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Internal Audit Report
December 2010

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Table of Contents

• Executive Summary
• 1.0 Introduction
  • 1.1 Background
  • 1.2 Risk Assessment
  • 1.3 Audit Objective and Scope
  • 1.4 Approach and Methodology
  • 1.5 Audit Criteria
  • 1.6 Statement of Assurance
• 2.0 Audit Opinion
• 3.0 Findings, Recommendations and Action Plan
  • 3.1 Management Control Framework
  • 3.2 Claims Determination – FAA Sections 33 and 34
• Appendix A: Drawback Claim Volume and Value, by Region
• Appendix B: Drawback Program Legislative and Regulatory Framework
• Appendix C: Audit Criteria
• Appendix D: List of Acronyms

Executive Summary

Background

The objective of the Drawback Program is to allow businesses to recover duty paid on:

• imported goods that are subsequently exported; or
• imported goods used, consumed or expended in the processing in Canada of subsequently-exported goods.

The program is aligned with the Canada Border Services Agency's (CBSA) strategic objective "Legitimate travellers and goods move freely and lawfully across our borders as part of CBSA Program Activity 'Trade'". The Drawback Program helps to ensure that the Canadian economy and business community gain maximum benefits from the administration of international trade agreements and domestic legislation governing trade in commercial goods. In fiscal year 2009-2010, there were 5,000 drawback claims processed for a total value of $85 million; this represents 0.4 percent of the $21 billion in revenue that the CBSA collected during the same period.

The program is delivered by six CBSA regional offices; however, three regional offices process over 80 percent of the claims. The Tariff Division, within the Post-Border Directorate of Programs Branch, estimates that there are 33 full-time equivalent (FTE) resources and five part-time multi-program resources involved in the administration and management of the program within the CBSA. This represents 0.3 percent of the CBSA FTE workforce of 13,800 in fiscal year 2009-2010.

The Audit Committee approved the Audit of the Drawback Program as part of the CBSA's Three-year Risk-based Audit Plan for fiscal years 2009-10 to 2011-12. There have been no recent audits or reviews of the Drawback Program.

Objective and Scope

The objective of this audit was to assess the adequacy and effectiveness of the management control framework in place to support the effective and efficient delivery of the Drawback Program.

Audit criteria were selected to assess administration and management of the program, including the policies and procedures for oversight, risk management, performance monitoring and reporting, and review and investigation of claims. The audit scope included the Tariff Division within the Post-Border Directorate of the Programs Branch, the Border Operations Directorate within the Operations Branch, as well as the Revenue Management Division within the Corporate Finance Directorate of the Comptrollership Branch. Six regional offices are involved in the administration and management of drawbacks and were included in the audit scope.

Transaction testing was conducted in three regional offices, and claims were sampled from the 2009-2010 fiscal year. The audit team tested the process controls that ensure legitimacy and consistency of claims processing.

Statement of Assurance

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

Audit Opinion

The audit identified some deficiencies in the management control framework for the Drawback Program. There are opportunities for improvements in the following areas: national oversight of the program; consistency in processing drawback claims; and exercising controls related to the Financial Administration Act (FAA) Sections 33 and 34.

Main Observations

The Drawback Program is a national program that is delivered by the regions. Due to changing CBSA priorities and other initiatives by Canada to decrease duty rates, the Drawback Program has moved from a stand-alone program unit within the CBSA organizational structure to one that is intermixed with other duty deferral or CBSA program units, where drawback administration is one of several responsibilities. Tariff Division, which is responsible for national direction and oversight, has provided limited formal direction in recent years to guide the regions in program oversight, performance monitoring and risk management. Organized scheduled communications previously in place, such as biweekly conference calls and regular national conferences, have been put aside due to changing priorities and resource constraints.

While Tariff Division indicated that informal telephone and/or e-mail program guidance are provided to regions, they acknowledge that policies are used inconsistently among the regions, and that there is a need to update and formalize the direction they provide. Given the limited formal direction, the regions have elected to put in place regional procedures that support the administration and management of the Drawback Program. In some regions, this includes protocols for risk-based claims processing. These regional protocols have not been referred to or endorsed by Tariff Division and, in some cases, are not aligned with the program's key procedural guidelines set out in the Duties Relief Administration Manual. Consequently, there are regional variations in the processing of drawback claims.

