A Customs and Foreign Trade Compliance Guide for Boards

Executive Summary

The compliance of customs and foreign trade is an important corporate risk area that can affect the company’s financial performance, operations and commercial relations in certain conditions.

The primary issues in terms of management boards and upper management are:

1. Determination of the company’s customs risk profile.
2. Critical financial and operational risks become visible.
3. Identification of duties and responsibilities relating to customs compliance.
4. Monitoring the risk of GTIP, asset, origin and special regime.
5. Evaluation of internal control and control mechanisms.
6. Reporting Critical findings at the management level.
7. Following corrective activities.
8. Evaluation of the impact of regulatory changes in company activities.
9. Conducting customs compliance with purchasing, finance and production processes.
10. Supporting corporate harmony culture based on continuous improvement.

This approach aims to evaluate customs risks not only through past operations, but also in terms of future activities and strategic decisions of the company.

1. Why Should Customs Compliance Be In Age of the Board of Directors?

Customs clearance may affect the financial and legal results of commercial activities of companies.

For example, using the wrong GTIP in a certain group of products can affect not only a single import process, but a large number of processes that the same classification is used.

Similarly, the evaluation of a payment element linked to customs asset may require a review in terms of past period imports.

Such risks can give significant financial results according to the trading volume and the relevant legislation.

Therefore, it is important to evaluate the customs clearance of the board only as the technical responsibility of the foreign trade department.

However, this approach does not mean that the board must approve all customs transactions directly.

It is important to support the management of risks with appropriate task distribution and reporting mechanisms.

2. How Does Customs Risks Affect the Financial Results of the Company?

Customs risks can give different financial results according to concrete conditions.

Among them;

• additional import taxes,
• administrative sanctions,
• delay-source costs,
• collateral and cash flow effects,
• operational delays,
• additional consulting and review costs

can be found.

However, every customs error does not automatically give the same financial or legal result.

The nature of the relevant process, the applicable legislation and concrete conditions should also be evaluated.

It is important in terms of management boards, evaluation of potential financial effects with reliable methods and timely visibility of critical risks.

3. Can Customs Risks Affect Operational Continuity?

Customs clearance is one of the important stages of international supply chains.

Compliance to specific document deficiencies, permission issues or related legislation may affect import and export processes according to concrete conditions.

In companies that depend on import inputs especially in the production, it can affect production plans that certain products are not available in time.

However, it can not be said that every customs issue will automatically stop production.

Such results depend on the stock structure of the company, alternative supply possibilities and the characteristics of the related process.

Therefore, customs risks should be assessed together with supply chain and business continuity plans in appropriate situations.

4. What Customs Risks Should Management Boards Monitor?

The following areas may vary depending on the company’s operating structure.

GTIP classification

The wrong classification may affect import taxes and trading policy measures.

Customs clearance

It is important to determine the value of imported goods in accordance with the relevant legislation.

Origin

Applications of origin can carry importance in terms of preferential trade regulations and some financial obligations.

Trade policy measures

IGV, anti-damping and other regulations may affect product costs and import conditions.

Special customs regimes

In addition, the processing must be managed in accordance with the permission and obligations in the Rejimi and other special regimes.

Export and regulatory controls

Product related to export operations, country, end-user and other regulatory conditions, can take care of the operating area.

Registration and document management

It is important to store the correct and legislation of the records that support the customs clearance.

The reports to be presented to the board must be prepared according to the actual risk profile of the company.

5. How To First Be The Customs Risks?

It should not be taken if all customs risks require the same level of management.

Risk priority;

• possible financial effect,
• processing volume,
• frequency again,
• the nature of legal consequences,
• operational effects,
• effectiveness of existing control mechanisms

can be taken into account.

For example, the risk of systematic GTIP error in a high volume product group can create an important priority in terms of the company.

However, a low volume process can also carry critical risk due to the relevant legal conditions.

Therefore, it should not only be based on the amount of transactions in the risk assessment.

6. Separate Between the Board and Executive Management in the Customs Compliance

Proper separation of surveillance and operational application functions in terms of corporate governance is important.

Management board can be undertaken surveillance and routing functions within the framework of the legal structure and relevant regulations of the company.

Executive management may be responsible for the execution of daily activities, implementation of controls and management of related processes.

However, the legal scope of this task distribution may vary according to the type of company, the main contract, internal regulations and related legislation.

Therefore, a single management model for all companies should not be evaluated as mandatory.

The basic purpose is to clearly identify duties and responsibilities in the management of customs risks.

7. Three-line Control Approach in Customs Compliance

Companies can benefit from international internal control and governance approaches while managing customs compliance.

