STAGES OF AUDIT

Stages of Post Entry Audit

Overview

  • The audit aims for transparency, objectivity, and accountability through a well-defined process as outlined in CAO No. 2-2002 and other regulations.

  • Major stages include:

    • Auditee selection

    • Notification

    • Pre-audit conference

    • Audit proper

    • Exit conference

    • Audit reporting

    • Implementation

Profiling

PEAG Profiling Activities

  • PEAG conducts profiling and information analysis on importers, focusing on:

    • Data gathering

    • Evaluation of import/export operations

  • Results lead to an Audit Notification Letter (ANL) approved by the Commissioner of Customs for compliance audits.

Notification of Audit

Preparation and Notification

  • The approved ANL is served to the importer, indicating:

    • Company’s audit status

    • Period covered by the audit

    • Pre-audit conference date

    • Composition of the customs audit team

  • Documents attached to ANL include:

    • General Customs Questionnaire for completion and return

    • Initial documents and records list for submission/examination

Pre-Audit Stage

Pre-Audit Conference

  • Conducted after ANL service to discuss:

    • Purpose and scope of the audit

    • Audit timetable

    • Needed records

    • Working space requirements

    • Access to company systems

  • An authorized representative will coordinate with the audit team.

Document and Plant Walk-through

  • Auditors conduct a walk-through after the pre-audit conference to understand the firm's financial documentation and goods flow.

Audit Proper

Conduct of Audit

  • Financial records and import/export documents are requested for review.

  • The auditors verify:

    • Compliance level on recordkeeping as per customs laws

    • Appropriateness of customs valuation methods

    • Accuracy of declared customs values and descriptions

    • Correctness of duty rates used

    • Proper declaration of the country of origin

    • Application of special/preferential tariff rates (e.g., CEPT Form D)

    • Consistency of inventory records with declared import quantities

    • Compliance of import entry declarations with customs regulations.

Audit Completion Time

  • Varies based on:

    • Nature and complexity of operations

    • Customs issues detected during profiling

    • Cooperation level during documentation submission

  • Audit conducted to minimize disruption to normal operations.

Exit Conference

  • Conducted after the audit proper to discuss findings with the auditee:

    • Opportunity for auditee feedback on audit conduct and results.

    • Comments become part of the Final Audit Report and Recommendations (FARR).

    • Identification of improvements needed in importation systems and processes.

Final Audit Report and Recommendations (FARR)

Submission of FARR

  • The audit team submits the FARR to the Commissioner of Customs.

  • A Management Letter indicates the deficiency in duties and taxes to be paid.

Payment of Deficiency

  • Upon receipt of the Demand Letter, importers must pay the specified amount (deficiency duties/taxes).

Payment Process for Deficiency Duties and Taxes

  1. Importer receives the Demand Letter.

  2. Importer pays to PEAG Manager's/Cashier's Cheque within 15 days of receipt.

  3. Importer secures Payment Order for settling deficiency.

  4. Importer pays deficiency using Manager’s/Cashier's Cheque to the Cash Division, receiving Bureau of Customs Official Receipt (BCOR).

Voluntary Disclosure Program (VDP)

Overview

  • Established under CAO No. 5-2007, implemented by CMO No. 18-2007.

  • Encourages trade compliance by allowing importers to voluntarily disclose errors without penalties.

Process for VDP

  1. Importer completes Form B and pays disclosed amount via Manager's/Cashier's Cheque.

  2. Form B is assigned to a PEAG officer for verification.

  3. Approved applications result in a Letter of Appreciation; disapproved applications lead to a full audit recommendation.

Benefits of VDP

  • No fines or penalties for disclosed deficiencies.

  • "Least priority status" in the annual audit selection process for two years if payment exceeds Php 1,000,000 and compliance program submitted.

Penalties for Administrative and Criminal Offenses

Consequences for Denying Access

  • Importers refusing access to auditors face:

    • Court punishment for contempt.

    • Re-assessment of imports with correct valuation methods.

    • Administrative fines (20% ad valorem) on unrecorded goods.

    • Hold on future imports until fines and assessments are resolved.

    • Criminal prosecution with fines and possible imprisonment.

Culpability Levels for Deficiencies

  • Negligence: Minimum administrative fine based on revenue loss.

  • Gross Negligence: Higher fines for acts done with knowledge and disregard for duties.

  • Fraud: Highest penalties for knowingly false statements, including significant fines and imprisonment.

Responsibilities of Importers

  1. Pay correct customs duties and taxes.

  2. Declare accurate value, volume, and classification.

  3. Disclose all related information and documents.

  4. Maintain quantifiable records on customs value declaration processes.

Rights and Remedies of Importers Under Audit

  1. Verify auditor’s identification and ANL authenticity.

  2. Clarify the audit process.

  3. Be informed of the audit’s purpose and required documentation.

  4. Receive audit findings.

  5. Contest deficiency assessments.

Profiling and Notification Process Overview

  • Steps involved:

    1. Issuance of Audit Notification Letter (ANL).

    2. Acceptance or non-acceptance of VDP.

    3. Pre-Audit Conference.

    4. Audit Proper, leading to Exit Conference and Final Audit Report.

Thank You

  • Concludes the presentation.