Through the transaction testing, the auditors noted that current financial procedures related to Section 34 of the FAA do not provide evidence that every claim report was reviewed or approved by an authorized Section 34 delegate. In addition, inappropriate re-delegation of Section 34 signing authority was identified in one region and regional management has since corrected this issue. Also, Revenue Management Division within the Comptrollership Branch has indicated that for the Drawback Program no monitoring of FAA Section 34 was conducted prior to signing FAA Section 33. Without satisfactory monitoring measures in place, Section 33 may be exercised without proper assurance that all Section 34 requirements were met.

Recommendations

The audit makes two recommendations:

1. The Vice-President of the Programs Branch, in collaboration with the Vice-President of the Operations Branch, should clarify and document the roles and responsibilities of the regions and Tariff Division, with regard to program oversight and consistency in program delivery, and develop and implement an approach for risk managing the claims.
2. The Vice-President of the Comptrollership Branch, in collaboration with the Vice-President of the Programs Branch, should ensure that approved drawback claims show evidence of compliance with FAA Section 34, that proper documentation is on file prior to signing FAA Section 34, and that risk-based monitoring procedures are conducted as part of the FAA Section 33 process.

Management Response

Management agrees with the findings of the audit and acknowledges the comprehensive review performed. The audit report recommendations are reasonable and the necessary corrective actions will be taken to address the findings.

1.0 Introduction

1.1 Background

The Drawback Program is one of the components of the Duty Deferral Program[ 1 ].

Refund requests under the Duty Deferral Program are called drawbacks. The objective of the Drawback Program is to allow businesses to recover duties paid on imported goods that are subsequently exported, or recover duties on imported goods used, consumed or expended in the processing in Canada of subsequently-exported goods. The Drawback Program helps to ensure that the Canadian economy and business community gain maximum benefits from the administration of international trade agreements and domestic legislation governing trade in commercial goods.

In 1996 the Drawback Program was amalgamated with the Duties Relief Program and the Customs Bonded Warehouse Program to form the Duty Deferral Program. Due to changing CBSA priorities and other initiatives by Canada to decrease duty rates, the Drawback Program has moved from a stand-alone program unit within the CBSA organizational structure to one that is intermixed with other duties deferral or CBSA program units, where drawback administration is one of several responsibilities. For example, the senior officers trade compliance (SOTC) in the regions are tasked with not only drawback administration but also audits of bonded warehouse and duties relief clients and other special investigations.

Furthermore, the Drawback Program has been excluded from the CBSA national compliance plan, which means that drawback-related audits are not included in the list of audit priorities assigned to each Regional director general.

In the 2009-2010 fiscal year, there were 5,000 drawback claims processed for a total value of $85 million; this represents 0.4 percent of the $21 billion in revenue collected by the CBSA for the same period. An overview of claim volume and value, by region, is detailed in Appendix A. In terms of regional distribution, the Greater Toronto Area (GTA), Quebec and Pacific regions account for over 80 percent of the total volume of claims approved, and for over 90 percent of the total value of drawback claims approved by the CBSA in the 2009-2010 fiscal year. The Tariff Division estimates that there are 33 FTE resources and five part-time multi-program resources involved in drawback administration and management within the CBSA; this represents 0.3 percent of the CBSA FTE workforce of 13,800 in the 2009-2010 fiscal year.

The legislative basis and administrative procedures for the Drawback Program are stable and longstanding. CBSA authority and responsibilities for the Drawback Program are set in the Customs Tariff Act, the associated regulations, the Duties Relief Administration Manual (DRAM), On the Job Training Course (OJT) and the appropriate D Memoranda. Appendix B provides further details about the legislative and regulatory framework of the program.

The Tariff Division in the Post-Border Directorate of the Programs Branch is responsible for policy direction and support for national consistency in the delivery and control over the Drawback Program. In addition, the Tariff Division provides dispute resolution and responds to complaints and concerns from claimants and queries from CBSA regions. The regions carry out the key activities to administer and manage the drawback claim process including the receipt, review and eligibility determination of drawback claims.

The major system supporting the Drawback Program is the Batch Accounting and Reporting K37 System (BARKS). The BARKS is a stand-alone CBSA-developed inventory control system used to track Duty Deferral Program post-audit clients, as well as the status of Drawback Program claims. The BARKS includes tombstone information about each client and claim information dating back over 10 years. The BARKS is not integrated with the Customs Commercial System (CCS) or its sub-system, Refunds Cheque Issue System (RCIS), or CBSA's Revenue Ledger (RL). The information in the BARKS has never been reconciled with the RCIS or RL which fall under the responsibility of the Comptrollership Branch.

