Department of Homeland Security
 

CBP's Management Controls 


over Bonded Facilities 


OIG-12-25 January 2012
 
   

MEMORANDUM FOR: Kevin K. McAleenan 

Acting Assistant Commissioner 

Office of Field Operations 

U.S. Customs and Border Protection 

 

Office of Inspector General 

U.S. Department of Homeland Security 

Washington, DC 20528 

JAN 6 2012

FROM: ichards 

 Inspector General for Audits 

Anne L. R

Assistant

SUBJECT: Final Letter Report: CBP’s Management Controls over 

Bonded Facilities 

Attached for your information is our final letter report, CBP’s Management Controls over 

Bonded Facilities. We incorporated the formal comments from the U.S. Customs and 

Border Protection’s (CBP) Office of Internal Affairs in the report. 

The report contains four recommendations aimed at improving the vetting of bonded 

facility employees. Your office concurred with all four of the report’s recommendations 

and intends to use the Global Enrollment System to standardize and improve vetting of 

bonded facility employees. Recommendations 1, 3, and 4 will remain open and unresolved 

until we receive documentation that CBP has implemented the Global Enrollment System 

and the system is meeting the intent of the recommendations. Recommendation 2 is open 

and resolved, and will be closed once we receive documentation that it has been 

implemented. Within 90 days of the date of this memorandum, please provide our office 

with a written response that includes your (1) agreement or disagreement, (2) corrective 

action plan, and (3) target completion date for each recommendation. Also, please include 

responsible parties and any other supporting documentation necessary to inform us about 

the current status of the recommendation. 

Consistent with our responsibility under the Inspector General Act, we are providing copies 

of our report to appropriate congressional committees with oversight and appropriation 

responsibility over the Department of Homeland Security. The report will be posted on our 

website. 

Should you have any questions, please call me, or your staff may contact Mark Bell, 

Deputy Assistant Inspector General for Audits, at (202) 254-4100. 

Attachment 
Background 

U.S. Customs and Border Protection (CBP) is responsible for cargo security, including 

the accountability of the transfer to and storage of cargo at bonded facilities. A CBPapproved bonded facility is a privately owned and operated building in which 

merchandise may be stored or manipulated without payment of duty for up to 5 years 

from the date of importation. To establish a bonded facility, a proprietor must file an 

application with the local CBP port director. According to CBP’s guidance (Treasury 

Directive 72-56), “Operators of cargo handling facilities should conduct employment 

screening of prospective employees.” 

CBP seaport threat assessments have identified the potential for terrorist exploitation, 

smuggling, and internal conspiracies at bonded facilities. Between 2005 and 2008, CBP 

and U.S. Immigration and Customs Enforcement’s (ICE) joint Fraud Investigative Strike 

Teams conducted unannounced investigations of bonded facilities, resulting in the 

detention of more than 350 undocumented individuals and the assessment of more than 

170 liquidated damages claims with an estimated value of $6.3 million. These 

investigations also found that the bonded facilities employed workers with outstanding 

arrest warrants. 

The Code of Federal Regulations (CFR)1 grants CBP port directors the authority to 

require background checks on bonded facility employees. Background checks are an 

accepted management control used by government and private industry to ensure that 

employees do not pose a security risk. At a minimum, an effective background check 

should (1) authenticate employees and (2) compare employee background information 

against agency-accepted criteria of disqualifying offenses. 

Office of Management and Budget Circular A-123, Management’s Responsibility for 

Internal Control, requires agencies to establish and maintain internal controls. The 

objective of this audit was to determine whether CBP has effective management controls 

to ensure that employees at bonded facilities do not pose a security risk. We reviewed 

the effectiveness of CBP’s management controls over background checks at bonded 

facilities at five ports. 

Results of Audit 

CBP does not have effective management controls to ensure that employees do not pose a 

security risk at bonded facilities. CBP has not issued national requirements for 

background checks on employees of bonded facilities and does not ensure that port 

directors have management controls over background checks at bonded facilities. As a 

result, background checks are inconsistent and often ineffective. This may put bonded 

facilities at greater risk for terrorist exploitation, smuggling, and internal conspiracies. 

1 19 CFR §19.2(f), “As a condition of approval of the application, the port director may order an inquiry by 

a Customs officer into the qualification, character, and experience of the applicant (e.g. personal history, 

financial and business data, credit and personal references) . . . .” 

