ARCHIVED - Audit of the Customs Self Assessment Program
Internal Audit Report

This page has been archived.

April 2009

Table of Contents

• Executive Summary
• Introduction
  • Background
  • Risk Assessment
  • Audit Objective and Scope
  • Approach and Methodology
  • Audit Criteria
  • Statement of Assurance
• Audit Opinion
• Findings, Recommendations and Management Action Plan
  • Importer Accounting and Revenue Reporting
  • Monitoring — Importer Compliance
  • Monitoring — Carrier Compliance
  • Monitoring of the CSA Program
• Appendix A: Audit Criteria
• Appendix B: List of Acronyms

---

Executive Summary

Background

The Canada Border Services Agency (CBSA) launched the Customs Self Assessment (CSA) program in December 2001. The program was developed as part of the Customs Action Plan initiatives to enhance the Agency's effectiveness in processing an increasing volume of goods crossing the border. The program provides low-risk, pre-approved companies, which have a history of good compliance, with an expedited border clearance process and a streamlined accounting and payment process for imported goods.

The CSA program is based on the mandatory pre-approval and authorization of the driver, carrier and importer. The carrier's business systems are used to support the reporting of goods and the importer's business systems are used to support the self-assessment of trade data, revenue amounts and duties and taxes owing.

At the time of the audit, the CSA border clearance option was available primarily to imported goods arriving from the United States. The vast majority of CSA releases take place in the highway mode. Certain goods are currently excluded from the CSA clearance option including goods that are subject to regulations of other government departments, goods imported from offshore [ 1 ] and goods imported by a non-resident importer who does not have a branch office in Canada. The CSA program has been able to attract the largest importers and the automobile sector dominates the CSA membership. In 2007, the value for duty (VFD) of CSA automotive clients represented 76% of the VFD of all CSA clients while the VFD of all CSA clients accounted for 20% of the VFD of all imports. As of March 2008, there were 50 approved CSA importers and 812 approved CSA carriers.

Objective and Scope

The objective of the audit was to provide reasonable assurance to senior management that the CSA program is operating effectively.

The scope of the audit focused on CSA client oversight, program monitoring and the audit controls in place to ensure that duties and taxes owing were being properly received and processed in a timely manner. The Commercial Driver Registration Program (CDRP) was excluded from the scope of the audit.

The audit was conducted between July and October 2008 and included visits to the CBSA's Northern Ontario Region and to the importer and carrier compliance units located in Mississauga and Hamilton respectively. Importer and carrier files of active CSA participants who had started with the program as of December 31, 2006, were selected for review. Also, revenue submissions and reconciliation processes pertaining to CSA activities were reviewed for the months of April, May and June of 2008.

Statement of Assurance

The audit engagement was planned and conducted in accordance with the Internal Auditing Standards for the Government of Canada.

Audit Opinion

The audit found that the CSA program control framework is in place; however, improvements could be made to make it effective. Improvements relating to the timeliness of CSA importer and carrier monitoring reviews, CSA program monitoring, CSA administrative monetary penalties and the revenue reconciliation done by the Comptrollership Branch would strengthen the framework.

Main Observations

At the time of the audit, appropriate and consistent monitoring processes were being used by the CSA/FAST Importer Compliance Unit to ensure that CSA-approved importers continued to remain low risk. Weaknesses were identified in the CSA/FAST Carrier Compliance Unit relating to the timeliness of the initiation of the carrier monitoring reviews; however, the processes used to monitor compliance were applied consistently with the exception of the risk-assessment process that was being performed by the Intelligence and Enforcement Division of the Northern Ontario Region. Standard operating procedures (SOPs) for the CSA program were developed by the importer and carrier compliance units but the procedures needed to be updated due to recent process changes.

Generally, CSA-approved importers and carriers maintained a high level of compliance with the program regulations and importer payments were timely at month's end and matched the amount reported on the revenue summary forms (RSFs). However, weaknesses were identified relating to the reconciliation process used by the Comptrollership Branch.

Gaps were also identified relating to the monitoring of the CSA program. The audit found that there was no performance measurement framework or key performance measures in place to monitor the overall performance of the CSA program. Weaknesses were also found in the information available on the port-of-entry examination results of CSA-approved carriers.

Management Response

The Comptrollership Branch and the Admissibility Branch agree with the recommendations in this report.

Introduction

Background

The Canada Border Services Agency (CBSA) launched the Customs Self Assessment (CSA) program in December 2001. The program was developed as part of the Customs Action Plan initiatives to enhance the Agency's effectiveness in processing an increasing volume of goods crossing the border. The program provides low-risk, pre-approved companies, which have a history of good compliance, with an expedited border clearance process and a streamlined accounting and payment process for imported goods.

The CSA program is based on the mandatory pre-approval and authorization of the driver, carrier and importer. The carrier's business systems are used to support the reporting of goods and the importer's business systems are used to support the self-assessment of trade data, revenue amounts and duties and taxes owing.

