for 89.3 percent (footnote 5) of the 448 cases remaining
open, this would amount to $266,400 (448 cases X 89.3 percent =
400; 400 cases X $666 average collection = $266,400).

OIG-00-028

U.S. CUSTOMS SERVICE EFFORTS TO
COLLECT OVERDUE PAYMENTS Page 9