The Audit Committee approved the Audit of the Drawback Program[ 2 ]as part of the CBSA's Three-year Risk-based Audit Plan for fiscal years 2009-10 to 2011-12. There have been no recent audits or reviews of the Drawback Program.

1.2 Risk Assessment

To assist in audit planning and in determining potential priorities and areas of audit, a preliminary risk assessment was conducted. The methodology included interviews with key stakeholders, and the review and analysis of relevant documentation. The following key risks were identified:

• Efficiency: In the absence of adequate oversight, there may be a risk of inefficient program administration and use of CBSA resources.
• Consistency: There may be a risk of regional variations in service delivery and inconsistent treatment of claimants or industries.
• Claims Determination: At the regional level, there is reliance placed on the ability of experienced, but soon-to-retire personnel to manage and administer the Drawback Program. Personnel assigned to drawback refunds may not be provided with the necessary policies, procedures, templates, information systems and training to support the discharge of their responsibilities, giving rise to a potential risk of error in assessing the eligibility of claims and in determining the amounts claimed.

1.3 Audit Objective and Scope

The objective of this audit was to assess the adequacy and effectiveness of the management control framework in place to support the effective and efficient delivery of the Drawback Program.

The audit scope included the Tariff Division within the Post-Border Directorate of the Programs Branch, the Border Operations Directorate within the Operations Branch, as well as the Revenue Management Division within the Corporate Finance Directorate of the Comptrollership Branch. Six regional offices[ 3 ] are involved in the administration and management of drawbacks and were included in the audit scope.

Transaction testing was conducted in three regional offices, and claims were sampled from the 2009-2010 fiscal year. The audit team tested the process controls that ensure legitimacy and consistency of claims processing.

1.4 Approach and Methodology

The audit approach included documentation review, interviews with key personnel, site visits to three regional offices, a regional survey and examination of drawback claim files.

The documents reviewed included the relevant legislation and associated regulations, and the D Memoranda, as well as the DRAM. Other relevant documentation included: regional risk management protocols; BARKS production report and regional monitoring reports; available regional checklists and templates to support the verification of claims files; the OJT training manual; and drawback claims processing and disbursement flow charts.

Key personnel in the Tariff Division, Border Operations Directorate, as well as the Revenue Management Division, were interviewed to develop an understanding of the management framework for the Drawback Program at the national level within the CBSA.

The auditors conducted three visits to the following regions: the GTA, Quebec and Northern Ontario Region (NOR). During the site visits, the auditors interviewed Drawback Program regional managers and directors, as well as senior officers trade compliance (SOTC) and clerks, and client service and regional Finance representatives to gain an understanding of the management framework from a regional perspective. Transaction testing was conducted to test the process controls that ensure legitimacy and consistency of claims processing. The control points tested for each claim are described in Appendix C. A total of 24 claims per region were selected (two per month) for the 2009-2010 fiscal year. The audit sample was chosen based on professional judgement to ensure that a wide range of claim values, types and complexities were included in testing.

In addition, each of the regions responded to a detailed control self-assessment questionnaire to identify and assess the strength of the policies and procedures for oversight, risk management, performance monitoring and reporting, and review and investigation. The information obtained through the survey was supplemented, as required, by follow-up interviews and document reviews.

1.5 Audit Criteria

Audit criteria were selected to assess administration and management of the Drawback Program, including the policies and procedures for oversight, risk management, performance monitoring and reporting, and review and investigation of claims. The audit lines of enquiry and audit criteria are described in Appendix C.

1.6 Statement of Assurance

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

2.0 Audit Opinion

The audit identified some deficiencies in the management control framework for the Drawback Program. There are opportunities for improvements in the following areas: national oversight of the program; consistency in processing drawback claims; and exercising controls related to the Financial Administration Act Sections 33 and 34.

3.0 Findings, Recommendations and Action Plan

3.1 Management Control Framework

Program Oversight

The Drawback Program is a national program that is delivered by the regions. While program guidance is available, the audit found that the Tariff Division, which is responsible for national policy direction, has in recent years provided limited formal direction, (such as D Memos and functional guidance bulletins) to guide the regions in program oversight, performance monitoring and risk management. However, Tariff Division management indicated that it has provided informal direction, such as responding to telephone and e-mail enquiries from regional offices.