At the time of the audit, the CSA border clearance option was available primarily to imported goods arriving from the United States. The vast majority of CSA releases take place in the highway mode. Certain goods are currently excluded from the CSA clearance option including goods that are subject to regulations of other government departments, goods imported from offshore [ 2 ] and goods imported by a non-resident importer who does not have a branch office in Canada.

The CSA program is associated with two other CBSA commercial programs. To be admitted to the Free and Secure Trade (FAST) program, the applicant must first be approved by the CSA and the Partners in Protection (PIP) programs. These three programs address different needs. The CSA program addresses the commercial aspects of cross-border trade while PIP addresses the security aspects needed to enhance border security and combat organized crime. The FAST program is a joint initiative that involves the CBSA and U.S. Customs and Border Protection. FAST builds on the CSA program and its principles of pre-approval and self-assessment, as well as on the increased security measures under the PIP program.

The CSA program has an annual operating budget of $3.1 million (2007-08); this budget includes salaries and benefits for about 50 CBSA staff. In July 2005, the functional authority for the program was transferred to the Admissibility Branch. The CBSA has an importer compliance team located in Mississauga, a carrier compliance team managed in Hamilton and a policy unit in Ottawa. The managers of these three units report to the Director of the Commercial Border Policy Division of the Admissibility Branch.

Since its creation, the CSA program has been able to attract the largest importers and the automobile sector dominates the CSA membership. In 2007, the value for duty (VFD) of CSA automotive clients represented 76% of the VFD of all CSA clients. As of March 2008, there were 50 approved CSA importers and 812 approved CSA carriers. Table 1 outlines the proportion of VFD of CSA-approved importers compared to the VFD of all Canadian imports.

Table 1: Importer Value for Duty (VFD) ($ millions)

Year	No. of approved importers	VDF (approved importers) [ 3 ]	Duty (approved importers)	Goods and services tax (approved importers)	Total VFD of all imports into Canada	CSA proportion of total VFD (%)
2001	2	32,951.7	37.9	2,307.7	343,111.0	9.6
2002	5	57,215.7	20.9	4,006.6	348,956.8	16.4
2003	8	59,807.8	25.0	4,143.4	336,141.3	17.8
2004	18	61,528.7	163.7	4,287.4	355,886.2	17.3
2005	25	60,392.8	321.4	4,234.5	380,859.2	15.9
2006	41	74,950.1	488.9	4,757.8	396,645.3	18.9
2007	48	81,871.5	412.1	4,772.4	406,485.1	20.1

There have been no internal audits on the CSA program to date; however, a Customs Self Assessment Program Evaluation Study was conducted in November 2007. The two major recommendations of that study were (i) strengthen the CSA program by completing the transition of the program and solidifying its governance structure and (ii) explore ways to maximize the effectiveness of the CSA program.

The Office of the Auditor General of Canada (OAG) had also reviewed aspects of the CSA program for the following audit reports:

• 2001: Canada Customs and Revenue Agency — Managing the Risks of Non-Compliance for Commercial Shipments Entering Canada
• 2003: Canada Customs and Revenue Agency — Managing the Risks of Non-Compliance for Customs
• 2007: Keeping the Border Open and Secure — Canada Border Services Agency

The overall finding of the OAG reports was the need to focus on monitoring CSA clients, thereby ensuring the low-risk status of clients admitted to the program. The Agency's management action plan included the development of a risk-based protocol to direct the monitoring and reassessment of CSA carrier participants.

The CSA program was also reviewed in 2007 as part of the CBSA Audit Readiness Report. This report was prepared by KPMG to evaluate the Agency's ability to respond to the requirement of having auditable financial statements. The key finding relating to the CSA program indicated that external auditors would not be able to rely on the analytical procedures used by the program area to monitor the revenue received from the CSA program in support of the financial statement audit.

This audit of the CSA program was approved in October 2007 by the Audit Committee as part of the CBSA's multi-year audit plan for 2007-2010.

Risk Assessment

The risk assessment, combined with preliminary findings based on research, analysis and interviews, determined the following risk areas:

• Importer release and accounting: The importer may receive goods but may not provide the trade data information to the CBSA in a timely manner.
• Importer revenue reporting: This is the self-assessment process performed by CSA-approved importers to report CBSA-related revenues. The importer may not report all revenues and the revenue summary form (RSF) may not be filled out properly. Also, the payment to the financial institution may not be made correctly by the importer or processed properly by the CBSA.
• Monitoring: The monitoring activities used to ensure that the approved importers and carriers in the CSA program continue to remain low risk may not be adequate or performed in a timely manner. As well, the monitoring processes used to ensure the completeness of revenue may not be carried out appropriately.
• CSA program monitoring: Controls and processes in the program area may not be in place to monitor the performance of the program.
• Employee systems and information resources: Employees in the risk assessment, importer compliance and carrier compliance units may have insufficient information systems, work methodologies, resources, skill levels and operating procedures to perform their responsibilities. This includes not having an adequate risk assessment of CSA-approved importers and carriers.

