DHS Says CBP’s Single Bond Controls Are Weak, CBP Pledges Action

(Bonds serve as an insurance policy, protecting U.S. Customs and Border Protection from revenue loss when importers fail to fulfill their financial obligations. STBs can serve as security for individual shipments or as additional collateral in conjunction with continuous bonds. The STB amount is generally one to three times the total entered value of the merchandise plus duties, taxes, and fees, depending on the revenue risk.)

CBP Can't Identify Number of STBs in ACS

OIG states that CBP cannot identify the number of STBs because of limitations in the Automated Commercial System (ACS)², which is used to report entry data. ACS has only one field for bond coverage, and it cannot record bond information for imports that require both a continuous bond and an STB. In such cases, the system defaults to a continuous bond, thereby not capturing actual revenue exposure on high-risk imports. This limitation creates a challenge when CBP attempts to collect past-due revenue.

CBP has attempted to mitigate the system limitations by requiring ports to record general STB information for antidumping/countervailing (AD/CV) entries using the ACS notes section. However, OIG found that ports do not consistently follow this direction.

$8B in FY 2009 STBs Contain Errors that May Result in Noncollection

OIG found that from fiscal years 2007 to 2010, CBP has written off $46.3 million in revenue because of inaccurate, incomplete, or missing bonds. OIG estimates that approximately $8 billion of $12 billion in STBs for importer/broker entries accepted by CBP during FY 2009 contain errors that may result in noncollection. OIG states CBP should have rejected these bonds.

$1.5B of STBs at Risk for Imports Subject to OGA Requirements

OIG's analysis also shows $1.5 billion at risk of loss for imports subject to other government agency (OGA) requirements. OGA requirements could include redelivery requests by the Environmental Protection Agency and the Food and Drug Administration for merchandise that poses a risk to the public health and safety.

CBP is required to set STBs in amounts no less than three times the total entered value of merchandise; however, OIG found CBP does not follow such guidelines for setting STB amounts. Entry of merchandise with OGA requirements (e.g. chemicals, food, or drugs for human use and consumption), has a higher risk for liquidated damages than other entries, which could result in significant losses because the merchandise may be subject to recall due to potential public health and safety threats.

Ports Are Failing to Assess Revenue Risk of Shipments for STB Purposes

In addition, OIG found Port Directors do not consistently exercise their authority to set bond levels based on revenue risk. Port Directors indicated that 85% of the ports do not perform any type of revenue risk analysis to determine the need for an STB, and when the need for additional security is recognized, approximately 72% of ports rarely or never require an STB.

OIG Recommends Central Office, Risk-Based Approached, Automated STB, Etc.

OIG provided the following four recommendations to CBP's Assistant Commissioners:

• Appoint centralized office. Appoint a centralized office with the responsibility for developing and implementing STB policy, reporting on activities, and monitoring results.
• Automate STB process. Consider automating the STB process to provide enhanced tracking ability and control over these bonds.
• Develop formal policies. Develop formal policies and procedures for the validation, approval, sufficiency, and storage processes for STBs.
• Use risk-based bonding methodology. Improve revenue risk management by developing a risk-based bonding methodology for use on high-risk revenue imports that incorporates continuous bonds and STBs.

CBP Concurs, Says It Has Added Bond Automation to ACE Plans, Etc.

CBP officials concur with all of OIG's recommendations. CBP states that it has already incorporated the requirements for bond automation into the ACE Cargo Release requirements. However, OIG notes that this recommendation will remain open until it receives evidence showing that the ACE Cargo Release requirements properly address STB automation. OIG also notes that CBP should provide a deployment schedule for this new capability.

CBP also states it has already begun working to appoint a centralized office that would focus on bond administration and bond policy. CBP will also continue working on the development of a risk-based bonding methodology for high-risk imports that considers the use of continuous and STBs.

¹In 2010, Senator Grassley (R) expressed concerns about alleged deficiencies in CBP's revenue collection program. This OIG report is the second of a series of audits conducted to address Senator Grassley’s concerns.

²OIG notes the Automated Commercial Environment (ACE) has the capability to enter bond information for multiple bonds; however, CBP does not currently require importers to file all entries in ACE.

(See ITT's Online Archives or 07/26/11 news, 11072615, for BP summary of the Trade Support Network (TSN) voting to make electronic bond processing in ACE a higher priority in its ACE Priorities Document and included in the initial deployment of cargo release. The TSN would like the initial focus of electronic bond processing in ACE to be on electronic STBs.)

(OIG-11-92, dated 06/11)