Organized scheduled communications previously in place, such as biweekly conference calls and regular national conferences, have been set aside due to changing priorities and resource constraints. The Tariff Division noted that it reviews program performance metrics on a monthly basis: the number of claims processed; the dollar value of the claims; and the amount of duty remitted to identify anomalies and inconsistencies on a national basis. However, expectations related to these metrics were not communicated on a regular basis to all regions, and benchmarks or target performance ranges had not been established.

Within the regions, the structure of the Drawback Program is not complex, and lines of accountability are clear. Some oversight mechanisms exist, such as the national trade compliance directors' teleconference and the quarterly Trade Compliance Division program results report, which includes the Drawback Program. However, regional interviewees noted that the Drawback Program is rarely discussed at the monthly trade compliance teleconference, and the only metric reported for the Drawback Program is the number of closed claims for the period. Some regions have more robust oversight procedures in place. For example, one region prepares a monthly dashboard that is reviewed by the regional manager and director. The dashboard allows regional program management to monitor: claims inventory (number of new claims, number of closed claims, claims in inventory, claims ageing); claims inventory per officer; value of claims closed; value of deductions on closed claims; and value of detailed adjustment statements on closed claims (some of which is available on a national basis in BARKS). The regions have independently set their own targets for some of these activities.

At the time of the audit, oversight roles and responsibilities were not documented, nor well communicated between the regions and the Tariff Division. National, risk-based priorities for the Drawback Program had not been identified or communicated by the Tariff Division to the regions. All six regions responded in the national survey that they did not receive national direction related to the Drawback Program or to risk management. The regions are looking for national coordination and program oversight. In the absence of risk management tools and formal direction, there is an increased risk of inefficient and inconsistent program management and administration.

Service Delivery

Through testing claims files, the auditors observed that drawback claims are not processed consistently across the regions; regions have been using their own internal administrative procedures to suit their unique regional requirements. The Tariff Division believes that due to national direction and various regional structures, administrative procedures are applied inconsistently. The Tariff Division indicated that they need to update program documents such as the DRAM, in addition to the BARKS, then ensure their availability is communicated to the regional directors general and regional program management.

The following sections provide further observations related to the regional variations in claims administration and management, and key controls that are required to support consistency in program delivery.

Procedures

The DRAM was developed to provide a standard for the performance of the SOTC duties and to promote regional efficiency and national uniformity in the delivery of the Duties Relief and Drawback programs. The DRAM is well communicated to the regions, however regions noted the DRAM has not been updated since 1997. Many of the SOTCs interviewed indicated that the DRAM provides limited guidance in its current state, and they refer instead directly to the legislative and regulatory framework (Appendix B), consult with colleagues, or contact the Tariff Division directly, if they require policy and procedural guidance.

The Tariff Division has identified an initiative to update the DRAM; however, the project had not started at the time of the audit. Management has also indicated that the OJT training manual is being updated. Some important areas for guidance that would support consistent service delivery noted by interviewees include: information management and documentation standards; requirements for data capture in BARKS; a risk-based approach to claims processing; standard audit programs or checklists for initial review and for desk or field audit; standard risk-based review and approval procedures for managerial review and sign-off; and interpretations of the regulations, including guidance on specific topics such as audit methodology, treatment of GST/HST, and interest payment calculation dates.

Risk-based Claims Processing

As a result of limited formal national direction, a changing operating environment and increasing resource pressures, two regions have put in place procedures for risk-based claims processing without Headquarters' (HQ) approval. These regions have a "fast-track" payment procedure that allows for the processing of low-risk claims and the issuance of payment in full to the claimant, without an exhaustive review. However, the risk assessment criteria are different in each of these regions. For example, in one region one-time claimants seeking refunds of less than $5,000 are paid in full without further audit. This region also has a protocol for issuing risk licences to recurring claimants, and subsequently making fast-track payments to these risk-managed clients. In another region, decision criteria have been established to pay all claimants an interim payment depending on the claimant's risk rating.

These regional controls have not been assessed or endorsed by the Tariff Division and, in some cases, are not aligned with the program's key procedural guidelines set out in the DRAM.

By contrast, regions with smaller volumes of claims did not have similar risk-based strategies for claims processing, and reviewed all claims prior to payment.