Audit Objective and Scope

The objective of the audit was to provide reasonable assurance to senior management that the CSA program is operating effectively.

Based on a review of legislation, policies and procedures, as well as on interviews conducted with the Admissibility Branch and the Northern Ontario Region [ 4 ], it was determined that the scope of the audit would focus on CSA client oversight, program monitoring and the audit controls in place to ensure that duties and taxes owing were being properly received and processed in a timely manner. Visits were made to the Northern Ontario Region and to the importer and carrier compliance units located in Mississauga and Hamilton respectively. Importer and carrier files of active CSA participants who had started with the program as of December 31, 2006, were selected for review. Also, revenue submissions and reconciliation processes pertaining to CSA activities were reviewed for the months of April, May and June of 2008.

The Commercial Driver Registration Program (CDRP) was excluded from the scope of the audit. While registered drivers are a part of the requirements for the CSA program, the CDRP functions separately in the Operations Branch and is not part of the CSA program managed by the Admissibility Branch. Also, the overall effectiveness of the CSA program was not reviewed because this was evaluated as part of the Customs Self-Assessment Program Evaluation Study conducted in 2007. However, some aspects of the transition of the CSA program and its governance structure were reviewed during the audit. Also, no testing was done on importer and carrier systems at participants' sites because the audit relied on the review work that was performed by the CSA compliance units.

Approach and Methodology

Audit procedures included the following:

• Interviews with the manager and senior program officers of the CSA importer compliance unit to understand the procedures used to ensure that all imported goods are reported to the CBSA within the required time frame.
• A review of a sample of RSF transactions to ensure that the payment associated with the RSF was deposited at the appropriate financial institution and was credited to the Receiver General for Canada in a timely manner.
• Interviews with regional intelligence analysts who performed and re-performed risk assessments on carriers/importers to understand this activity.
• Visits to the importer and carrier compliance units to observe the operations.
• Interviews with the managers and senior program officers of the importer and carrier compliance units to understand the monitoring process for CSA-approved importers and carriers.
• A review of the monitoring history for CSA-approved importers and carriers to ensure that they were monitored in a timely manner (as per standard operating procedures) after they were initially approved and that any subsequent risk assessments or monitoring was performed as required.
• A review of monitoring files for CSA-approved importers and carriers to ensure that adequate and consistent methods were applied and that corrective actions were taken when necessary.
• Interviews with employees to identify whether their information needs for decision making are currently being met and to identify any possible gaps in system information or manual procedures.

Audit Criteria

Based on preliminary findings from the planning phase and the results of the risk assessment, it was determined that the audit would address the criteria outlined in Appendix A.

Statement of Assurance

The audit engagement was planned and conducted in accordance with the Internal Auditing Standards for the Government of Canada.

Audit Opinion

The audit found that the CSA program control framework is in place; however, improvements could be made to make it effective. Improvement relating to the timeliness of CSA importer and carrier monitoring reviews, CSA program monitoring, CSA administrative monetary penalties and the revenue reconciliation done by the Comptrollership Branch would strengthen the framework.

Findings, Recommendations and Management Action Plan

Importer Accounting and Revenue Reporting

Generally, accounting and payment controls were functioning effectively to ensure appropriate CSA importer accounting, revenue reporting and payment.

A CSA-approved importer is responsible for accounting for all imported goods to the CBSA and for "self-assessing" to determine the duties and taxes that they owe. "Accounting" is different from "payment". Accounting is the provision of trade data [ 5 ] whereas revenue reporting and payment refers to the identification and payment of revenues owing to the Agency. CSA-approved importers have two options for accounting (by calendar month or from the 19th of one month to the 18th of the following month); however, all revenue reporting and payments are due by the last business day of the month.

Importers are obligated to submit their accounting trade data information to the CBSA in a timely manner. For each late entry, a system generated C244 administrative monetary penalty (AMP) with a zero dollar value is automatically issued to the importer. As required by CSA policies, the CBSA must issue a C246 AMP to those importers who, at each calendar year end, have an accounting compliance level that is below the threshold of 99.5%. This AMP is calculated by the senior program officers in the CSA/FAST Importer Compliance Unit and it has a $50 value. This AMP is applied to each entry that is outside the threshold when considering all entries made by the importer during the year. Importers are also required to submit any applicable interest amounts for those late accounting entries that resulted in a late payment of applicable duties or taxes owed to the Agency. Importers' internal business systems are used to generate accounting and payment information and are therefore tested and reviewed by the CSA/FAST Importer Compliance Unit before the importers are accepted into the CSA program; the systems are also tested during the monitoring process.

