International Trade
Persistent Weaknesses in the In-Bond Cargo System Impede Customs and Border Protection's Ability to Address Revenue, Trade, and Security Concerns Gao ID: GAO-07-561 April 17, 2007The U.S. Customs and Border Protection (CBP) must strive to balance its competing goals of facilitating trade, providing port security, and collecting trade revenues. CBP's in-bond system, which allows goods to transit the United States without formally entering U.S. commerce, must also balance these goals. In response to concerns that previously identified weaknesses in the in-bond system have not been remedied, GAO examined (1) the purpose of the in-bond system and the extent of its use (2) CBP efforts to ensure that revenues are collected and trade concerns are minimized, and (3) CBP efforts to ensure that security-related inspections are properly targeted. GAO examined audit reports and agency documents, interviewed officials at CBP headquarters and at 10 CBP port offices. GAO also discussed the in-bond system with trade groups impacted by the in-bond system.
The in-bond system is designed to facilitate the flow of trade; however, CBP does not know the extent of the in-bond system's use as a result of lax oversight. The system allows cargo to be transported from the arrival port, without appraisal or payment of duties, to another U.S. port for official entry into U.S. commerce or for exportation. Although the in-bond system is estimated to be widely used, CBP cannot assess the extent of program use because it collects little information on in-bond shipments and performs limited analysis of data that it does collect. Despite numerous program reviews and audits that identified problems in CBP's management of the in-bond system, weaknesses persist and continue to impede CBP's ability to ensure proper collection of trade revenue and management of trade risks. The major weakness is that CBP does not adequately monitor and track in-bond goods. In particular, it does not consistently reconcile in-bond documents issued at the arrival port with documents at the destination port to ensure that the cargo is either officially entered with appropriate duties or quotas applied, or is in fact exported. CBP records show that many in-bond cargo shipments remained unreconciled, or "open," with one port reporting that 77 percent of its in-bond transactions were open. Also, in-bond regulations provide unusual flexibility for the trade community, but create challenges for CBP in tracking movements. Finally, some CBP ports do not consistently perform in-bond compliance reviews which could identify weaknesses and possible solutions. The limited information available on in-bond cargo also impedes CBP efforts to manage security risks and ensure proper targeting of inspections. In-bond goods transit the United States with a security score based on manifest information and do not use more accurate and detailed entry type information to re-score until and unless the cargo enters U.S. commerce. As a result, some higher risk cargo may not be identified for inspection, and scarce inspection resources may be used for some lower risk cargo.
RecommendationsOur recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.
Director: Team: Phone:GAO-07-561, International Trade: Persistent Weaknesses in the In-Bond Cargo System Impede Customs and Border Protection's Ability to Address Revenue, Trade, and Security Concerns
This is the accessible text file for GAO report number GAO-07-561
entitled 'International Trade: Persistent Weaknesses in the In-Bond
Cargo System Impede Customs and Border Protection's Ability to Address
Revenue, Trade, and Security Concerns' which was released on May 17,
2007.
This text file was formatted by the U.S. Government Accountability
Office (GAO) to be accessible to users with visual impairments, as part
of a longer term project to improve GAO products' accessibility. Every
attempt has been made to maintain the structural and data integrity of
the original printed product. Accessibility features, such as text
descriptions of tables, consecutively numbered footnotes placed at the
end of the file, and the text of agency comment letters, are provided
but may not exactly duplicate the presentation or format of the printed
version. The portable document format (PDF) file is an exact electronic
replica of the printed version. We welcome your feedback. Please E-mail
your comments regarding the contents or accessibility features of this
document to Webmaster@gao.gov.
This is a work of the U.S. government and is not subject to copyright
protection in the United States. It may be reproduced and distributed
in its entirety without further permission from GAO. Because this work
may contain copyrighted images or other material, permission from the
copyright holder may be necessary if you wish to reproduce this
material separately.
Report to the Committee on Finance, U.S. Senate:
United States Government Accountability Office:
GAO:
April 2007:
International Trade:
Persistent Weaknesses in the In-Bond Cargo System Impede Customs and
Border Protection's Ability to Address Revenue, Trade, and Security
Concerns:
GAO-07-561:
GAO Highlights:
Highlights of GAO-07-561, a report to the Committee on Finance, U.S.