The Tariff Division has recognized that risk strategies need to be standardized nationally; otherwise clients in one region may have an unfair advantage compared to clients in other regions.

Information Systems

The audit found that the extent of usage of the BARKS varies from one region to another, including the consistency of information and details in K37 reports. For example, one region's K37 reports are not captured in the BARKS; instead, the region has designed its own K37 report and the information in the claims report is not entered into the BARKS. The Tariff Division has communicated to the regions that they should be using BARKS for drawback claims reports and that regions should ensure that complete claim information is entered into the BARKS. However, K37 reports do not always contain enough information about a claim for third-party reviewers to understand the decision rendered by the officer. As a result, the BARKS is incomplete and, at the national level, the CBSA does not have complete and accurate K37 electronic information.

Training and Knowledge Transfer

The audit found no national training in place for the Drawback Program at this time. In many regions, SOTCs have extensive experience with the Drawback Program, and there is reliance on their knowledge and experience to deliver it. In the GTA, Quebec and Pacific regions (those that process over 80 percent of the claims), the estimation is that within the next three years, depending on the region, approximately one-third to two-thirds of SOTCs will retire. Neither the Tariff Division nor the regions have plans in place for corporate knowledge management for the program.

Furthermore, all six regions responded in the national survey that there are no opportunities to share best practices about Drawback Program activities with other regions, as organized communications have been postponed due to budgetary restraints. Many of the personnel interviewed noted that there has not been a national conference on the Drawback Program for SOTCs and managers in over four years.

Responsibility for training has not been set out in any documentation. According to the Tariff Division, its responsibility is to provide the training material to support the regions. The OJT training manual exists and is being updated by the Tariff Division, but there is no firm target date for completion. Consequently, training in the regions is a self-study of the OJT training manual, and relevant acts, regulations, D Memos and the DRAM, along with the BARKS information system. In all regions, opportunities are available for mentor-based training, where new SOTCs are paired with more senior, experienced staff to help transfer knowledge.

Recommendation

The Vice-President of the Programs Branch, in collaboration with the Vice-President of the Operations Branch, should clarify and document the roles and responsibilities of the regions and the Tariff Division with regard to program oversight and consistency in program delivery, and develop and implement an approach for risk managing the claims.

Management Action Plan	Completion Date
The Tariff Division concurs with this recommendation and is committed to developing and implementing a national risk management tool with respect to the processing of drawback claims, as well as addressing the other concerns, including consistency of program delivery, identified in the audit. The following will be implemented by the Tariff Division towards this goal:
National teleconferences between HQ and the regions will be reinstituted on a quarterly basis. The first will be held in December 2010.	December 2010
Functional guidance bulletins (FGBs) offering guidance to the regions from HQ will be produced, as required. There are currently a number of FGBs in development and these are scheduled to be released on a monthly basis starting December 2010.	December 2010 and ongoing
A key D Memo addressing this area is scheduled to be published.	February 2011
A duty deferral conference between HQ and the regions is scheduled in Rigaud during the first week of March 2011.	March 2011
A result of the duty deferral conference will be a formal communication to be distributed to all regions to document the roles and responsibilities of the regions and Tariff Division with regards to program oversight.	April 2011
The OJT training manual will be updated and finalized. Regional consultations on the OJT chapters are currently underway.	June 2011
A risk management tool will be developed to ensure that drawback claims are processed consistently on a national basis.	August 2011
The DRAM will be updated, finalized with regional input and translated. Two chapters of the DRAM will be sent to the regions for comment in December 2010.	November 2011

3.2 Claims Determination – FAA Sections 33 and 34

In testing claims transactions, it was noted that approval under Section 34 of the Financial Administration Act (FAA) was not identified on documentation found in claimants' files. At the time of the audit, neither a national nor a regional procedure was in place requiring the manager's signature on K37 and K37P reports before the payment information was keyed into RCIS. However, the auditors did observe the current management practice for FAA Section 34 approval which is to sign the RCIS batch header after the payment information has been entered into RCIS. While the custodian of Section 34 of the FAA is the individual signing the batch header, the batch header contains no reference to Section 34 approval. A copy of the batch header is not kept with individual claims, therefore no evidence of Section 34 approval was found in claims files. These practices do not provide evidence that each and every claim was reviewed or approved by a Section 34 delegate. There is a risk that some claims do not undergo a Section 34 review, and this could result in unauthorized disbursement of public funds.