As part of the audit, a sample of 10 importers was reviewed for the 2007 calendar year to identify the extent of late accounting. The analysis found that 6 of the 10 importers had an issue with late accounting and that the C246 AMP was calculated by the senior program officer but not issued to the importer as required by CSA policies. The total amount associated with this AMP for 2007 was approximately $100,000 for the six importers. Audit interviews indicated that a decision had been made in 2003 not to issue the C246 AMP. Management indicated that the importers are large, low-risk companies and that it was more preferable to work with the importers to address and resolve system issues that may have caused the late accounting. Management indicated that the importers are concerned when late accounting occurs because of the interest component that must be paid. Furthermore, the importers will usually work with their senior program officer to resolve the issue to maintain a high level of compliance.

The CSA revenue reporting process is twofold. First, a CSA-approved importer self-assesses and summarizes the revenue amount on a single monthly report called a revenue summary form (RSF). The importer then submits a monthly RSF to the CBSA and this information is directly transferred into the Customs Commercial System (CCS). Second, the importer remits the total amount on the monthly RSF to a financial institution. The remittance voucher is then forwarded to the Financial Input Processing (FIP) Unit at the Canada Revenue Agency (CRA), and the information is downloaded into the CCS. Once the information from the RSF and FIP Unit is in the CCS, the CCS automatically matches the entries from the FIP Unit (payment) and the CCS (RSF receipt) to confirm that the amounts identified by each RSF match the payment. The CBSA revenue ledger is then updated with the information from the CCS.

The Comptrollership and Admissibility branches are responsible for ensuring that all CSA-approved importers provide timely payment to the CBSA and that the payment matches the RSF receipt that was submitted. The Comptrollership Branch ensures that all payments are reconciled in the CBSA revenue ledger (this ledger was recently split from the CRA in January 2008). The Comptrollership Branch works with the Admissibility Branch to resolve any importer-specific issues that may arise and informs the Admissibility Branch of any importer payments that could not be reconciled.

A walkthrough and examination of the reconciliation process and employee interviews were performed. The audit found that there were delays during the Comptrollership Branch reconciliation process because some CSA payments were being processed to CRA bank accounts and not to the CBSA. These delays occurred after the revenue ledger split and required monthly interdepartmental settlements between the two agencies. It was determined that some of the financial institutions were not assigning CSA payments to the correct CBSA bank authorization number (BAN); this resulted in many payments being deposited using a CRA BAN. Management indicated that an option was put forward to resolve this problem and that progress was being made. In the interim, both the CRA and the CBSA are working together to resolve the monthly payment problems.

This issue is not specific to the CSA reconciliation process and may affect other payments that are processed by the FIP Unit. A timely resolution of the issue is required by senior management to properly address this matter.

Recommendations

Management Action Plan

Completion Date

The CBSA and the CRA have been cooperating on resolving this issue. The payment sorting process used by financial institutions is the primary source of the incorrect bank authorization numbers. Financial institutions send cheques and remittance vouchers to a processing centre. The institutions also send a sort pattern, which is the client-determined instructions for sorting or directing payments (in this case, between the CRA and the CBSA). From a recent visit to a processing centre, it was determined that not all branches of all financial institutions had amended the sort pattern to split between the CRA and the CBSA. The CRA has expanded its communication efforts to ensure that all branches are aware of the new sort pattern requirements. In the last quarter of the calendar year, the number of misdirected payments decreased by 45%. The CRA and the CBSA will continue to monitor the progress of financial institutions in implementing the new requirements.

March 31, 2009

Management Action Plan	Completion Date
The review of all CSA administrative monetary penalties (other than penalties for late accounting) is complete and recommendations have been presented to the AMPS Policy and Program Unit (with the exception of recommendations regarding late accounting penalties). The results will be communicated to the areas responsible for issuing penalties after the review is complete.	September 2009
A review on whether a monetary penalty is the best mechanism for dealing with CSA late accounting is under way and a recommendation will be provided to senior management.	December 2009

Monitoring — Importer Compliance

Monitoring procedures for CSA-approved importers adequately reviewed the CSA program requirements and were applied consistently. Weaknesses were identified in the timeliness of the importer validation review process.

The CSA/FAST Importer Compliance Unit in the Admissibility Branch is responsible for administering and overseeing the CSA process relating to all active CSA-approved importers. The Unit receives all new CSA importer applications and each new applicant is assigned to a senior program officer who serves as a single point of contact for the CSA program, manages the importer's application, provides ongoing guidance and assistance, and monitors the importer's compliance with the CSA program.

Standard Operating Procedures

Standard operating procedures (SOPs) are essential for ensuring that senior program officers in the CSA/FAST Importer Compliance Unit have the necessary documented processes in place to adequately perform their responsibilities. The processes used to monitor CSA-approved importers should test that all importers are complying with the CSA program regulations at the time of the review. In addition, the monitoring process should be consistently applied.