1 
Additionally, although CBP relies on ICE to conduct its background checks, ICE does 

not have a national standard for how background checks must be conducted, does not 

provide criteria for disqualifying criminal offenses, and does not always keep records of 

investigation for employees who were screened.

Because CBP does not provide requirements or minimum standards for conducting 

background checks, the quality and effectiveness of employee background checks vary 

from port to port. Specifically— 

 CBP does not require bonded facilities to perform background checks on 

employees prior to hiring or on a periodic basis. 

 CBP does not require record keeping for background checks performed.

 CBP has not defined the types of criminal offenses that would disqualify a job 

applicant from employment at a bonded facility. 

 CBP does not enable port directors to authenticate the identity of employees using 

fingerprint analysis. 

 CBP has not provided guidance on what law enforcement systems must be used to 

vet employees. Thus, ports run background checks against different law 

enforcement systems, with a wide variance of results. 

 CBP does not ensure that all ports assess the background check process or results 

as part of its internal compliance reviews.

CBP’s record keeping for bonded facility background checks was inconsistent and 

incomplete among the ports we visited. We identified 41 bonded facilities in these port 

locations for our review, requested a current list of employees, and received 777 names.

Using CBP’s files, we attempted to verify whether all of those bonded facility employees 

had received a background check. However, due to the incomplete and inconsistent

information, we were unable to determine if employees at the bonded facilities received a 

background check or if applicants for employment were not hired because of a criminal 

background.

To better understand the level of risk that unscreened employees may pose to the port and 

other employees, we selected 203 employees currently working at the 41 bonded 

facilities. Our team worked with Office of Inspector General (OIG) investigators to

compare the names, dates of birth, and Social Security numbers with information in a 

Federal Bureau of Investigation (FBI) database. Twenty-four employees had a prior 

record for offenses ranging from minor violations to serious violations such as drug 

trafficking, attempted murder, alien smuggling, kidnapping, possession of stolen vehicles, 

possession of weapons, and aggravated assault and battery. Because neither CBP nor

ICE has standard policies and procedures for background checks, including criteria for a 

disqualifying criminal offense, these individuals were employed at the bonded facilities 

during the time of our review. 

2 
According to OIG investigators, organizations should include a 10-point fingerprint 

analysis to authenticate a background check. However, CBP suspended the practice of 

fingerprint analysis in 2007 because of funding limitations. Despite this suspension, two 

of the ports we tested continue to collect fingerprint cards from bonded facilities. A 

background check without fingerprint analysis will not guard against individuals with 

aliases, same dates of birth, or similar Social Security numbers. 

Law enforcement authorities said an effective background should include checks of the 

National Crime Information Center (NCIC). An NCIC check would also reveal whether 

the individual is on the FBI’s terrorist watch list. We noted during our review that port 

staff did not always know what type of information a standard NCIC check includes. 

Some ports were unaware that the NCIC included a check against the Known or 

Appropriately Suspected Terrorist File and the Immigration Violator File. 

One of the primary mechanisms for oversight of bonded facilities is CBP-scheduled 

compliance reviews. Although CBP conducts compliance reviews to verify transactions, 

records, procedures, conditions, and inventory, these reviews do not verify whether 

employee lists were accurate and complete and whether background checks were 

conducted. During our review, we noted discrepancies between the current employee 

lists retained by CBP’s Entry Department and CBP’s Compliance team. 

We did identify a potential best practice at the port of Newark, where CBP’s port 

compliance team recently updated its procedures. Before conducting a compliance 

review, the team sends a letter to the bonded facility to request the current employee list. 

The port’s Entry Department also sends reminders to the bonded facility to submit 

updated employee lists to CBP as required by federal regulations. This practice ensures 

that CBP is aware of who is working at its bonded facilities so that background checks 

may be conducted on new employees. 

CBP acknowledged that the bonded facility employee screening process can be improved 

and has begun a pilot program called the Global Enrollment System (GES) that leverages 

an existing vetting system within its trusted traveler programs. CBP has not yet issued final 

guidance on how GES will be used. CBP needs to establish clear policies and procedures 

on how to conduct background checks of bonded facility employees and how the ports can 

provide adequate implementation and oversight. Consistent hiring policies and procedures 

would alleviate local interpretation of what constitutes a disqualifying offense and prevent 

the employment of dangerous criminals at bonded facilities. 

