Seven Critical Customs Risks Senior Management Should Know

Executive Summary

There are seven basic risk areas where companies need to be tracked by the top management in customs and foreign trade activities:

1. Risks of GTIP and tariff classification.
2. Customs clearance and financial payment risks.
3. Origin and preferential trade applications.
4. Foreign trade policy measures and regulatory obligations.
5. Special customs regimes and commitment management.
6. Inconsistencies between customs, accounting and operational records.
7. Corporate compliance, internal control and governance deficiencies.

This seven areas do not pose a risk at the same level for each company. The priority of risks varies according to the company’s product structure, import volume, the countries it operates and the customs regimes it uses.

The main purpose in terms of upper management is to be sure that every customs process is not to examine the detail, the risks are managed by the right persons and are monitored with effective controls.

1. GTIP and Tariff Classification Risks

GTİP is one of the basic elements that allow imported and exported goods to be classified under the customs tariff.

The use of the wrong GTIP can lead to incorrect determination of the customs duties or other financial obligations to be applied.

It can also be effective on certain permits, compliance or external trade policy measures subject to the related goods.

The most important risk in terms of upper management is that a single classification error is that the faulty code settles the company’s product main data and continues to be used for a long time.

For example, using the wrong GTIP in a high-volume product group can generate financial risk with accumulation that affects a large number of import declarations.

Questions to ask for management

• Who is responsible for GTIP classification in our company?
• Is the technical and legal basis of product classifications documented?
• Are there reassessment for new products and technical changes?
• Are there regular tariff control on products with high import volume?

Management indicator: The technical base is documented and the ratio of the total product inventory of products made up of current control.

2. customs value and Financial Payment Risks

The customs asset is one of the basic elements used in calculation of precious taxes in import operations.

However, the customs value does not occur only from the cost of commercial invoices in any case.

According to the conditions of the somut process, royalty and license fees may be required to evaluate the elements such as the contributions provided to the production, certain commissions, freight and insurance expenses.

An important feature of the risks in this field is that the relevant information can be found in different departments.

For example, a license fee paid by the financial department may stay outside the information of the external trade unit.

A mold that provides similarly purchasing department to the supplier can not be reflected in the asset assessment of the import process.

Every payment is not automatically added to the customs value. However, it is necessary to evaluate the effect of the related payments on the asset.

Questions to ask for management

• Are there regular information sharing between finance and foreign trade departments?
• Is Royalty, license, mold and other related payments evaluated in terms of customs clearance?
• Are there special control mechanisms created for associated company operations?
• Does accounting records compare with customs declarations?

Management indicator: Risk-based asset review has completed the rate of import operations and the number of unexplained asset differences.

3. Origin and preferential trade Risks

The origin of the goods can give significant results in certain tax applications and external trade policy measures.

It should be noted that the country of origin can be different from each other with the country where the goods are shipped.

It should not be mixed together with the preferred concepts of origin with free circulation status.

For example, A.TR circulatory document is linked to free circulation status in the relevant conditions; it is not a document showing the preferential origin of the goods alone.

In order to benefit from preferential trade applications, it is necessary to meet the rules of origin and document terms of the agreement.

Wrong origin applications can lead to tax differences or other legal results in certain conditions.

Questions to ask for management

• What sources of origin are obtained?
• Is the supplier’s declarations verified when required?
• Do document and rules check for preferential trade applications?
• Are customs impacts evaluated in new suppliers or country decisions?

Management indicator: The rate of transactions completed document and origin rules in the transactions applied to the preferential trade.

4. Foreign Trade Policy Measures and Regulatory Disputes

Only the correct determination of the customs tax rate in import operations may not be enough.

Different obligations may occur in accordance with the GTİP, origin, technical properties and relevant legislation of the property.

These include anti-damping taxes, protection measures, additional customs duties, surveillance applications, product security regulations and certain import permissions.

The main management risk in this field is that legislation changes can not be reflected in the operational systems of the company.

For example, when a new arrangement of a certain group of products enters into force, the company’s product may not be updated the main data and import procedures.

This situation may lead to new unmatched risks in the processes carried out in accordance with earlier.

Questions to ask for management

• Who follows regulatory changes?
• How to report new regulations to relevant departments?
• Is there any obligation controls on product and supplier basis?
• Are Critical changes reported in management level?

Management indicator: Evaluation of relevant legislation changes and the time to complete the necessary system updates.

5. special customs procedures and Contracting Management

The processing, temporary import, antrepo and other special customs regimes, can provide important advantages in commercial activities of companies.

However, these regimes depend on certain conditions and obligations.

In particular, goods tracking in the processing regime, production records, consumption, time and commitment closing operations are important.

It is not enough to focus only on the customs clearance at the beginning while the companies benefit from these regimes.

The obligations under Rejim must be monitored throughout the process.

For example, with the tracking of imported inputs used in production, there should be a reliable record relationship between the realization of export commitments.

Questions to ask for management

• Who is responsible for the follow-up of private regime obligations?
• Are Periods and commitments tracked as a center?
• Can production and inventory records match with related customs clearances?
• Do transactions with an upcoming or close risk are regularly reported?

Management indicator: The duration of the upcoming, delayed or unexplained regime obligations and the risk amount.