The CSA/FAST Importer Compliance Unit performed three types of monitoring activities:

1. Monthly monitoring: This monitoring starts after the first RSF is transmitted by the importer and received by the CBSA. Each senior program officer must perform a monthly review of each importer that he or she is responsible for. Part of this process includes ensuring that payment and RSF information match and comparing RSF information to the accounting trade data that was submitted to the CBSA by each importer for the month.
2. Annual monitoring: A summary review performed once a year on each CSA-approved importer to ensure that there have been no system changes. The results of this review are also used to prepare an analysis of the importer's activity and compliance history for the calendar year.
3. Validation reviews: Tests of key CSA program elements performed after an importer has started with the CSA program. These reviews essentially duplicate what was performed during the CSA approval process to ensure that the controls and processes for proper accounting and revenue reporting, which were in place at that time, are functioning as intended. The SOPs of the CSA/FAST Importer Compliance Unit indicated that the validation reviews should be initiated six months after an importer has started with the CSA program.

A sample of 10 active importers was selected for review in order to ensure that monitoring procedures were in line with CSA program requirements and that they were being applied consistently. Each sampled importer was analyzed in relation to each of the three types of monitoring activities performed by the CSA/FAST Importer Compliance Unit.

The monthly monitoring process was being applied consistently for the importers sampled and adequately reviewed the requirements of the CSA program. As part of the testing performed for this audit, each sampled importer was reviewed for the months of April, May and June of 2008, and the review was mainly based on the new "importer monthly monitoring" template that was being used by senior program officers to document the results of the items reviewed each month. This template was implemented by the CSA/FAST Importer Compliance Unit in April 2008 and was meant to provide a more consistent approach and audit evidence for the monthly monitoring process performed on each active CSA-approved importer.

For the annual monitoring process, senior program officers were updating importer information, including business and system changes as per the SOPs. Interviews with the officers indicated that this was done by means of an annual questionnaire or by information updates provided during the monthly review process while speaking to the company. The annual monitoring process now also includes the completion of an annual compliance report card. The audit found that these were prepared consistently for the 10 sampled importers for the 2007 calendar year.

For both the monthly and annual monitoring processes, the SOPs for the CSA/FAST Importer Compliance Unit had not been updated to reflect the recent process changes.

The validation review process was completed for 7 of the 10 sampled files; the review of the other 3 files had yet to be completed. An analysis of the seven completed files found that appropriate processes were used that reviewed the requirements of the program. Standardized reporting templates and file structures were also being used to ensure consistency among the senior program officers.

The audit also found that the CSA/FAST Importer Compliance Unit had not identified a formal process for further validation reviews after the initial review is performed. Although it is currently not a requirement of CSA program regulations, the need for subsequent validation reviews was identified as an issue through senior program officer interviews and had been informally discussed in the Unit because almost all of the active CSA-approved importers had had an initial review conducted. Without further validation reviews on an importer, some CSA program requirements and controls may not continue to be functioning as required under the program regulations.

Timeliness of Validation Review Monitoring

Timely initiation of the validation review is essential for ensuring that CSA-approved importers are complying with all of the requirements of the program following their initial application process. According to the SOPs, the validation review of importers should be initiated six months following their program start date.

An analysis performed on the 40 active CSA-approved importers that started the program before December 31, 2006, found the following:

• 15% (6/40) of the importers had their validation review initiated within six months of their start date with the CSA program, as per the SOPs.
• 53% (21/40) of the importers had a completed validation review; the reviews for 37% (15/40) of the importers had been initiated but they were not yet complete. It took an average of 1.13 years from the importers' CSA start date for these 36 reviews to be initiated.
• 10% (4/40) of the importers had yet to have a validation review initiated.

Interviews indicated that resource pressures had an impact on the timeliness of the validation reviews. There were four resources recently added to the validation review process in order to improve the timeliness.

Management interviews also indicated that the current practice for initiating a review was 6 to 12 months after an importer's CSA start date, which does not coincide with the six-month time frame set out in the SOPs and used in the validation registry [ 6 ]. The lack of a consistently applied time frame could make it difficult for management to measure the CSA/FAST Importer Compliance Unit's performance.

Completeness of Importer Revenue Amounts

Appropriate procedures should be in place to ensure that the revenue amounts submitted by CSA-approved importers are accurate and complete for all importations.

The audit reviewed the procedures used by the CSA/FAST Importer Compliance Unit to ensure that the monthly revenue amounts submitted by CSA-approved importers were complete. One test used on a monthly basis by senior program officers was a trend analysis (i.e. comparing importer-submitted amounts to previously reported amounts). This process documents the goods and services tax and duty paid by the importer for the month (from the RSF) and the value for duty (VFD) of all reported goods for the period, and then compares these amounts to those from the same month in the previous year. By accounting for seasonal discrepancies, this process aimed to identify reporting trends for individual importers and subsequently allowed senior program officers to identify and resolve any issues with the CSA client in a timely manner.

Although the above analysis helped identify periodic discrepancies in revenue amounts, it does not ensure that all importer self-assessed revenues are fully complete and accurate. Ensuring importers comply with various CBSA trade program requirements (e.g. tariff classification, valuation, origin and tariff treatment of imported goods — all of which can affect the revenue amounts submitted by the importer) is outside the mandate of the CSA program. This review function lies with the compliance verification and services (CV&S) divisions in the CBSA regions that assess importers' compliance with various trade legislation and regulations.