Recommendations 

We recommend that CBP’s Cargo Control Branch Chief— 

1.	 Establish and implement nationwide standardized policies and procedures for 

conducting background checks at bonded facilities, including how CBP plans to 

coordinate with ICE concerning the roles and responsibilities of all parties 

involved. 

3 
2.	 Provide port directors with a list of criminal offenses that disqualify a job 


applicant from employment at a bonded facility.
 

3.	 Implement a process to ensure that CBP receives and retains background check 

records, including employee lists and results of background checks. 

4.	 Expand compliance reviews to include bonded facility employee background 

check results and updates, and reconcile compliance review results with CBP 

bonded facility file information. 

Management Comments and OIG Analysis 

CBP concurred with all four of the report’s recommendations and intends to use GES to 

standardize and improve vetting of bonded facility employees. Recommendations 1, 3, 

and 4 will remain open and unresolved until we receive documentation that CBP has 

implemented GES and the system is meeting the intent of each of the recommendations. 

Recommendation 2 is open and resolved, and will be closed once we receive 

documentation that it has been implemented. 

In its response, CBP did not agree that the perceived deficiencies in CBP’s management 

controls over bonded facilities, and specifically the background checks conducted for 

bonded facility employees, creates a greater risk for terrorist exploitation, smuggling, and 

internal conspiracies at these facilities to the degree implied in the draft report. 

Although we acknowledge that CBP has a layered approach to cargo security and many 

security risks are mitigated through cargo targeting and inspections before the cargo 

arrives at a bonded facility, over the past few years OIG and the Government 

Accountability Office have noted several concerns with CBP’s targeting and inspection 

of cargo. Additionally, multiple ICE investigations and CBP threat assessments have 

identified numerous illegal aliens and individuals with criminal backgrounds working at 

bonded facilities, which poses a potential risk. 

Finally, CBP’s own seaport threat assessments have identified the potential for terrorist 

exploitation, smuggling, and internal conspiracies at bonded facilities. OIG reviews and 

ICE investigations point to the need for additional vetting of bonded facility employees to 

ensure that they do not pose a risk to the port, the cargo, or other bonded facility 

employees. Since CBP is taking steps to implement GES and plans to identify offenses 

that would disqualify individuals from employment at a bonded facility, we believe that 

most of the vulnerabilities noted in our report will be addressed once the 

recommendations are fully implemented. 

4 
Appendix A 

Purpose, Scope, and Methodology 

The objective of this audit was to determine whether CBP has effective management 

controls to ensure that employees handling cargo at bonded facilities do not pose a 

security risk. The scope of our audit included 5 ports and 41 bonded facilities from 

approximately 2,0542 bonded facilities and 327 seaports nationwide. 

To address our objective, we met with various CBP headquarters and field officials, 

reviewed CBP policies and procedures, and obtained and analyzed documents pertinent 

to CBP’s process in conducting background checks at the bonded facilities. In addition, 

we selected a sample of ports that processed the highest volume of containers, and 

selected additional ports as a representative sample of different locations. Those ports 

were Los Angeles/Long Beach, California; Newark, New Jersey/New York, New York; 

Norfolk, Virginia; Houston, Texas; and Miami and Port Everglades, Florida. 

At each port, we interviewed CBP officials, ICE officials tasked to conduct background 

checks for CBP, and bonded facility proprietors. We tested a judgmental sample of 41 

bonded facilities that included Bonded Warehouses, Foreign Trade Zones, and 

Centralized Examination Stations by reviewing documents related to background checks 

and observing facility operations. 

To determine whether the 777 employees working at the 41 bonded facilities during the 

time of our review had received a background check, we attempted to compare and verify 

background check information from ICE and CBP. However, due to incomplete and 

inconsistent information in CBP’s files, we were unable to determine if employees at the 

bonded facilities received a background check or if applicants for employment were not 

hired because of a criminal background. 

To better understand the level of risk that unscreened employees may pose to the port and 

other employees, we selected 203 of the 777 employees currently working at bonded 

facilities. Our team worked with OIG investigators to compare the names and Social 

Security numbers with information in a FBI database. 