6. Consistency between Customs and Accounting Records

Financial records with customs clearance reflect different aspects of the company’s same commercial activity.

However, these records are kept at the responsibility of different systems and different departments.

This may lead to the emergence of unexplained differences between records.

For example;

• price corrections made after import,
• additional supplier payments,
• license and service costs,
• accounting records for import costs,
• commercial invoice and payment differences

In terms of customs compliance, it may also require assessment.

Every accounting difference does not mean a violation of a customs legislation.

However, the grounds of differences should be explained and documented.

Questions to ask for management

• Are there regular consensus between the customs declarations and accounting records?
• Is the price corrections after import are reported to the foreign trade unit?
• Are there control procedures for critical accounts?
• Does unexplained differences report to the upper management?

Management indicator: The number of transactions that have not been completed, the amount of clear differences and the average solution time.

7. Corporate Compliance, Internal Control and Governance Deficiency

The first six risk areas are associated with certain technical or operational issues.

The seventh risk is related to the corporate management structure that affects all of these areas.

Important control gaps may occur if the customs risks in the companies are clearly determined in which they are responsible for.

For example, from the completion of foreign trade department transactions, financial department payments, purchasing department may be responsible for supplier relations.

However, the information produced by these departments may not be responsible for the evaluation of the customs compliance.

Therefore, it is important to clearly identify duties and responsibilities for customs compliance in companies.

Questions to ask for management

• Who is the corporate owner of customs compliance in our company?
• How often does risk assessments be done?
• Who reports Critical findings?
• How to track the completion of corrective activities?
• Are customs risks involved in corporate risk management system?

Management indicator: The timely closing rate of critical audit findings and the number of delayed corrective activities.

How To First Begined For Customs Risks Top Management?

Each company’s operating structure is different.

For a production company with high import volume, the GTIP and customs asset risks may be more critical, while the regime obligations for a company that uses the processing regime in intensively included.

Therefore, risk priority should be made through the company’s operating properties instead of relying on a standard list.

Three basic elements can be used in evaluation:

Probability: Possible risk.

Effect: The size of the financial, legal and operational results of the risk.

Control efficiency: Ability to prevent or detect the risk of existing control mechanisms.

Transaction volume, past audit findings and legislation changes can also be added to these elements.

The purpose of risk assessment is to guide management attention and company resources to the most important areas.

C-INSPEC Perspective

Customs Compliance Not a Department Performance, Corporate Güvence Subject

Performance in customs operations is often measured with operational indicators.

The timely completion of Declarations is important indicators of delaying shipments and execution of transactions at low cost.

However, these indicators do not reveal the level of customs compliance of the company alone.

When import operations of a company are completed fast and hassle-free, there may be significant asset or classification risks in past operations.

Similarly, it does not show alone that there is not enough of the existing internal control system, which has not been encountered with any auditing bougus for long time.

Therefore, it is necessary to focus not only on operational results while evaluating the customs performance of the upper management, but also on the effectiveness of control mechanisms.

The real corporate assurance in the customs compliance is born without any hassle-free completion of transactions, as a system that continuously evaluates the accuracy of transactions.

The management of customs risks in the C-INSPEC approach should be installed on three basic elements:

Visibility: The determination of which the company is subjected to customs risks.

Accountability: To be clear of the responsible persons and decision mechanisms from the management of risks.

Continuity: Not only in audit periods of controls, regular and systematically execution.

This structure supports the company’s corporate risk management system of customs compliance.

Sample Customs Risk Indicator Panel For Board and CFO

The following indicators are a sample management reporting framework, which can be adapted according to the company’s operating structure.

These indicators are not the only legal eligibility evidence. It is the tools that facilitate the management to monitor risks and make necessary decisions.

It should be determined according to the risk profile of the company, which often the indicators will be reported.

Five Stage Customs Risk Management Program for Top Management

1. Determination of corporate responsibility

The level of management responsible for the customs compliance is defined by relevant departments and reporting relations.

2. Establishing risk inventory

Products, suppliers, customs regimes, countries and risk areas are determined through processing volumes.

3. Risk-based control program

Document, transaction and registration controls are performed in primary areas.

4. Management of findings and corrective activities

The possible effects of the detected risks are evaluated; responsible and completed dates are determined.

5. Management reporting and continuous monitoring

Risk indicators, open findings and control results are presented to the top management regularly.

The purpose of this program is to make the customs clearance only a traceable part of corporate risk management by removing a operational control activity.

Frequently Asked Questions

Conclusion

Customs and foreign trade activities can affect not only operational processes of companies, but also financial and corporate risk profile.

GTİP is important to effectively manage the shortcomings that may arise in precious, origin, foreign trade policy, private customs regimes, registration consistency and corporate compliance areas.

It may not be possible to check all these risks by the same department.

Therefore, the role of upper management is to support the corporate level of risks, coordination between relevant units and regular monitoring of controls.

Customs compliance is a corporate assurance mechanism for managing future risks of the company, not only an activity that evaluates the accuracy of past transactions.

Legislation and Official Sources

1. Customs Law No. 4458.
2. Customs Regulation.
3. Then Control Regulation of Control and Risk Procedures.
4. Ministry of Commerce — Customs clearance and foreign trade policy regulations.
5. Ministry of Commerce — Authorised Economic Operator status and related applications.