DHS OIG Still Finds Weak Financial Controls for Bonded WHs/FTZs (Part IV)

This is Part IV 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 bonded warehouse (BW) and foreign trade zone (FTZ) processes. See future issues of ITT for additional summaries. (A similar finding on the BW and FTZ processes was made for FY 2009.)

BW/FTZ Weaknesses due to Ineffective Port Communication and Guidance

The report states that CBP does not have effective methods to communicate policies to the ports related to both the frequency of BW and FTZ compliance reviews and the documentation of BW and FTZ risk assessments.

In addition, CBP does not have updated formal, comprehensive guidance -- in the form of procedures, checklists, and/or questionnaires -- related to the monitoring of the BW and FTZ programs by Headquarters and the Field Offices, to ensure that all BWs and FTZs have an appropriate risk assessment and that all necessary compliance reviews are scheduled and completed.

With these insufficiencies, operators may be able to operate BWs and FTZs that contain merchandise without the monitoring of CBP. The lack of a checklist or specific guidance for determining risk assessment could lead to inconsistent procedures in assessing risk at the port level. A complete population of all BWs and FTZs also needs to be compiled.

Four Bonded WH/FTZ Weaknesses Listed by Auditors

The auditors detailed the following internal control weaknesses related to BW and FTZ processes:

ACE Databases Incomplete, Untested

While CBP has developed national databases within the Automated Commercial Environment (ACE), which contain an inventory of all BWs and FTZs, such databases have not been tested for completeness. In addition, these databases are not currently used to document the assessed risk of each BW or FTZ, scheduled compliance reviews, or the results of compliance reviews. Furthermore, there are no requirements for Headquarters or the Field Offices to compare this database to the compliance review schedules submitted by the ports to ensure that all compliance reviews are performed.

Compliance Review Handbook is Unspecific, Checklist Not Incorporated

The current BW and FTZ Compliance Review Handbooks lack specific guidance, in the form of a questionnaire or checklist, for determining the risk assessment of a BW or FTZ. The Compliance Review Handbooks state that a risk assessment should be performed by “analyzing and combining the findings of compliance reviews, security surveys, compliance measurement data, informed and enforced compliance, historical data, and other risk factors listed in this handbook.” During FY 2010, CBP created a standard checklist for compliance reviews to be utilized by all ports; however, the checklist has not been incorporated into the BW and FTZ Compliance Review Handbooks, which are the primary resource for CBP Officers completing compliance reviews.

2010 Survey of Programs Limited in Scope, Not Documented

Headquarters compiles a survey that is completed by the ports at the end of each fiscal year to determine the current status of the BW and FTZ programs. The FY 2010 survey included appropriate data to allow CBP to analyze trends in the BW and FTZ programs; however, the analysis CBP performed was limited in scope and was not formalized or documented. Additionally, there is a lack of communication of the overall findings of the survey to the port level. A memo was issued to the ports from Headquarters at the end of FY 2010; however, the memo included limited information of the overall findings on the overall program effectiveness.

Findings on BW and FTZ Internal Controls at 11 Ports

At eleven statistically selected ports with BW and FTZ facilities, the auditors noted the following specific findings related to BW and FTZ internal controls:

Infrequent compliance reviews -- Two ports were not conducting the appropriate number of compliance reviews based on guidance in the BW and FTZ Compliance Review Handbooks. Specifically, one port did not schedule or complete any compliance reviews in FY 2010 for BWs and FTZs that had no activity during FY 2009. Additionally, one port appropriately classified several FTZs and BWs as medium or high risk facilities, but did not schedule or perform the appropriate number of compliance reviews during the fiscal year.

Lack of compliance review schedules -- Lack of review and approval at the Field Offices and/or Headquarters level of compliance review schedules submitted at both ports noted in the above bullet. Currently, there is no requirement for the Field Offices and/or Headquarters to review the compliance review schedules compiled by the port.

No risk assessment documentation -- At one port, for one FTZ activated in FY2010, documentation of an initial risk assessment was unable to be provided.

Auditors Recommend Improved Data Reporting, Self Inspection Worksheets, Etc.

The auditors recommended that CBP take the following actions:

1. Continue to work with the Office of Administration to develop capabilities that will allow for more varied and extensive reporting of data from port offices.
2. Continue to post information onto the CBPnet secure site regarding bonded facilities.
3. Develop and issue Self Inspection Worksheet questions regarding bonded facilities and compliance reviews.

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.

(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, 04/15/11, and 04/18/11 news, 11041401, 11041522 and 11041823, for Parts I-III of BP's summary of this report.

See ITT's Online Archives or 03/07/11 news, 11030718, for BP summary of a recent CBP request for comments on extending its Bonded Warehouse Regulations information collection.

See ITT's Online Archives or 05/25/10 news, 10052527, for BP summary of a 2010 COAC survey finding that the trade, including FTZ/bonded cargo facilities, sees few financial benefits from ACE.

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)