Customs Post Audits and Re-alignment

          By “post audits” I am referring to audits conducted by either yourself (i.e. annual self-audits), an independent auditor or post-audits conducted by SARS Customs.

          Just like many organisations, SARS too has its resource ups and downs. One of my former (late) Customs colleagues occasionally put a failure of the division into perspective. He would say that just because we have not made a finding during an audit, does not mean that industry are compliant. It may simply be a reflection of our own abilities to make audit findings, he would say.

          Looking at this from the other side of the fence (i.e. a clearing agent or trader) reveals a similar perspective. The consequence of compliance issues not detected (regardless by who) poses a greater future risk to us all.

          Imagine something simple which could have being detected within the first few months of its occurrence only gets picked up two or three years later. The financial impact of a shortfall in duties and taxes in the longer term (of repetitive occurrences) would be more severe. Alternatively, imagine having paid too much duties and taxes. How would this have impacted on cash flow over a long period of time? This is why it is crucially important to make discoveries early in the game and to rectify these.

          Incidentally, SARS audits and schedules currently go two years back. Refund claims also go back two years. In the new legislation this will be three years for both schedules and refunds alike.

          So, what do you do when findings are made? Aside from bringing the duties and taxes to account (to be discussed in the following blog) or claiming refunds, the status quo needs to change. This might seem obvious but implementation is not always straight forward.

          Firstly, you should make 100% certain that the finding is valid. Often what might seem obvious at first glance becomes more complex as more information comes to light. One way to resolve uncertainties is to obtain a firm Ruling or Determination from SARS Customs. Once absolute certainty on the way forward is reached, one should update all operational requirements. This applies not only to your internal operations but especially also to your LSP (Logistics Service Provider).

          Don’t forget to update all systems settings. Some systems have what I refer to as “stop-block” facilities, a term used in the woodwork industry. In IT and in other industries this is referred to as “fail-safe”, “fail-secure” or “fool-proof” mechanisms. The Japanese call them “poke-yoke”. Use them judiciously.

Product Implementation with your LSP (Logistics Service Provider)

          This primarily involves tariff classification and you’re TPL (Tariff Parts Library). It will also involve landed costings, Customs TDN (Tariff Determinations), which purpose codes to use (i.e. whether duty paid or rebate clearances), certificate or permit requirements and how part numbers and descriptions must be captured. Many of these aspects will be communicated on the Clearing Instructions to your LSP on a shipment basis. However, it is a good idea to have a holistic discussion about these on a regular basis. For now, we will delve into the tariffing procedure and your TPL.

          There are different approaches when aligning the tariffing procedure with your LSP. These mostly involve the process to be followed for tariffing, responsibility, liability in some cases and sources of information. Your decisions will be influenced by how you and your company view compliance, as mentioned in the Blog “A2 Who’s Responsibility is Self-Compliance”.

          However, you should not allow issues pertaining to responsibility and liability to get in the way of one primary fact namely, that you must be compliant. The authorities are more concerned with the fact that the information must be correct.

          Most TPL are built over time. As and when goods are imported, product codes and descriptions are added to the list and tariffed. What you end up with is a TPL. It will be a good idea for you to keep a central database of your TPL on your premises, especially if you use multiple logistics service providers. In this way you can ensure that different LSPs consistently use the same tariff headings when clearing the same products. It may also help you to monitor when an agent suddenly changes tariff headings. There would normally be a good reason for this. It also helps with consistency when you decide to move from one LSP to another, for whatever reason. You do not want a second or even a third LSP to start the process from afresh. This increases your risk.

          For Traders participating in the PT (Preferred Trader) accreditation system, SARS will be interested in your TPL. They will conduct audits on your premises and that of your LSP. They will want to determine whether you and your LSP have the same information. This speaks to the concept of integrity. They will want to know that you are personally involved in establishing, auditing and maintaining the TPL, even if this is being managed by a third party.

          Finally, always ensure that you receive periodic (i.e. monthly) updates from your LSP of new parts and tariffs that are added to the TPL.

Business Implementation with your LSP (Logistics Service Provider)

          Most Traders use one LSP (Logistics Service Provider) for both the Freight Forwarding and Customs Clearing components of their business. Some use separate LSP, one for Freight Forwarding and another for the Customs Clearing. The reasons for the latter may be for cost benefits, to meet buyer or supplier requirements or because of the Incoterms (International Commercial Terms) agreed. There may be more reasons for this but, whichever the case, there will need to be a full implementation of both your Freight Forwarding and Customs Clearing requirements with your LSP.

          Most LSP companies have specific implementation procedures. These may take different forms of SOP (Standard Operating Procedures). Documented procedures will be used to implement your specific requirements for customs and logistical processes. Some information will also be pre-captured onto the LSP internal IT systems.