For example, the Three Line Model is a framework that can be used in evaluation of tasks and surveillance relations.

First line — Operational management

Units such as purchasing, foreign trade, logistics, finance and production manage the risks associated with their activities and implement controls.

Second line — Risk and compliance functions

Risk management and compliance functions can provide methodology, monitoring and support in the appropriate organizational structure.

Third line — Internal audit

The internal audit function can evaluate the management and control processes related to providing independent and objective-assistance.

This model can be adapted according to the size and organization structure of the company.

It does not mean that separate units should be installed in each company.

8. Customs Risk Reporting For Board of Directors

It may not be enough to form only operational trading numbers of customs reports offered to the Board of Directors.

The number of import declarations completed for example, does not show the customs compliance level alone of the company.

Management reporting;

• critical risks,
• important audit findings,
• open control deficiencies,
• possible financial effects,
• status of corrective activities,
• Legislation changes

information can be included.

The detail level of the report should be determined according to the decision-making requirement of the management.

9. Importance of the Board of Directors of the Customs Internal Audit

The customs internal control can help systematically assess the company’s past operations and existing control mechanisms.

As a result of these studies;

• systematic GTIP risks,
• customs clearance differences,
• application deficiencies,
• special regime obligations,
• registration and consensus issues

can be determined.

But the purpose of internal audit should not only detect errors.

Control improvements should be planned to evaluate the root causes of the findings and prevent repeat.

Important in terms of management boards, the appropriate reporting of critical findings and monitoring of corrective activities.

10. Why Are Data Quality in Customs Compliance?

Customs clearance is based on the data located in different systems of the company.

Product codes, GTIP, origin, price, supplier and stock information can be included in this data.

However, this data is not up-to-date and accurate, can cause systematic errors.

For example, the use of the wrong GTIP information in the ERP system in a large number of imports can lead to affect a large group of processes of a single data error.

Therefore, data management is one of the important components of customs compliance.

You don’t need to directly monitor all data fields of management boards.

However, it is important to evaluate whether control mechanisms are available to ensure the accuracy of critical data.

11. Associated Company Operations and Management Surveillance

Imports made from companies associated with international company groups may have an important trading volume.

Transfer pricing policies, commercial contracts and end-term price corrections may come to the agenda in these transactions.

However, reviews made in terms of transfer pricing should not be considered automatically enough in terms of customs value.

Therefore, it is important to coordinate between finance, tax and foreign trade units.

The main question in terms of management boards is that this coordination is not supported and supported by a reliable control mechanism.

12. Private Customs Regulations and Risk of Management

Special customs regimes, such as Processing Rejimi, can provide important advantages to companies with related conditions.

However, these benefits depend on certain obligations.

For example;

• permission and document conditions,
• production and consumption records,
• export commitments,
• durations,
• closing operations

can carry importance.

This may lead to financial or operational results according to concrete conditions, not managed in accordance with the obligations.

Therefore, in companies where special regimes are used intensively, it can be useful to monitor the relevant risks in appropriate management levels.

13. Why is Legislation Changes Important from the Board of Directors?

Customs and foreign trade regulations may vary in time.

Import taxes, trade policy measures, product-based permissions and changes made in other regulations may affect company activities.

For example, the change of financial obligations regarding certain products may affect import costs and pricing decisions.

Similarly, a new regulatory obligation may lead to additional control needs in certain supply or sales processes.

Therefore, it is important to systematically follow the legislation changes of companies and report important effects to relevant management levels.

14. How to Associate Customs Risks with Corporate Strategy?

Customs and foreign trade risks may affect some strategic decisions of the company.

For example;

• introduction to new markets,
• new supplier selection,
• positioning of production facilities,
• restructuring of supply chain,
• import of new product groups,
• international in-house trade models

may require assessment in terms of customs and foreign trade legislation.

Therefore, strategic decisions should be taken into account not only commercial and financial effects, but related customs and regulatory results.

However, in the same scope of each strategic decision, it should not be excluded if it requires customs analysis.

The scope of the assessment should be determined according to the nature of the process.

C-INSPEC Perspective

The Customs Compliance should Come as Manageable Risk, Not The Importance of the Board of Directors

The customs risks in companies are often transported to the agenda of the upper management when a significant problem arises.

Starting a audit, determining a differentity that can detect systematic error in past transactions or bring significant financial results can create a need for assessment at management level.

However, it may not be enough for corporate risk management, reporting only the actual problems.

For example, in a product group that the company imports high volume, GTIP classifications have not been reviewed for a long time, but even if a resmî problem hasn’t arise, it can create a significant risk of control.

