DHS OIG Says CBP is Lacking Key ISA Management Controls

The objective of the audit was to determine the efficacy of the ISA program, by which CBP permits importers to conduct self-assessments to verify their compliance with federal trade requirements in exchange for decreased agency oversight and other benefits.

(The ISA program was initiated in 2002 as a voluntary approach to trade compliance. It is based on the premise that importers with strong internal controls achieve the highest level of compliance with federal trade laws and regulations and require less enforcement review and oversight.)

Unknown if ISA Importers Comply with Customs and Other Requirements

The results of the audit found that CBP has not fully established key management controls for the ISA program. As a result, CBP does not have adequate tools to gain assurance that participating importers comply with federal trade requirements and, therefore, that government revenues are being protected.

CBP Does Not Ensure ISA Participants Have Internal Controls

CBP’s oversight does not ensure that all ISA participants have internal controls that demonstrate their ability to comply with federal trade laws and regulations. The ISA Handbook requires that CBP conduct reviews of the applicant’s internal controls prior to accepting an importer into the program. In a May 2009 policy statement, CBP stated that these reviews do not include substantive testing of applicants’ controls, and therefore do not provide reasonable assurance as to the effectiveness of importers’ internal controls. As a result, importers were accepted into the ISA program without adequate assurance that their internal controls would result in compliance with federal trade laws and regulations.

No Consistent, Effective Oversight of ISA Importers

The ISA program’s organizational structure does not support consistent or effective oversight of ISA importers. CBP National Account Managers and Port Account Managers have primary responsibility for overseeing ISA program importers, including identifying and analyzing potential trade compliance risks. National Account Managers operate in the Office of International Trade, which administers the ISA program. Port Account Managers are assigned to Office of Field Operations staff. As a result, the Office of International Trade is limited in its ability to require Port Account Managers to conduct ISA program specific oversight activities.

CBP Conducting Continuation Reviews Without Adequate Procedures

To ensure that the recruited importers are adhering to ISA program requirements, CBP is conducting continuation reviews on the importers. Although no procedures exist for conducting such reviews, CBP officials told the OIG that the process is similar to the internal control assessments conducted on importers prior to their acceptance in the ISA program.

As of April 2010, CBP had completed continuation reviews on 6 of the 13 recruited ISA importers. Of these, one importer was found to have inadequate internal controls to support ongoing trade compliance self-assessment and voluntarily withdrew from the program. Although CBP plans to conduct continuation reviews on two more of these importers, no such follow-up reviews are currently scheduled for the remaining five.

Lack of Adequate Procedures to Guide CBP Staff

The ISA program also does not have adequate procedures to guide CBP staff in performing their program-related responsibilities. Since the program’s launch in 2002, CBP personnel have relied on either draft or insufficiently detailed guidance to implement the program. For example, the ISA Handbook provides only limited information to CBP personnel on the procedures for assessing importers’ ISA applications and conducting ongoing compliance monitoring.

The OIG previously reported that CBP was not properly reviewing ISA importers’ annual notifications of their continued compliance with program requirements and recommended that CBP update the ISA Handbook or issue other internal guidance to formalize this process. (See ITT’s Online Archives or 09/20/10 news, 10092012, for BP summary of CBP updating its ISA Handbook.)

CBP Circumvented its Official Process for Accepting Importers into ISA

CBP also circumvented its official process for accepting importers into the ISA program. Since December 2005, CBP recruited 13 importers into the ISA program based on their successful completion of Focused Assessments. During a Focused Assessment, CBP evaluates an importer’s internal control systems to ensure that the filing of transactions and declarations is in compliance with trade laws and regulations.

In contrast to the review processes established in the ISA Handbook, Focused Assessments are based on historical information about an importer’s compliance history rather than on the current state of its system of internal controls. As such, the internal controls of recruited importers were not assessed according to the same process as those of importers reviewed before being accepted into the ISA program. CBP officials told the OIG that this recruitment process was suspended in 2008 until the agency develops specific policy and procedures for the process. However, this action did not resolve the issue of ensuring that the recruited importers are qualified for the program.

CBP Does Not Assess ISA’s Impact on Trade Compliance

CBP does not assess the ISA program’s impact on importer trade compliance. To measure program effectiveness, CBP currently compares the collective trade compliance rate of ISA importers with that of the larger universe of all domestic importers. In FY 2009, CBP reported that ISA importers had a collective 99.5% rate of compliance with federal trade laws and regulations, while all U.S. importers had a compliance rate of 98.5%. This metric does not indicate whether the reported higher level of trade compliance among ISA participants was the direct result of their participation in the program. CBP does not prepare an assessment on the impact of the ISA program on providing oversight to other, higher risk importers.

ISA Program’s Purpose Not Clearly Defined

CBP has not clearly defined the purpose of the ISA program, developed appropriate program performance metrics, or issued the official procedural guidance necessary to implement the program.

The purpose of the ISA program contained in agency documents differs from the purpose that CBP officials communicated to the OIG. The ISA Handbook states that the program’s purpose is to maintain a high level of trade compliance, while agency personnel asserted that the program’s primary purpose is to allow the agency to focus its limited resources on high-risk and unknown importers.

Although these purposes are not mutually exclusive, each would use different metrics to measure program success. Nonetheless, CBP has not established or used metrics to measure program performance for either purpose.

OIG Recommendations

The OIG recommended that the Assistant Commissioner for the Office of International Trade:

Establish Policy, Procedures for Management Controls

Establish policy and procedures that document the management controls needed for ISA program operations, including:

• The purpose, goals, and objectives of the ISA program;
• The performance metrics to measure the effectiveness of the program in meeting the established purpose, goals, and objectives; and
• The formal procedural guidance necessary to support consistent and effective implementation of the program.

CBP concurred with this recommendation and stated that it plans to establish and strengthen internal controls to clearly define the ISA program’s purpose and achieve more consistent and effective program implementation. Currently under development, these controls will ultimately be reflected in formal agency policy and procedures addressing program goals and objectives, appropriate measures of program performance, and uniform operational guidance to personnel.

Assess Risks to Trade Compliance

Assess the risks to trade compliance associated with the current policies and procedures for accepting importers into the ISA program, and establish internal controls to ensure that risks identified are mitigated to provide reasonable assurance of ISA participants’ compliance with trade laws and regulations.

CBP concurred with this recommendation and stated that it plans to develop and implement improved management controls over the ISA program designed to mitigate risks to participating importers’ non-compliance with trade laws and regulations. These planned improvements will provide for enhanced procedures governing the on-going monitoring and oversight of ISA importers by responsible CBP personnel. CBP’s plans also describe actions it believes will help it to more proactively assess and act upon identified risks to participating importers’ trade compliance as they emerge.

Require Port Acct Managers to Follow Same Policy as National Acct Managers

Require Port Account Managers to follow the same policy and procedures for oversight of ISA importers as National Account Managers, or remove ISA program oversight responsibilities from Port Account Managers.

CBP concurred and stated that by the end of the current fiscal year, CBP plans to assign exclusive responsibility for conducting all ISA importer oversight and monitoring activities to National Account Managers.

Establish Policy, Procedures to Ensure Self-Testing Results

Establish policy and procedures to ensure that ISA importers’ annual self-testing results are requested and reviewed for compliance with program requirements.

CBP also concurred with this recommendation, noting that it plans to enhance several procedures related to ISA importers’ required annual testing of internal controls and notification to CBP of their continued readiness to assume the responsibilities of trade compliance self-assessment. These planned enhancements specifically concern how participating importers are to conduct self-testing, what information they are to annually provide to CBP, and actions CBP may take to review the testing results.