In addition, in one region, the auditors observed that the custodian of Section 34 had delegated signing authority during an absence to a SOTC who was not a delegate of Section 34. Regional management has since corrected this issue.

The authorization of FAA Section 33 involves verifying that the funds are available for payment and that all of the approval stages were met. The Revenue Management Division (RMD) within the Corporate Finance Directorate, Comptrollership Branch, is responsible for processing the electronic signature for FAA Section 33. Management indicated that no monitoring of Section 34 was conducted by RMD prior to signing Section 33 for the Drawback Program. Without satisfactory monitoring measures in place, Section 33 may be exercised without proper assurance that all Section 34 requirements were met.

Recommendation

The Vice-President of the Comptrollership Branch, in collaboration with the Vice-President of the Programs Branch, should ensure that: approved drawback claims show evidence of compliance with FAA Section 34; proper documentation is on file prior to signing FAA Section 34; and risk-based monitoring procedures are conducted as part of the FAA Section 33 process.

Management Action Plan	Completion Date
To ensure compliance with Section 34 of the FAA, regions will be provided with a Section 34 certification stamp to be used on all approved drawback claims. A guidance document will accompany the stamp to ensure that proper procedures are followed in all regions, and that all claims are signed by delegated managers who have Section 34 signing authority. The Section 34 certification will be built into the new version of BARKS which will replace the stamps once that system is nationally implemented.	January 2011
The Comptrollership Branch, in conjunction with the Programs Branch, will develop, document, and implement procedures to ensure that Section 34 FAA certification, conducted within the program area, is reviewed prior to authorizing Section 33 FAA within RMD.	March 31, 2011

Appendix A: Drawback Claim Volume and Value, by Region

The following tables summarize the total number of claims closed and the total value of claims closed in each region in each of the last three fiscal years[ 4 ]. The tables also set out in percentage terms the regional distribution of claims volume and value during the 2009-2010 fiscal year.

Table 1 – Volume of Drawback Claims Closed, by Region
Region	FY07/08 # closed claims	FY08/09 # closed claims	FY09/10 # closed claims	% of claims FY09/10
GTA	1,529	1,732	1,858	37%
Montréal*	1,456	1,737	1,216	24%
Pacific	561	628	763	15%
Atlantic	369	659	429	8%
Prairies	399	368	384	8%
Québec*	290	516	296	6%
Northern Ontario	65	61	111	2%
Total	4,669	5,701	5,057

Table 2 – Value of Closed Drawback Claims, by Region
Region	FY07/08 $	FY08/09 $	FY09/10 $	% of claims FY09/10
GTA	43,167,920	49,544,460	45,762,897	54%
Montréal*	16,355,736	24,489,995	23,100,179	27%
Pacific	5,126,195	5,072,391	7,023,318	8%
Atlantic	384,062	339,514	380,666	<1%
Prairies	6,046,616	3,235,493	4,274,330	5%
Québec*	3,018,040	2,833,502	3,154,801	4%
Northern Ontario	526,842	655,662	1,326,435	2%
Total	$74,625,411	$86,171,017	$85,022,626

* Tariff Division tracks the statistics for the Quebec region as two separate locations: Montréal and Québec.

Appendix B: Drawback Program Legislative and Regulatory Framework

The following Act, Regulations and D7-Memoranda form the basis of the legislative framework for the Drawback Program.

Act

Customs Tariff Act

Regulations

• Exported Motor Vehicles Drawback Regulations
• Goods Imported and Exported Refund and Drawback Regulations
• Refund of Duties on Obsolete or Surplus Goods Regulations
• Duties Relief Regulations
• Customs Bonded Warehouses Regulations

D7-Memoranda

• D7-2-3: Obsolete or Surplus Goods
• D7-3-2: Exported Motor Vehicles Drawback
• D7-3-8: Goods Purchased by Canadian Government Departments
• D7-4-1: Duty Deferral Program
• D7-4-2: Duty Drawback Program
• D7-4-3: NAFTA Requirements for Drawback and Duty Deferral
• D7-4-4: Customs Bonded Warehouses

Appendix C: Audit Criteria

The audit criteria used for the engagement are detailed below.

