DHS OIG Still Finds Weak CBP Financial Controls for In-Bonds (Part III)

This is Part III of a multi-part series of summaries of this report and provides an overview of the report's findings regarding CBP's FY 2010 significant deficiency¹ in the in-bond program. See future issues of ITT for additional summaries. (A similar finding on the in-bond program was made for FY 2009.)

In-Bond Weaknesses due to Noncompliance, ACS Limitations, Lack of Oversight

The report states that a CBP memorandum to all field offices was issued in April 2010 containing the retention guidelines for in-bond audits, in-bond examinations, the M02 report, and the M07 report.

(The M02 report identifies cargo that has not been exported. The M07 report identifies cargo that has not arrived at the original destination port of entry communicated to CBP.)

Not all ports are in compliance with the memorandum. Additionally, there is no requirement for ports to completely resolve all items on the M02 and M07 reports each time they are run.

According to the report, the inability to effectively and fully monitor the in-bond process and verify the arrival of in-bond merchandise at the port level could lead to a lack of identification of additional revenue due to uncollected duties and fees on in-bond merchandise that has physically entered U.S. commerce without formal entry.

The ACS system also limits the ability of CBP to accurately monitor the in-bond process, both at the Headquarters and port levels. This lack of an automatic compilation and analysis of audit results at the national level hampers CBP’s ability to efficiently and fully determine the effectiveness of in-bond audits, common in-bond errors, and weaknesses in the overall in-bond process.

CBP also cannot adequately monitor the cargo examination portion of the in-bond process, as ports did not perform any Tin-Man² generated cargo examinations in FY 2010.

Five In-Bond Weaknesses Listed by Auditors

The auditors detailed the following weaknesses over the in-bond program:

ACS SINS Report Inaccurate, Inconsistent With Tin-Man Audits

Ports are required to submit a summary of post audits conducted and the associated results to Headquarters. However, due to a system limitation in ACS, Headquarters cannot run an oversight report to determine if ports have completed all required audits. The SINS report in ACS is designed to provide this function, but it currently does not accurately list the history of all in-bonds selected for audit and is not consistent with the listing of incomplete Tin-Man audits on the INES report.

No Report to Track Air In-Bonds in FY 2010

The M02 report does not track air in-bonds. CBP is currently creating a report to track air in-bonds, but it was not implemented in FY 2010.

M02 and M07 Document Retention, Report Problems Not Required to be Resolved

Requirements for ports to retain documentation produced in the course of resolution of items on the M02 report and the M07 report were issued in April 2010, and therefore were not in operation for all of FY 2010. In addition, there is no requirement for ports to completely resolve all items on the M02 and M07 reports each time they are run. Therefore, certain items on the report may not be resolved.

CBP Failed to Reset Tin-Man Cargo Exams

Tin-Man is designed to designate both examinations of cargo and post audits on a weekly basis. CBP must manually reset Tin-Man at the beginning of each fiscal year in order to select the examinations and post audits for the upcoming year. However, CBP failed to manually reset the cargo examination portion of Tin-Man, which resulted in no cargo examinations designated for the ports by the Tin-Man system for FY 2010.

No Analysis of Compliance, Rate/Types of Violations

CBP does not perform a formal analysis to determine the overall compliance rate of the in-bond program. CBP does not analyze the rate and types of violations found to determine the effectiveness of the in-bond program, nor does it identify a projected total amount of uncollected duties and fees on in-bond merchandise that has physically entered U.S. commerce without formal entry to ensure there is not a potentially significant loss of revenue.

Auditor Sees M1 as Possible Fix for In-bond Issues, Etc.

The auditors recommended that CBP take the following actions:

1. Continue with the deployment of the Automated Commercial Environment (ACE) system, M1, to replace the M02 and M07 reports and provide guidance to the field once new reports are delivered by OIT;

2. Continue with the deployment of ACE M1 to replace the Tin-Man system and provide guidance to the field;

3. Resolve errors in the universe of overdue air in-bonds. Issue guidance and require ports to run and resolve items on M19 report;

4. Until the deployment of M1, develop or re-emphasize formal requirements for all ports to:

• Continue to run and resolve items on the M02 and M07 reports throughout the year, and
• Maintain documentation related to the resolution of items on the M02 and M07 reports; and

5. Increase Headquarters oversight of the in-bond process by:

• Analyzing the summary of post-audits conducted and associated results,
• Ensuring OIT resets the Tin-Man system at the beginning of the fiscal year, and
• Performing a formal analysis to determine the overall compliance rate of the in-bond program.

¹A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance.

²In 1998, CBP implemented an audit system within ACS to serve as a compliance measurement system. This audit system, known as Tin-Man, utilizes random examinations and post audit reviews to ensure bonded carrier compliance with bond obligations. Tin-Man is used to select ports to perform physical examinations at the time of arrival and departure and to perform post audit reviews of carrier activity. Once each week, ports throughout the U.S. should be assigned post audits and physical examinations to perform

(KPMG audited the consolidated balance sheets of CBP; it also considered CBP's internal controls over financial reporting and tested CBP's compliance with certain provisions of applicable laws, regulations, and contracts agreements that could have a direct and material effect on these consolidated financial statements.)

(See ITT's Online Archives or 04/14/11 and 04/15/11 news, 11041401 and 11041522, for Parts I and II of BP's summary of this report.

See ITT's Online Archives or 12/08/09 news, 09120805, for BP summary of Trade Support Network documents on ACE system priorities, including in-bond functionality.

See ITT’s Online Archives or 03/11/10 news, 10031115, for BP overview of the FY 2009 OIG Report.)

(OIG-11-61, dated 03/25/11)