Senate
Why GAO Did This Study:
The U.S. Customs and Border Protection (CBP) must strive to balance its
competing goals of facilitating trade, providing port security, and
collecting trade revenues. CBP‘s in-bond system, which allows goods to
transit the United States without formally entering U.S. commerce, must
also balance these goals. In response to concerns that previously
identified weaknesses in the in-bond system have not been remedied, GAO
examined (1) the purpose of the in-bond system and the extent of its
use (2) CBP efforts to ensure that revenues are collected and trade
concerns are minimized, and (3) CBP efforts to ensure that security-
related inspections are properly targeted. GAO examined audit reports
and agency documents, interviewed officials at CBP headquarters and at
10 CBP port offices. GAO also discussed the in-bond system with trade
groups impacted by the in-bond system.
What GAO Found:
The in-bond system is designed to facilitate the flow of trade;
however, CBP does not know the extent of the in-bond system‘s use as a
result of lax oversight. The system allows cargo to be transported from
the arrival port, without appraisal or payment of duties, to another
U.S. port for official entry into U.S. commerce or for exportation.
Although the in-bond system is estimated to be widely used, CBP cannot
assess the extent of program use because it collects little information
on in-bond shipments and performs limited analysis of data that it does
collect.
Despite numerous program reviews and audits that identified problems in
CBP‘s management of the in-bond system, weaknesses persist and continue
to impede CBP‘s ability to ensure proper collection of trade revenue
and management of trade risks. The major weakness is that CBP does not
adequately monitor and track in-bond goods. In particular, it does not
consistently reconcile in-bond documents issued at the arrival port
with documents at the destination port to ensure that the cargo is
either officially entered with appropriate duties or quotas applied, or
is in fact exported. CBP records show that many in-bond cargo shipments
remained unreconciled, or ’open,“ with one port reporting that 77
percent of its in-bond transactions were open. Also, in-bond
regulations provide unusual flexibility for the trade community, but
create challenges for CBP in tracking movements. Finally, some CBP
ports do not consistently perform in-bond compliance reviews which
could identify weaknesses and possible solutions.
The limited information available on in-bond cargo also impedes CBP
efforts to manage security risks and ensure proper targeting of
inspections. In-bond goods transit the United States with a security
score based on manifest information and do not use more accurate and
detailed entry type information to re-score until and unless the cargo
enters U.S. commerce. As a result, some higher risk cargo may not be
identified for inspection, and scarce inspection resources may be used
for some lower risk cargo.
Figure: Port Estimate of Percentage of In-Bond Records Remaining Open
in FY 2005:
[See PDF for Image]
Source: GAO.
[End of figure]
What GAO Recommends:
GAO is recommending that the Commissioner of CBP take action in three
areas (1) collect and use improved information on in-bond shipments to
enable better informed decisions, (2) assess the systemic problems
associated with identifying open in-bonds and take steps to resolve
these problems, and (3) ensure that the compliance measurement system
is performed to improve CBP‘s in-bond management. DHS agreed with most
of our recommendations in these three areas.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-07-561].
To view the full product, including the scope and methodology, click on
the link above. For more information, contact Loren Yager,
Yagerl@gao.gov 202-512-4347
[End of section]
Contents:
Letter:
Results in Brief:
Background:
The In-Bond System Facilitates the Flow of Trade, but CBP Does Not Know
the Extent of Its Use:
In-Bond System Management Weaknesses Impede CBP's Ability to Ensure
Proper Collection of Trade Revenues and Address Trade Concerns:
Limited Information Collected on In-Bond Cargo Impedes CBP Efforts to
Manage Security Risks:
Conclusions:
Recommendations:
Agency Comments and GAO Response:
Appendix I: Objectives, Scope, and Methodology:
Appendix II: Comments from the Department of Homeland Security:
GAO Comments:
Appendix III: GAO Contact and Staff Acknowledgments:
Table:
Table 1: Comparison of Data Requirements for Entry Summary and In-Bond
Forms:
Figures:
Figure 1: Process for IT, T&E, and IE In-Bond Movements:
Figure 2: Value of All U.S. Imports by Fiscal Year, 1998 to 2006:
Figure 3: Number and Percent of In-Bond Transactions by Type, October
2004 through March 2005:
Figure 4: Number of In-Bond Transactions by Type for Selected Ports in
Fiscal Year 2005:
Figure 5: CBP Estimate of Percentage of In-Bond Records Remaining Open
for Fiscal Year 2005:
Figure 6: Change in ATS Target Score after Obtaining Entry Information
for Selected Ports:
Abbreviations:
ACE: Automated Commercial Environment:
ACS: Automated Commercial System:
AMS: Automated Manifest System:
ATS: Automated Targeting System:
CBP: Customs and Border Protection:
DHS: Department of Homeland Security:
FDA: Food and Drug Administration:
FTZ: Foreign Trade Zone:
HTS: Harmonized Trade Schedule:
ICE: Immigration and Customs Enforcement:
IE: Immediate Exportation:
IT:Immediate Transportation:
OFO: Office of Field Operations:
OIT: Office of Information Technology:
T&E: Transportation and Exportation:
United States Government Accountability Office:
Washington, DC 20548:
April 17, 2007:
The Honorable Max Baucus:
Chairman:
The Honorable Charles E. Grassley:
Ranking Member:
Committee on Finance:
United State Senate:
With the recent growth in global trade and U.S. imports, U.S. Customs
and Border Protection (CBP) faces an increasingly heavy workload at the
nation's ports. CBP has responsibilities related to facilitating trade,
providing port security, and collecting trade-related revenues, which
totaled about $28.5 billion in fiscal year 2006. To facilitate trade,
the U.S. customs system allows imported cargo intended for either U.S.