Senior program officers in the CSA/FAST Importer Compliance Unit were found to have experience in compliance verification and were able to identify trade program issues relating to their designated importer and refer the information to the appropriate CV&S division if required. CSA-approved importers were also temporarily removed from the CV&S post-release audit pool while they were undergoing a validation review by the CSA/FAST Importer Compliance Unit. Once a CSA-approved importer had undergone a validation review, the importer was re-entered back into the CV&S audit pool, at which time the CV&S division would consult with the CSA program if an audit on a CSA-approved importer was initiated. Generally, the CV&S divisions examined importers on a more transactional level. When a CSA-approved importer is involved in a CV&S review, the portion that relates to the non-account of goods is performed by the CSA/FAST Importer Compliance Unit, and this is similar to what is performed during the validation review process. Of the 10 CSA-approved importers sampled for this audit, 3 were involved in a CV&S review while being an active CSA-approved importer. The results of these reviews were insignificant and did not affect the clients' CSA status, and any follow-up would have been performed by the CV&S division. An internal audit of CV&S is planned for 2010-11.

The CBSA currently has a pilot program in place called Partners in Compliance (PIC) that builds on the principles of the CSA program and risk management. It gives CSA-approved importers greater recognition for the integrity and reliability of their internal controls and business systems with respect to CBSA trade programs. PIC allows CSA-approved importers to voluntarily demonstrate to the CBSA that their business systems, internal controls and self-testing processes are effective and reliable at ensuring trade program compliance.

If the PIC program is fully implemented, it, combined with the CSA program, could ensure that the top Canadian importers have a very high level of compliance with CBSA commercial trade regulations and allow the Agency to focus its post-verification resources on those importers of higher or unknown risk.

Recommendation

Management Action Plan	Completion Date
A policy that defines the timing of both the initial validation review and subsequent validation reviews will be established and SOPs will be updated.	June 2009

Monitoring — Carrier Compliance

CSA carrier monitoring procedures adequately reviewed the CSA program requirements; however, weaknesses were identified in the consistent application of the procedures between files. A significant risk was also identified relating to the backlog of carrier files to be monitored.

The CSA/FAST Carrier Compliance Unit in the Admissibility Branch is responsible for administering and overseeing the CSA process relating to all active CSA-approved carriers. The Unit receives all new CSA carrier applications and each new applicant is assigned to a senior program officer who serves as a single point of contact for the CSA program, manages the carrier's application, provides ongoing guidance and assistance, and monitors the carrier's compliance with the CSA program.

Standard Operating Procedures

Processes should be in place to monitor that CSA-approved carriers are complying with program requirements and that the monitoring process is consistently applied.

Monitoring of CSA-approved carriers had two components:

1. The CSA/FAST Carrier Compliance Unit re-tests the carrier's business systems to ensure that they continue to function as intended; and
2. A risk assessment is re-performed on clients to check for any criminality and to see if any CBSA enforcement actions have been taken against them [ 7 ]. At the time of the audit, the re-performance of risk assessments was conducted by the Intelligence and Enforcement Division of the Northern Ontario Region; however, as of October 2008, this function was transferred to the CSA/FAST Carrier Compliance Unit.

A sample of 20 active carriers was selected to ensure that monitoring procedures were in line with program requirements and that they were being applied consistently to all monitoring files. Of the 20 carriers selected, 18 had a completed monitoring review at the time of the audit.

A review of the 18 monitoring reports found that the monitoring processes were applied consistently for the carriers sampled and the processes adequately reviewed the main CSA program requirements. The monitoring focused mainly on the business systems review performed by the CSA/FAST Carrier Compliance Unit and resulted in follow-up action plans to address non-compliance issues in 11 cases. Further inquiries with management indicated that some of these action plans were the result of some earlier CSA-approved carriers not having a complete systems review during the application process before they were accepted into the CSA program.

With respect to re-performing risk assessments on carriers, only 5 of the 18 reports included the results of the subsequent risk assessment. This lack of re-performing risk assessments was caused by other priorities affecting the work of the Intelligence and Enforcement Division in the Northern Ontario Region. By not re-performing the risk assessments, the CSA program is being exposed to potential risks of criminality and may lead to carriers not complying with CSA and other CBSA program requirements.

Timeliness of Monitoring of CSA-approved Carriers

Timely initiation of monitoring is essential for ensuring that CSA-approved carriers are complying with all of the requirements of the program following their initial application process.

An analysis was performed on the 661 active CSA-approved carriers who started with the program before December 31, 2006, to identify the extent of the backlog at the time of the testing. The audit found that as of September 26, 2008, more than half of the 661 active CSA carriers approved as of December 31, 2006, had not been monitored (see Table 2).