In similarly associated company operations, the end price corrections of the term may be a risk area to be evaluated by the customs effect, which should be known by the management.

Therefore, the customs compliance in the C-INSPEC approach does not only be addressed as an activity where the realized errors are reported.

Instead;

Risk visibility: The important customs risks of the company are determined.

Control reliability: Controls created to manage these risks are evaluated.

Management surveillance: Critical risks and uncompleted actions are reported to appropriate management levels.

Continuous improvement: The reasons for repeated problems are evaluated and control mechanisms are improved.

This approach can convert customs clearance to a mechanism that supports enterprise management quality from a operational obligation.

The main question for the management boards is that the company has a reliable control system, not how many customs faults in the past, which carries important risks today and how much to manage these risks.

15. 10 Critical Customs Compliance Question For Management Boards

Management boards and upper management can use the following questions to evaluate the company's customs compliance capacity.

1. What are the most important customs risks of our company?

Is Risks determined and prioritized?

2. How reliable is our GTIP classifications?

Are regular technical and legal controls performed in critical product groups?

3. Do we know our customs asset risks?

Can Royalty be assessed in accordance with associated company operations and additional payments?

4. Are our origin applications controlled sufficiently?

Is it possible to manage preferential trade conditions and origin documents reliably?

5. Are we watching our private customs regime obligations?

Are document times, production records and related commitments checked?

6. Do we agree between our customs and accounting records?

Are unopened differences regularly reviewed?

7. How do we follow regulatory changes?

Is Critical changes reflected in relevant processes on time?

8. Do regular customs internal control be performed?

Is the audit scope determined according to the real risks of the company?

9. How to report Critical findings?

Is significant risks and uncompleted actions delivered to appropriate management levels?

10. Are there a system that prevents repeated errors?

Corrective activities are applied and monitored activities?

These questions are an example frame for management assessments.

16. Sample Customs Risk Indicator Table For Board of Directors

These indicators are recommended for management reporting.

It is not a standard reporting format that has been mandatory for all companies.

17. Sample 90 Daily Compliance Evaluation Program for Board of Directors

First 30 Days — Risk Visibility

• The existing customs risks are determined.
• Critical product and processing groups are detected.
• Previous audit findings are evaluated.
• Current control mechanisms are reviewed.

31–60. Days — Control and Governance

• duties and responsibilities are evaluated.
• Critical control deficiencies are determined.
• Management reporting structure is created.
• Priority corrective activities are planned.

61–90. Days — Application and Monitoring

• Priority control improvements are applied.
• Open risks are followed.
• The first management risk report is prepared.
• Continuous monitoring calendar is created.

This program is an example. It should be adapted according to the scope of the company’s activity and the structure of the organization.

18. Approaches to Avoid Management Boards

The following approaches in corporate customs compliance may result in significant control deficiencies:

1. Evaluate customs risks only as a operational topic.
2. Limit management reporting only realised problems.
3. Evaluate financial effects of systematic errors.
4. Uncertain duties and responsibilities in customs compliance.
5. Not to follow internal audit findings.
6. To ignore the strategic effects of regulatory changes.
7. Not to track critical product and supplier risks.
8. Not to coordinate between finance and foreign trade processes.
9. Don’t care about data quality and system controls.
10. Evaluate customs compliance as a one-time project.

The elimination of these deficiencies can contribute to the company’s customs and foreign trade risks more effective management.

Frequently Asked Questions

Conclusion

The compliance of customs and foreign trade is one of the important corporate risk areas caused by the international activities of the companies.

The effects of these risks may not only be limited to the operational processes of the foreign trade department.

Problems arising from GTİP, customs asset, origin, trade policy measures and special regime applications may affect the financial results and operations of the company according to concrete conditions.

Therefore, it is important to be associated with the corporate risk management and governance mechanisms of the customs compliance.

All technical operations of the management committees are not expected to perform directly.

However, identifying important risks, managing appropriate control mechanisms, and creating a structure that supports reporting when necessary, is worth enterprise management.

The customs compliance is not only a matter of processing in accordance with the legislation; it is also an indicator of the company’s risk predicting, controlling and sustainable management capacity.

Legislation and Official Sources

1. Customs Law No. 4458.
2. Customs Regulation.
3. Turkish Commercial Law No. 6102 — provisions for management and corporate responsibilities.
4. Then Control Regulation of Control and Risk Procedures.
5. Ease Regulation of Customs Operations.
6. Ministry of Commerce — the official explanations on customs transactions, risk management and audit applications.
7. The Institute of Internal Auditors — Three Lines Model.
8. ISO 31000 — Risk management principles and guidance approach.