or foreign markets to move from one U.S. port to another without being
assessed U.S. duties or quotas and without officially entering U.S.
commerce. This cargo referred to as an in-bond shipment--requires a
responsible party to be covered by a CBP-approved bond and agree to
comply with applicable regulations. Some CBP port officials have
estimated that in-bond shipments represent from 30 percent to 60
percent of goods received at their ports. Over the past years, reports
from GAO and other audit agencies have noted various internal control
weaknesses in the CBP in-bond shipment system. These weaknesses have
sometimes allowed goods to be improperly diverted and sold in U.S.
markets, thus avoiding duties and quotas and possibly also posing
security risks. For example, according to an Immigration and Customs
Enforcement (ICE) report, from September 1999 through December 2002,
more than 7,500 in-bond shipments of wearing apparel were diverted from
Los Angeles to customers throughout the United States, with an
estimated loss of revenue to the United States of more than $100
million.
At your request, we addressed these issues (1) What is the in-bond
system and to what extent is it used? (2) How has CBP managed the
system to ensure that revenues are collected and trade concerns are
minimized? and (3) How has CBP managed the system to ensure that
security-related inspections are properly targeted?
To meet these objectives, we reviewed project documentation and
interviewed knowledgeable officials from CBP headquarters and selected
port locations. We interviewed officials and examined documents at the
six field operations offices processing the greatest numbers of in-bond
transactions in 2005 (excluding in-bond transactions initiated by large
couriers such as DHL, FedEx, and UPS). Major ports within those field
operations offices include Buffalo, New York; Los Angeles and Long
Beach, California; Laredo, Texas; Miami, Florida; New York, New York;
Newark, New Jersey; and Blaine and Seattle, Washington. We also visited
the Port of Dallas, Texas, which was identified by the Los Angeles CBP
field office as a major inland destination port for in-bond goods. We
examined CBP's treatment of in-bond shipments in each of these ports
and where possible we obtained data showing the number of in-bond
documents processed. To identify previously identified in-bond internal
control weaknesses, we reviewed GAO, Inspector General, and other audit
reports on the in-bond program. We discussed the views of CBP
headquarters and port management personnel regarding any revenue,
security, or other risks associated with processing in-bond cargo and
with the actions taken to address these risks. We conducted our work in
accordance with generally accepted government auditing standards. A
detailed description of our scope and methodology is included in
appendix I of this report.
Results in Brief:
The in-bond system is designed to facilitate the flow of trade
throughout the United States; however, CBP does not know the extent of
use of the in-bond system because it collects little information on in-
bond shipments and performs limited analysis of data that are
collected. The system allows cargo to be transported from the arrival
port, without appraisement of the cargo or payment of duties, to
another U.S. port for official entry[Footnote 1] into U.S. commerce or
for exportation. The trade community believes the flexibilities
provided by the in-bond system are needed to facilitate trade,
particularly allowing it to avoid congestion and delays at U.S.
seaports whose infrastructure has not kept up with the dramatic growth
in trade. For example, CBP reported that import values increased from
$881 billion in fiscal year 1998 to an estimated $1.82 trillion in
fiscal year 2006. The in-bond system is estimated to be widely used;
according to CBP records between October 2004 and March 2005, over 6.5
million in-bond transactions were initiated nationwide. However, CBP
cannot assess the extent of the program because it does not collect
accurate information on the value and volume of in-bond cargo, and its
analysis of existing data is limited to the number of in-bond
transactions. For example, CBP officials at the Port of Los Angeles
estimated that 40 to 60 percent of all imports arriving at the port in
2005 were transported in-bond, but they were unable to provide reliable
data to confirm this estimate.