Table 2: Status of Sampled Carrier Monitoring Reviews as of September 26, 2008

	Number of carriers	Percent
Monitoring review files initiated and completed	214 carriers	32%
Monitoring review files initiated but not yet completed	55 carriers	8%
Monitoring files not yet initiated	392 carriers	60%
Total	661 carriers	100%

Management indicated that CSA carrier monitoring did not start until 2004 because a monitoring process for carriers had yet to be implemented. This resulted in a backlog of files to be monitored at that time. In 2007, two additional resources were provided to address the backlog issue and currently the older files are being monitored first.

A more current analysis of the backlog was performed during the audit to include all active CSA-approved carriers as of September 26, 2008. As per Table 3, it was noted that even with the recent decrease in new CSA carrier applicants and the dedication of two full-time employees to conduct monitoring, the backlog still remained. For example, the number of carrier monitoring files initiated in 2008, as of September 26, was less than the number of new CSA-approved carriers in 2007. Therefore, in order to reduce the backlog, the number of monitoring files initiated each year should be greater than the number of new CSA carriers approved in the previous year.

Table 3: Carrier Monitoring Review Backlog Analysis

Calendar year	No. of carrier monitoring files to be initiated	No. of carrier monitoring files initiated	Backlog B	No. of new CSA-approuved carriers	No. of outstanding carrier monitoring files to be initiated in the following year C
2001	0	0	0	8	8
2002	8	0	8	101	109
2003	109	0	109	104	213
2004	213	29	184	189	373
2005	373	55	318	145	463
2006	463	80	383	114	497
2007	497	43	454	104	558
2008 A	558	62	496	61	557

Source: CSA/FAST Carrier Compliance Unit database, as of September 26, 2008

An analysis was also performed on those active CSA-approved carriers that had a second monitoring review started on them to verify that the reviews were being initiated in a timely manner. As per the SOPs for the CSA/FAST Carrier Compliance Unit, a bring-forward date of one, two, three or five years should be established following the carrier's initial review based on their risk. A review of the 11 carriers that were monitored twice as of July 12, 2008, found that the reviews were initiated in a timely manner.

Recommendation

Management Action Plan	Completion Date
The CBSA has already taken action to increase the resources available to perform risk assessments and monitoring. New monitoring standards will be implemented in April 2009 (following recommendation 5.35 of the 2007 October Report of the Auditor General of Canada, Chapter 5, "Keeping the Border Open and Secure — Canada Border Services Agency") that are based on the client's risk score and will establish new monitoring periods.	April 2009
The risk assessment process has been harmonized with the PIP program and the backlog should be eliminated in five months.	September 2009
The monitoring backlog will be eliminated in 18 months. It is important to note that in addition to the scheduled risk assessment and monitoring, the compliance history of CSA-approved carriers is regularly reviewed by CSA/FAST Carrier Compliance Unit officers as part of their normal tasks. If any issues are found, immediate action is taken to address any compliance issues.	October 2010

Monitoring of the CSA Program

No performance measurement framework or formal key performance measures were in place to monitor the overall performance of the CSA program. Gaps were also identified relating to the information available on the port-of-entry examination results of CSA-approved carriers.

Monitoring is a fundamental control. Programs and activities should be monitored on a regular basis and the results should be reported to the required management level.

The audit analyzed whether there was a process in place for tracking key performance indicators and measuring them against set targets to analyze the overall performance of the CSA program. This included identifying whether there was a method in place to measure the overall objectives of the program, including shifting CBSA resources from low-risk areas to those areas of high or unknown risk. The audit also examined the management oversight function and how port-of-entry operational information was being used by management in the CSA program.

The Customs Self Assessment Program Evaluation Study was completed in 2007. It found that the expected outcomes of the CSA program were well aligned with the CBSA's strategic outcomes. Although the CSA program is a national program, it is managed out of the CBSA's Greater Toronto Area (GTA) Region and the GTA Region reports to CBSA Headquarters (HQ). Employees are spread across the region and report not to a manager in the region where they work but rather to HQ managers located in the GTA Region. Given this, the evaluation found that the structure was functioning adequately. A recommendation was made to develop an ongoing performance measurement framework for the CSA program to allow for regular reporting of outcomes and the identification of program improvements. The management response to this recommendation was that the CSA program would explore developing a comprehensive performance measurement framework to collect data on key outcomes and results indicators and would also incorporate the process monitoring framework (PMF) results into the identification of program improvements. The response also indicated that it was anticipated that the CBSA's PMF would contribute to the regular reporting for the CSA program and identify improvements.

A review of current PMF measures identified one module relating to the CSA program. Given that the PMF is currently providing self-assessment results and uses exception-based reporting, it is not currently providing any CSA program monitoring information to management.