Audit Lines of Enquiry and Criteria
1.0: Oversight	"Accountabilities are clearly assigned and the essential conditions of governance – internal coherence, corporate discipline and alignment to outcomes – are in place to support effective delivery of results." (adapted from the Core Management Controls for Accountability and Governance, November 2007) Authority, responsibility and accountability for the Drawback Program are clear and communicated.
	1.2 The Drawback Program has in place operational plans and objectives aimed at achieving its strategic objectives.
	1.3 The Drawback Program oversight bodies and/or positions request and receive complete, timely and accurate information from the relevant areas/units.
2.0: Risk Management	"Risk management practices related to the Drawback Program support effective and efficient delivery of the program and are aligned with the expectations for risk management defined by the executive team." (adapted from the Core Management Controls for Risk Management, November 2007)
	2.1 Drawback management identifies and assesses the existing controls that are in place to manage its risks and takes appropriate actions to address any deficiencies.
3.0: Performance Monitoring and Reporting	"Relevant information on results (financial and performance) is gathered and used to inform departmental decisions." (adapted from the Core Management Controls for Results and Performance and for Stewardship – Reporting and Monitoring)
	3.1 Drawback management reviews, monitors and reports to its oversight body on actual performance (financial and operational) against planned results and adjusts course as needed.
	3.2 Structure of Drawback activities within the CBSA is efficient.
4.0: Review and Investigation Procedures	Controls are in place to manage the drawback claims process, including review and investigation procedures that ensure only legitimate claims are processed consistently and accurately. "Management ensures that the CBSA is in compliance with drawback review and investigation procedures." (Audit terms of reference requirement)
	4.1 The Drawback Program has approved policies and procedures that support the respective acts and regulations, as well as the applicable Agency requirements.
	4.2 The Drawback Program has approved manuals, templates, information systems and other supports that help ensure compliance with the relevant Drawback-specific and Agency policies and requirements.
	4.3 The Drawback Program has sufficient and appropriate training and learning opportunities for CBSA officers and supervisors/managers involved in Drawback administration and management.
	4.4 Sufficient risk-based review and monitoring procedures are established and implemented to ensure only legitimate claims are processed consistently and accurately. These procedures include the key control points of drawback processing: officer review of claims (including initial review, risk assessment, and, as applicable, initial determination); manager review and approval of officer review/audit and assessment; officer conduct of additional review or field audit or desk audit and final determination; follow-up on payment/collection processing; and reconciliation between claim determination and BARKS, between BARKS and RCIS, and between RCIS and RL.

Appendix D: List of Acronyms

Acronym	Definition
BARKS	Batch Accounting and Reporting K37 System
CBSA	Canada Border Services Agency
CCS	Customs Commercial System
DRAM	Duties Relief Administration Manual
FAA	Financial Administration Act
FGB	functional guidance bulletins
FTE	full-time equivalent
GST	goods and services tax
GTA	Greater Toronto Area
HQ	Headquarters
HST	harmonized sales tax
K37	Drawback Investigation Report (final payment)
K37P	Drawbacks Interim Payment (interim payment)
NOR	Northern Ontario Region
OJT	On the Job Training Course
RCIS	Refunds Cheque Issue System
RL	Revenue Ledger
RMD	Revenue Management Division
SOTC	senior officer trade compliance

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Notes

1. The Duty Deferral Program groups three components through which businesses can defer, relieve or refund the payment of duty on imported goods. The components are: Duty Relief Program, the Drawback Program and the Customs Bonded Warehouse Program. The Duty Deferral Program aims to improve the competitiveness of Canadian businesses by offering relief from the payment of most duty and taxes on imported goods that are ultimately exported, whether or not the goods are further manufactured in Canada. The program is aligned with CBSA's strategic objective "Legitimate travellers and goods move freely and lawfully across our borders as part of CBSA Program Activity ‘Trade'". The Customs Bonded Warehouse Program allows goods placed in a bonded warehouse to defer the payment of duties until released. In some cases (export) the goods may not ever be subject to payment of customs duties. Specific conditions apply to the approval, establishment and operation of these warehouses. [Return to text]
2. The audit was previously titled the Audit of the Duty Deferral Program – Drawback Program. [Return to text]
3. The CBSA regional offices involved in administering and managing drawbacks are located in the following regions: Atlantic, Greater Toronto Area, Northern Ontario, Pacific, Prairie, and Quebec. [Return to text]
4. Source: BARKS Production Report, extracted September 2010, provided by Tariff Division. [Return to text]