We conducted this performance audit between December 2010 and November 2011 

pursuant to the Inspector General Act of 1978, as amended, and according to generally 

accepted government auditing standards. Those standards require that we plan and 

perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis 

for our findings and conclusions based upon our audit objectives. We believe that the 

evidence obtained provides a reasonable basis for our findings and conclusions based 

upon our audit objectives. We appreciate the cooperation by CBP management and staff 

in providing the information and access necessary to accomplish this review. 

2 According to CBP, there are many different types and classes of bonded facilities. The 2,054 bonded 

facilities comprise 57 Centralized Examination Stations, 1,490 Bonded Warehouses, and 507 Foreign Trade 

Zones. 

5 
Appendix B 

Managements Comments to the Draft Letter Report 

7
 

1100 hOD'I'!>""!' "'...,oue NW

W..h.inglon, DC 20229

US.Customsand

• Border Protection

AuguSl 25, 2011

MEMORANDUM FOR Al'l"NE L. RICHARDS

ASSISTANT INSPECTOR GENERAL FOR AUDITS

DEPARTMENT OF HOMELAND SECURITY

FROM: AssistamCommissioner ~.f\_/2

Office of Internal Affairs ~.

U.S. Customs and Border Pro eclion

SUBJECT: Response 10 lhe Office of Inspector General's Drafl Report

Enlitled, "Efficacy ofCBP's Management Controls Ol'er

Bonded Facilities"

As a preliminary maller, lhe entry of merchandise into bonded warehouses and lhe

safeguarding ofsueh merchandise in the bonded warehouses is primarily a revenue

funClion because. with few exceptions, U.S. Customs and Border Protection (CBP) lakes a

number of aClions to screen merchandise for sccurily threats prior to its movement inlo a

honded facilily. This is done through the nomlal inspection process, which includes

screening for radiation. that occurs at lhe port ofenlry beforc merchandise is released to a

honded carrier for lransportation to a warehouse. Once the merchandise reaches lhe

bollded facilily, .... hich has physical and custodial security measures in place to preveD!

merchandise from being diverted or stolen, the bonded ....'arehouse facility and its

employees are responsible for ;ts safekeeping. CBP believes that the custodial bond,

which re<.Juires the bonded warehouse to properly Slore and proteClthe merchandise. is an

adequate measure to ensure the safekeeping oflhe merchandise and provides sufficient

recourse 10 recover any lost revenue resulting from a failure to adequately protect and

Slore the merchandise. Moren,'er, the abilily ofCBP to assess liquidated damages under

the hond acts as an incentive for bonded facility operators 10 ensure lhat the merchandise

is kepI safe and is a deterrent against warehouse employees engaging in illegal activities

affccting the stored merchandise. Sinee any illegal aClS by lhc bonded warehouse

employees concerning the stored merchandise can result in liquidated damages against the

warehouse operalor or proprielor, there is a buill-in incentive for the warehouse operators

and proprietors 10 manage and conlro! their employees and hire only those they consider

lrustworthy. For these reasons. CBP does not aj;\ree tllal the perceived deficiencies in

exploilation. smuggling, or internal conspiracies al these facilities 10 lhe degree implied in

lhe draft report.

The report contains four recommendations directed to Cilp. A summary ofCllp actions

and corrective plans to i\ddress the recommendations is provided below:

Rcconllncndal;on IiI: Establish and implement nalion.....ide Stal1dardi7.ed policies and

procedun:s for conducting background checks al bonded facililies, including how CBP

plans to coordinate with ICE concerning tlte roles and n:sponsibilities ofall parties

involved,

CBI' Ik~p(Hlsc: Concur. Bonded facilily owners are now l'Cl:Iuired by 19 CFR 19.3(0.1) and

19 CFR 146.7(11.) to submit a ""Titlen list of their employces names, addresses, social

security numbers. and dates and places of birth of all persons employed by the facility 10

the CBP port director .....ithin 30 days after the dale of demand. Once CBp's Global

Enrollment Syslcm (GES) is operational. CBP will takc lhat infonnalion and enler it into

the system. The GES ,oetting module .....ill run the infonnation through SC"er<l1 databases

and will allow CBp to s...e the results of those checks. With the de"elopmcll! of the

Trusted Worker Program .....ithin the GES, ICE would be: remo"ed from the background
Appendix B 

Managements Comments to the Draft Letter Report 

investigation/vetting process entirely. Once GES is operational, policies and procedures

will be issued by CBP's Office ofField Operations.