Despite numerous program reviews and audits that identified problems in
CBP's management of the in-bond system, weaknesses persist and continue
to impede CBP's ability to ensure proper collection of trade revenue
and management of trade risks. The major weakness is that CBP does not
adequately monitor and track in-bond goods; in particular, it does not
consistently reconcile the in-bond documents issued at the arrival port
with documents at the destination port, to ensure that the cargo is
either officially entered, with appropriate duties or quotas applied,
or is in fact exported. For example, one of the ports with the highest
amount of in-bond traffic reported that up to 77 percent of their in-
bond cargo shipments remained unreconciled, or "open." Several factors
contribute to CBP's inability to monitor these shipments. One is that
CBP does not collect appropriate data or analyze available data to
adequately manage the in-bond system and identify risks associated with
revenue loss and trade violations. As a result, the agency has not been
able to implement compliance measurements to assess revenue gaps and
the effectiveness of trade compliance controls. A second factor is that
the in-bond regulations provide unusual flexibility for the trade
community, but create challenges for CBP. The regulations currently
allow bonded carriers from 15 to 60 days,[Footnote 2] depending on the
mode of shipment, to reach their final destination and allow them to
change a shipment's final destination without notifying CBP. Also,
administrative errors by both shipping agents and CBP staff contribute
to the high numbers of open in-bond records. Finally, CBP continues to
inconsistently perform in-bond compliance exams, with some ports not
performing these exams at all and other ports only recently beginning
to perform them. Results from these compliance exams, when consistently
performed, can aid port and CBP management in identifying system
weaknesses.
The limited information available on in-bond cargo impedes CBP efforts
to manage associated security risks and ensure proper targeting of
inspections. CBP uses information from the manifest as an input in
developing an initial screening score to establish inspection
priorities. However, information from the manifest may lack detail and
reduce the quality of targeting. Carriers of goods officially entering
commerce are required to present more detailed information on entry
documents. As a result, in-bond goods transit the United States after
the initial targeting based on less detailed information than goods
that have been officially entered with required information. In
addition, scarce inspection resources are misdirected to in-bond goods
that a security score based on better information might have shown did
not warrant inspection. Recent CBP data for four large ports showed
that security screening scores for cargo increased 23 percent of the
time and decreased 47 percent of the time after information from entry
documents had been considered.
In this report, we are making recommendations in three general areas.
First, to improve the level of detail in information available on in-
bond cargo, we are making several recommendations to allow CBP to make
better management decisions regarding trade, revenue, and security
concerns. Second, to improve monitoring of in-bond cargo, we are
recommending that CBP assess the systemic problems associated with
identifying open in-bond transactions, take steps to resolve these
problems, and improve the agency's ability to track and close open in-
bond transactions. Third, to make the in-bond compliance measurement
program a more effective monitoring tool, we are recommending that CBP
ensure that compliance measurement exams are consistently conducted to
inform CBP management of needed corrective actions.
We provided a draft of this report to DHS for review by CBP and ICE,
and DHS agreed with most of our recommendations in all three areas. In
the area of improving in-bond information, DHS agreed with three of our
five recommendations. DHS disagreed with one recommendation, stating
that it would change the nature of in-bond transactions and increase
costs. DHS was also concerned that another recommendation called for
improved information in a system that would not enhance CBPs'
antiterrorism efforts. We modified our recommendations in these areas
to address DHS concerns. In the area of improving CBP monitoring of
open in-bond transactions, DHS agreed with three of our five
recommendations. DHS stated that CBP had met the intent of our
recommendation to ensure that bondholders close in-bond documents
within required time frames. We modified this recommendation to
emphasize that a more systematic enforcement strategy is needed. DHS
also disagreed with our recommendation that CBP should prioritize their
efforts to close open in-bonds based on risk. Given limited CBP
resources and the high number of open in-bond transactions, we
maintained our recommendation regarding the need for prioritization. In
the area of improving CBP's compliance measurement program, DHS agreed
with our recommendations. CBP also provided technical comments, which
we have incorporated in this report as appropriate.