The results of this audit indicated that this recommendation is still outstanding and no implementation timeline is in place. It was also found that there was no performance measurement framework or formal key performance measures in place to monitor the overall performance of the CSA program to ensure that it has met or continues to meet its program objectives. Without formal performance indicators and targets in place to measure whether and to what extent the objectives/goals of the CSA program are being met, it is difficult to determine how senior management can monitor the overall performance of the CSA program on an ongoing basis. This issue is currently relevant given the program's planned expansion to Mexico and overseas.

With the exception of program monitoring, the audit noted that program oversight was being conducted by management. Meetings were held between managers and senior management and steering committees were in place to provide a forum for various commercial program and policy issues.

The 2007 October Report of the Auditor General of Canada, Chapter 5, "Keeping the Border Open and Secure — Canada Border Services Agency," indicated that the Agency should establish controls and monitoring for its pre-approval programs to ensure that members who are assessed above low risk at the time of admission, based on reasonable and credible information, are monitored and their participation in the program is reviewed to ensure that their net risk level is reduced to low.

CSA-approved carriers are considered to be lower risk than other carriers; however, periodic border examinations are essential as a part of the ongoing program operations to ensure that there are minimal issues of non-compliance with program requirements. The audit found gaps relating to the information available on border examination results of CSA-approved carriers at the port-of-entry level. This is due to insufficient information being captured in CBSA information systems.

Recommendation

Management Action Plan

Completion Date

The same issue was identified in recommendation 5.35 of the 2007 October Report of the Auditor General of Canada, Chapter 5, "Keeping the Border Open and Secure — Canada Border Services Agency." As a result, a draft document has been prepared that addresses CSA program monitoring. A draft performance measurement framework matrix for the CSA program has also been created and the new performance measurement framework will be put in place.

September 2009

Appendix A: Audit Criteria

The audit criteria used for the engagement phase were:

Line of Enquiry	Audit Criteria
1.0 Compliance with regulations, policies and procedures — importer accounting and revenue reporting	1.1 Importers approved by the Customs Self Assessment (CSA) program properly account for all imported goods to the Canada Border Services Agency (CBSA) within the required time frame after receipt of goods has occurred. 1.2 CSA-approved importers properly complete the required fields on the revenue summary form (RSF) and the form is transmitted correctly to the CBSA. 1.3 CSA-approved importers make the payment associated with the RSF at a financial institution and the payment is credited to the Receiver General for Canada. 1.4 The financial input processing unit receives the remittance vouchers associated with CSA-approved importer payments and processes these correctly. 1.5 Discrepancies between the revenue reporting (RSF submission) of CSA-approved importers and payment are addressed correctly.
2.0 Monitoring — importer and carrier compliance	2.1 The compliance of CSA-approved importers and carriers to CBSA regulations is monitored in a timely manner following their admission to the CSA program. 2.2 Appropriate and consistent reassessment and monitoring processes are performed on CSA-approved importers to ensure that they continue to remain low risk. 2.3 Appropriate procedures are used to ensure that the revenue amounts submitted by CSA-approved importers are complete. 2.4 Appropriate and consistent reassessment and monitoring processes are performed on CSA-approved carriers to ensure that they continue to remain low risk.
3.0 CSA program monitoring	3.1 Controls and processes are in place to monitor program performance on an ongoing basis and to monitor the degree to which performance results are incorporated into the program operations.
4.0 Information and communication	4.1 Employees in the risk assessment, importer compliance and carrier compliance units have sufficient information systems, work methodologies, resources, skill levels and operating procedures to perform their responsibilities.

Appendix B: List of Acronyms

AMP

administrative monetary penalty

BAN

bank authorization number

CBSA

Canada Border Services Agency

CCS

Customs Commercial System

CDRP

Commercial Driver Registration Program

CRA

Canada Revenue Agency

CSA

Customs Self Assessment

CV&S

compliance verification and services

FAST

Free and Secure Trade

FIP

financial input processing

GTA

Greater Toronto Area

HQ

CBSA Headquarters

OAG

Office of the Auditor General of Canada

PIC

Partners in Compliance

PIP

Partners in Protection

PMF

process monitoring framework

RSF

revenue summary form

SOP

standard operating procedure

VFD

value for duty

---

Notes

1. The only exception is automotive parts arriving from Mexico. [Return to text]
2. The only exception is automotive parts arriving from Mexico. [Return to text]
3. These amounts include all imports by CSA-approved importers (includes both CSA and non-CSA shipments). [Return to text]
4. During the planning and examination phases of the audit, the Northern Ontario Region was involved in part of the risk-assessment and monitoring processes relating to carrier and importer applications and the subsequent monitoring reviews. Effective October 2008, this function was transferred to the CSA/FAST Carrier Compliance Unit. [Return to text]
5. Importers provide trade data on a Form B3, Canada Customs Coding Form, such as a description of the goods, the tariff classification, the value for duty and the customs duty. [Return to text]
6. The validation registry is an Excel spreadsheet that is used to document the progress of each validation review. [Return to text]
7. An initial risk assessment is performed on new carrier and importer applicants during Part I of the CSA application process. [Return to text]