Completion Date: January 1, 2012

Recommendation #2: Provide port directors with a list of criminal offenses that

disqualify ajob applicant from employment at a bonded facility.

CBP Response: Concur. CBP concurs with the recommendation to develop a list of

criminal offenses that disqualify bonded facility principals, bonded facility operators and

those individuals with access to inventory control systems (i.e. record keepers) from

employment at a bonded facility.

Completion Date: January 1,2012

Recommendation #3: Implement a process to ensure that CBP receives and retains

background check records, including employee lists and results of background checks.

CBP Response: Concur. As part of the GES Trusted Worker Program being developed,

records will automatically be retained on all current employees. These records will be

automatically vetted on a daily basis. 19 CFR 19.3(d) and 19 CFR l46.7(g) requires

bonded warehouse owners to submit a list of the names, addresses, social security

numbers, and dates and places of birth of all persons employed by the facility. CBP notes

that there may be Privacy Act implications for retaining background check records,

employee lists, and results of background checks not already covered by existing Systems

of Record Notifications (SORi'-Js). This recommendation should take into consideration

the potential violations ofthe Privacy Act, 5 U C 552a, which may be triggered by

releasing individuals' background records to employers (bonded facility operators), as

well as others. Bonded facility operators may need to obtain Privacy ct

waivers/authorizations from potential employees for this purpose prior to background

investigations being performed.

Completion Date: January 1,2012

Recollllllendation #4: Expand compliance reviews to include bonded facility employee

background check results and updates, and reconcile compliance review results with CBP

bonded facility file information.

CBP Response: Concur. GES will be uscd as the new platform for CBP vetting of

bonded facility employees. The focus of the veiling procedures are the principals, owners,

operators and those individuals with access to inventory control systems (i.e. record

keepers). The results ofthe veiling will be stored in GES for use during compliance

reviews. While CBP concurs with this recommendation, CBP notes that the purposc of

compliance reviews is to allow CBP Officers a mechanism to physically examine and

verify transactions, records, procedures, conditions, and inventory and accounting controls

lhat deal with revenue protection and not with employee background check results. Also,

the bonded facility program is a revenue issue and is not a security program. Compliance

reviews are conducted on a schedule based on the facilities revenue risk assessment.

Completion Date: January 1, 2012

With regard to the sensitivity of the draft repol1, CBP did not identify any sensitive

information that would require a "For Official Use Only" designation or wan'ant

protection under the Freedom oflnformation Act. Technical comments to the draft report

are provided in an attachment to this letter.

Jfyou have any questions regarding this response, please contact me or have a member of

your staff contact Ms. A hley Boone, BP Audit Liaison, at (202) 344-2539.

Attachment

8
 
Appendix C 

Major Contributors to this Report 

Paul Wood, Director, Trade Operations and Security 

Shelley Howes, Audit Manager 

Jeffrey Wilson, Team Lead 

Robert Edwards, Senior Auditor 

Andre’ Marseille, Program Analyst 

Jeff Mun, Program Analyst 

Dianne Leyva, Program Analyst 

James Gaughran, Deputy Assistant Inspector General for 

Investigations 

Harold Grasman, Special Agent in Charge 

Joseph Ferrigno, Criminal Investigator 

Roger Thoet, Referencer 

Lisa Vonder Haar, Referencer 

9 
Appendix D 

Report Distribution 

Department of Homeland Security 

Secretary 

Deputy Secretary 

Chief of Staff 

Deputy Chief of Staff 

General Counsel 

Executive Secretariat 

Director, GAO/OIG Liaison Office 

Assistant Secretary for Office of Policy 

Assistant Secretary for Office of Public Affairs 

Assistant Secretary for Office of Legislative Affairs 

U.S. Customs and Border Protection 

CBP Audit Liaison 

Office of Management and Budget 

Chief, Homeland Security Branch 

DHS OIG Budget Examiner 

Congress 

Congressional Oversight and Appropriations Committees, as 

appropriate 

10 
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