Background:
Provisions for the in-bond-type movements of cargo date back to the
1800s, although current authority for in-bond movements is contained in
the Tariff Act of 1930, as amended.[Footnote 3] Under the current
system, merchandise arriving from foreign countries can be authorized
to move in-bond, without appraisement of the merchandise or payment of
duties, from a port of arrival to any other U.S. port to be officially
entered into U.S. commerce or exported. Several parties can be involved
in an in-bond transaction, including the importer and shipping agents
such as carriers and customs brokers.
In-bond goods must be transported by a carrier covered by a CBP-
approved bond that allows goods that have not yet entered U.S. commerce
to move through the United States. Such carriers can move goods by
ship, truck, rail, plane, or any combination of these. The bond is a
contract given to ensure performance of obligations imposed by law or
regulation and guarantees payment to CBP if these obligations are not
performed. The three parties involved in a CBP bond are (1) the
principal, which can be an importer, broker, carrier, or other business
entity; (2) a surety authorized by the Department of the Treasury to
write CBP bonds, normally an insurance company; and (3) CBP, which
would be the beneficiary of the bond if conditions are not met. If CBP
finds that the bonded party has violated laws or regulations in moving
the in-bond goods, it can take action to recover against the bond.
CBP is the unified border agency within the Department of Homeland
Security (DHS) charged with the mission of preventing terrorists and
terrorist weapons from entering the United States, while also
facilitating the flow of legitimate trade and travel. This agency, with
its more than 40,000 employees covering 308 ports of entry, is
responsible for the in-bond process and controls and protects the
nation's borders. CBP's Office of Field Operations (OFO) is the primary
CBP component responsible for enforcing customs, immigration, and
agriculture laws and regulations at U.S. borders, including in-bond
regulations. OFO maintains programs at 20 field operation offices, 308
ports of entry, and 14 preclearance stations in Canada and the
Caribbean. Port directors oversee points of entry in their operational
areas, where virtually all conveyances, passengers, and goods legally
enter and exit the United States.
To carry out its trade-related obligations, CBP relies on information
systems and management processes to help its staff track, control, and
process all commercial goods imported into the United States. The
agency is in the midst of modernizing its current trade processing
system, the Automated Commercial System (ACS). CBP is currently
replacing ACS with the Automated Commercial Environment (ACE) system in
11 increments, referred to as "releases," to be completed in
approximately 8 1/2 years. When the system is fully operational, it is
expected to provide an improved technology foundation for CBP border
security and trade activities. We have periodically reported on the
development of the ACE system. Most recently, we reported that CBP
faces long-standing management challenges and new risks associated with
the development of ACE.[Footnote 4]
Since the 1990s, a number of audits and program reviews completed by
GAO, the Department of the Treasury Inspector General, independent
public accounting firms, and others have identified weaknesses in the
in-bond system. Among weaknesses identified were problems in monitoring
and tracking in-bond records and in targeting and inspecting in-bond
shipments, and inconsistent performance of the in-bond system's
compliance measurement program.[Footnote 5] A 2001 Department of the
Treasury Inspector General audit of the U.S. Customs Service's[Footnote
6] financial statements for fiscal years 1999 and 2000 found that its
inability to close open in-bond records because of administrative
errors and lack of appropriate system checks impeded its ability to
ensure that goods moving in-bond were not substituted or diverted into
U.S. commerce without proper assessment. The Financial Statement audits
for fiscal years 2002 to 2006 by an independent public accounting firm
cited CBP's lack of a reliable process for monitoring in-bond shipments
and inconsistent performance of its compliance measurement program,
known as Tinman.
The recently enacted Security and Accountability for Every Port Act of
2006 (SAFE Port Act) contains several provisions related to securing
the international cargo supply chain against potential terrorist acts.
Some provisions relate to the movement of in-bond cargo. Title IV
requires that CBP submit a report to several congressional committees
by June 30, 2007, including an assessment of whether ports of arrival
should require additional information for in-bond cargo, a plan for
tracking in-bond cargo in the ACE system, and an assessment of how to
ensure reconciliation of in-bond cargo between arrival port and
destination port. The report must also contain an assessment of the
feasibility of reducing transit time while traveling in-bond, an
assessment of the resources needed to complete the reconciliation of in-
bond entries, and an evaluation of the criteria for targeting and
examining in-bond cargo.