          As mentioned in previous blogs, the more your LSP knows about your business, the better off you are. In fact, why not invite some of the staff from your service provider to your premises for a guided tour. Take them though your business processes and production line. Show them the product/s you import, produce, process, sell or export. This will help freight forwarding personnel to gain a better understanding of your requirements and unique logistical challenges, i.e. packing space, loading bay restrictions, temperature control, delivery time frames, etc. It will also help the forwarding personnel to guide the Customs Clearing procedures within their own (LSP) organisation.

          Personnel involved in Customs clearing who visit your premises will gain a better understanding of the unique characteristics, features and design aspects of your import or export products. This will help for tariff classification issues which affect the rates of duty and the OGA (Other Government Authority) requirements, i.e. for certificates and permits.

          Any LSP which conducts both of the freight forwarding and Customs Clearing components of your business will generally have a well-integrated communications and document control system to manage your work. A seamless integration of all procedures is achieved. Using different LSPs for the Forwarding and the Customs Clearing components may occasionally have its challenges, especially with regards to document handover procedures.

          The consequences of getting this wrong may impact on your business negatively regardless of who is responsible for errors in the process.

          You will want to ensure that all procedures and requirements are well communicated and implemented with all parties at all times.

Knowledge of Customs Affairs

          I was asked at a conference in Durban in recently whether Customs clients will in the future have to write a Customs exam as proof of knowledge. While this is true for clients wanting to attain the SARS Customs PTA (Preferred Trader Accreditation), it is not true for all Customs clients. Well, not at this stage anyway.

          But it does not mean that if you are not participating in the SARS PTA that you do not need to know more. SARS is increasingly contacting traders, importers and exporters directly. This may be part of a concept known as the Customs-to-Business Partnership. More about this can be found on the WCO (World Customs Organisation) website The concept requires a lot more interaction between Customs and business going forward. It may also have to do with the greater level of accountability that the new Customs legislation places onto traders.

          When Customs do contact you directly, officials expect you to have an understanding of what they are talking about. The Customs Clearing Agent is no longer the sole provider of information to the authorities. This is most prevalent when SARS conducts post-clearance inspections of your books. SARS generally goes two years back in your records. However, in the new Customs legislation SARS audits will go back three years.

          The consequences of not having Customs knowledge may result into incorrect duty assessments. It can cause a lot of pain and financial heartache to resolve issues which arise. A lack of knowledge also causes frustration on the part of Customs officials who find themselves going in circles between the Trader and the Customs Clearing Agent. By the time payment is demanded, very short lead times are provided. Leniency in this regard is also harder to come by.

          So, what do you need to know and where will you find the information? We can take a leaf from the SARS Customs External Guide on Accreditation (SC-CF-07 dated 22 November 2012, which can be found at under “Find Publication”, section 7.3 of the document). SARS requires Traders to have knowledge in the following areas of business:

1)      General issues;

2)      Accreditation legislation and audit (for PT clients);

3)      Tariff Classification;

4)      Valuation;

5)      Rules of Origin;

6)      Prohibited and Restricted Goods and Import Control;

7)      Penalty Provisions and Risk;

8)      Appeals process;

9)      Internal Controls; and

10)    Integrity (also covered);

These are the minimum areas of Customs knowledge that you should have today. The 9 or 10 pages of summaries are a good start to increase your Customs knowledge. We will in any event be discussing these in the blogs which follow.

            Finally, there are a number of Customs Training Providers which offer various forms of Customs training to Traders and Clearing Agents alike.

Elements of Self-Compliance

            Compliance is not about one or two things which if done correctly, assure you a pass. It is also not something that you do in isolation from your LSP (Logistics Service Provider). It is also not something that is simply passed onto a third party LSP believing that they are the sole providers of the respective legislative compliances.

            One of my former colleagues in SARS Customs, a National Customs Consultant would ask me a very basic question time and again. He would ask… “Who is the only person who knows exactly what is in the container at time of arrival in South Africa?” My initial response was… “The importer”. He always clarified the question with another… “Who actually saw the goods being packed?” He explained… “Not the transporter, not the clearing agent, not Customs and not even the importer. It is the supplier”. To add, even if the transporter packed the goods, only the supplier will know the exact nature and characteristics of the goods which were packed.

The importer has a material interest in knowing exactly what is being received for a multitude of reasons. Core to these reasons is so that all parties can be advised on how to meet various commercial and legislative requirements. This makes compliance a joint effort between you and your Logistics Service Providers. The more they know about your product, the better off you are.

            There are a number of elements, or layers if you like, which may be applied to ensure that you consistently achieve the highest level of compliance. While the following is a non-exhaustive list, they include:

1)      Knowledge of Customs affairs.

2)      Advance research of import & export requirements.

3)      Business implementation with your LSP.

4)      Product implementation with your LSP.

5)      Customs Clearance Instructions.

6)      Supporting documents.

7)      Customs licenses, registrations and rulings.

8)      Post audits and re-alignment.

9)      Knowing your rights.

These elements will be discussed in the blogs which follow.