The In-Bond System Facilitates the Flow of Trade, but CBP Does Not Know
the Extent of Its Use:
The in-bond system facilitates the flow of trade by allowing importers
and shipping agents to choose the ports at which their cargo is
officially entered into U.S. commerce and duties are paid or quotas are
assessed. The in-bond system also covers cargo that is not intended for
official entry into U.S. commerce--that is, cargo that arrives at U.S.
ports, transits the United States for exporting to another country
(such as goods arriving at Los Angeles and moving to Texas ports for
exporting to Mexico). U.S. importers and shipping agents may elect to
use the in-bond system for several reasons, and the in-bond system has
become an integral part of the trade process for some industries. CBP
information on the number of in-bond transactions indicates that the in-
bond system is widely used. However, CBP collects limited detailed
information on the in-bond system and has done minimal analysis of the
extent and patterns of its use.
The In-Bond System Facilitates the Flow of Goods:
The in-bond system facilitates the flow of trade by allowing cargo to
be transported from the arrival port, without payment of duties, to
another U.S. port for official entry into U.S. commerce or for
exportation. There are three types of in-bond movements that importers
and shipping agents can use (see fig. 1). One type of in-bond movement,
known as "Immediate Transportation" (IT), allows merchandise arriving
at a U.S. port to be transported to another U.S. port where it is
entered into commerce. Alternatively, IT in-bond shipments can be
admitted to a bonded warehouse or Foreign Trade Zone (FTZ).[Footnote 7]
A second type of in-bond movement, known as "Transportation and
Exportation" (T&E), covers merchandise "in transit" through the United
States; such merchandise arrives at a U.S. port and is allowed to be
transported through the United States and exported from another U.S.
port without the payment of duties. A third type of in-bond movement
relates to cargo arrivals that are unloaded at the U.S. port, but are
to be immediately exported from that same port without payment of
duties. This is known as "Immediate Exportation" (IE).
Figure 1: Process for IT, T&E, and IE In-Bond Movements:
[See PDF for image]
Source: GAO analysis of CBP information.
[End of figure]
The in-bond system is governed by a system of statutes, regulations and
procedures that provide importers and shipping agents considerable
flexibility. CBP regulations allow importers and shipping agents the
ability to initiate and close in-bond transactions, to extend
transportation time frames, and to make revisions in their
destinations. Some of the features that complicate administration of
the in-bond system include the following:
* Documentation for in-bond transactions may be provided electronically
or on paper by using the in-bond form (CBP Form 7512).
- For electronic in-bond transactions, shipping agents initiate and
submit the form electronically to CBP prior to arrival through the
Automated Manifest System (AMS) and close the in-bond transaction once
the cargo is officially entered or exported.
- For paper in-bond transactions, in-bond form is received at CBP at
the time the in-bond shipment arrives at the port; CBP staff must enter
the information manually and are responsible for closing the in-bond
transaction once it is entered or exported.
* The in-bond system allows extended periods for transportation and
reporting of cargo movements.
- Once the in-bond shipment leaves the arrival port, the carrier has
from 15 to 60 days, depending on the mode of shipment, to transport the
merchandise to the destination port.
- The carrier then has 2 working days from physical arrival at the
destination port to report the arrival.
- The carrier then has 15 days from the time of arrival at the
destination port to officially enter cargo (if movement was an IT) or
export (if a T&E).
* Carriers are allowed to change the destination port while in transit
without notifying CBP, with some limited exceptions.
* At the destination port, liability for the shipment may be
transferred to another carrier with the filing of a subsequent in-bond
(IT, T&E, or IE), allowing shipments to continue to move without making
official entry.
The In-Bond System Provides Several Advantages to the Trade Community:
The in-bond system allows the trade community to avoid congestion and
delays at U.S. seaports whose infrastructure has not kept up with the
dramatic growth in trade volume. In-bond facilitates trade by allowing
importers and shipping agents the flexibility to move cargo more
efficiently. Trade community representatives who we interviewed
indicated the in-bond system allows importers to overcome insufficient
infrastructure and resources at CBP ports dealing with large volumes of
cargo. Some CBP officials noted that if all cargo had to be entered at
the time of arrival, some busier ports would probably not have space
and personnel to accommodate the volume. For example, CBP reports that
the value of all U.S. imports has risen from $881 billion in fiscal
year 1998 to an estimated $1.82 trillion in fiscal year 2006 (see fig.
2). These import amounts do not include in-bond shipments received at
U.S. ports that are exported to other countries. According to CBP,
about 1.2 million in-bond transactions were initiated in the Port of
Los Angeles alone in fiscal year 2005. CBP staff estimate that this
accounts for 30 to 60 percent of all imports moving through the port;
however, CBP was unable to provide reliable data to confirm this.
Figure 2: Value of All U.S. Imports by Fiscal Year, 1998 to 2006:
[See PDF for image]
Source: CBP.
[End of figure]
The in-bond system allows importers and shipping agents considerable
flexibility in moving goods. A customs broker provided an example of a
case in which his company was dealing with imported shrimp that needed
to be examined by the Food and Drug Administration (FDA) in a timely
manner before entering into U.S. commerce. The broker said that the
shrimp was coming into New York, but both FDA and CBP had significant
delays in inspecting cargo there. The broker's company transported the
shrimp in-bond to a nearby inland port where FDA and CBP could process
it more quickly. The shrimp was then sent back to market in New York.
In addition, members of the American Trucking Association explained
that the in-bond system allows them to move cargo faster and provides
the flexibility to choose the most convenient port to deliver goods.
For example, the members are able to move mixed loads rapidly through
the border by avoiding the lengthy inspections that could be required
for a variety of goods, and then deal with Customs arrival requirements
at the destination port.
The in-bond system has become an integral part of the trade process for
some industries. Trade community representatives stated that larger
importers use the in-bond system because they prefer to ship
merchandise to central distribution warehouses to more conveniently
enter the shipments, rather than dealing with multiple ports of
arrival. Industries such as express consignment couriers also rely on
the in-bond program for the expeditious movement of shipments as an
integral part of the services they offer. The in-bond system also
allows importers to delay payment of trade duties. Using the in-bond
system, importers do not pay applicable import duties until the
merchandise officially enters U.S. commerce--which can be delayed from
15 to 60 days after it arrives at the initial U.S. port and an
additional 15 days at the destination port.
The in-bond system is also fundamental to FTZ operation, in which
foreign and domestic merchandise is considered to be outside of
Customs' territory.[Footnote 8] The FTZ program was created in the
1930s to facilitate international trade and increase the global
competitiveness of U.S.-based companies. There are currently 256 FTZs,
and they are found in every state. Businesses using FTZs depend on the
in-bond system to import certain types of merchandise into the zones
without going through formal Customs entry procedures or paying import
duties. Goods may either be exported directly from FTZs or may enter
U.S. commerce at which point appropriate duties are assessed.
CBP Reports Extensive Use of the In-Bond System but Has Not Done
Analysis of Its Use:
CBP has some data that indicate that the in-bond system is widely used,
but it has not organized or analyzed its data to provide detailed
information on the extent or patterns of use of the system. CBP's data
are limited to the number of in-bond transactions initiated and
information contained on the in-bond form. While the form captures some
shipment manifest information such as foreign port of lading, final
foreign destination, port codes, and vessel information, it does not
require appraisal value of in-bond cargo.[Footnote 9] We requested that
CBP provide data on the value and quantity of cargo transported in-
bond, but CBP could not provide reliable data. CBP did not have
existing reports on in-bond shipments, the extent of the program or
patterns of in-bond shipments. Any data we requested on the in-bond
system had to be compiled specifically for us, in some cases by using
estimates. A description of data limitations and the impact on managing
the in-bond system is provided in the next section of this report.
Using the number of in-bond transactions reported by CBP for the 6-
month period of October 2004 to March 2005, we found that the system is
widely used, and IT in-bond transactions are the most common type. CBP
records show that during this period a total of about 6.5 million in-
bond transactions were initiated nationwide. IT movements accounted for
about 4.5 million, T&E movements accounted for about 1.4 million, and
IE movements accounted for about 0.6 million (see fig. 3). CBP data
also showed that the in-bond system is widely used by couriers such as
UPS and FedEx. Couriers accounted for almost half of all in-bond
transactions initiated during this period. However, CBP is unable to
calculate what share of U.S. imports is transported in-bond because the
number of in-bond transactions alone reveals limited information. A
"transaction" can be an entire shipping container or a single package.
For example, the Port of Seattle recorded an increase of 30 percent in
in-bond transactions between 2004 and 2005; however, staff explained
that the value and volume of cargo moving in-bond did not change
significantly. Port officials said that the increase in the number of
transactions related to a change in procedures--couriers were required
to change from filing a single in-bond form for an entire truck to
filing one for each package in the truck moving in-bond.
Figure 3: Number and Percent of In-Bond Transactions by Type, October
2004 through March 2005:
[See PDF for image]
Source: GAO analysis of CBP data.
[End of figure]
According to CBP, the four field offices that process the largest
numbers of in-bond movements are Los Angeles, New York, Miami, and
Seattle. As part of our audit work, we visited and requested data from
ports in these field offices with the highest numbers of in-bond
transactions, as well as other ports with high numbers of in-bond
transactions. Staff in all the ports we visited indicated having great
difficulties in providing data on the in-bond system because of
limitations with its Automated Commercial System (ACS). We requested
data on the number of in-bond transactions for the past 5 years;
however most ports were not able to provide data for all 5 years. The
most recent time period that the majority of ports were able to provide
information was for fiscal year 2005. The information provided by some
of these ports is summarized in figure 4. According to this
information, the Los Angeles/Long Beach has the largest number of in-
bond transactions, and IT was the most prevalent type of in-bond
transaction used.
Figure 4: Number of In-Bond Transactions by Type for Selected Ports in
Fiscal Year 2005:
[See PDF for image]
Source: GAO analysis of CBP data.
Note: The Port of Miami was unable to provide reliable data for fiscal
year 2005. The Port of Dallas was unable to provide T&E and IE data.
[End of figure]
To assess the extent to which the in-bond system is used, we requested
data on total imports from entry summary forms, since these forms
provide complete information on imports and indicate if the in-bond
system was used. This information would allow us to determine what
percentage of all cargo intended for U.S. commerce is transported in-
bond and make an accurate assessment of the extent of the in-bond
system. CBP attempted to compile these data but was unable to provide
this information.
CBP does not include information on the extent that the in-bond system
is used in its annual Performance and Accountability Report or Import
Trade Trends. Without proper systems in place to inform management
about in-bond transactions, CBP is unable to properly evaluate the
risks associated with in-bond transactions and make decisions about how
to best manage the system.
In-Bond System Management Weaknesses Impede CBP's Ability to Ensure
Proper Collection of Trade Revenues and Address Trade Concerns:
Weaknesses in CBP's management of the in-bond system continue to impede
CBP's ability to ensure proper collection of trade revenue and minimize
trade risks. CBP does not collect adequate data or analyze existing
data needed to effectively manage the system. As a result, CBP is not
able to identify risks in the system associated with potential revenue
losses or trade violations, and thus it cannot implement compliance
measures targeted at reducing these risks. CBP is unable to ensure that
in-bond shipments in fact enter U.S. commerce, with appropriate duties
paid, due to management weaknesses related to tracking in-bond
shipments and reconciling paperwork. CBP conducts in-bond reviews and
audits to assist in identifying system weaknesses, but these continue
to be inconsistently performed.
CBP Does Not Collect Adequate Data or Analyze Existing Data to Make
Risk Management Decisions:
CBP does not collect appropriate data to adequately manage the in-bond
system. While the official entry summary form (CBP Form 7501)[Footnote
10] requires accurate information on description, value, and quantity
of cargo, the in-bond form (CBP Form 7512) allows estimates to be
provided. The entry summary form requires the use of Harmonized Tariff
Schedule (HTS)[Footnote 11] numbers to collect correct data on
description, value, and quantity of trade imported for consumption in
the United States. However, the data available to CBP for in-bond cargo
are limited to the number of in-bond transactions initiated and the
information contained on the in-bond form. CBP staff explained that
while there is a value field on the in-bond form, the value provided is
most often what it is described as a "shipper's valuation" for
insurance purposes and not the actual value of goods. CBP instructions
for the in-bond form indicate that for IT movements, merchandise should
be described in sufficient detail to enable the port director to
estimate the duties and taxes, however, importers and shipping agents
do not usually provide this level of information. Further, CBP
officials noted that the in-bond form is often filled out by shipping
agents who provide imprecise estimates of value and quantity and vague
cargo descriptions. CBP at the headquarters level provides limited
specific guidance to the ports regarding how to assess value and volume
of in-bond traffic and any associated risks. Table 1 compares the data
required for certain items in the official entry summary and in-bond
forms.
Table 1: Comparison of Data Requirements for Entry Summary and In-Bond
Forms:
Type of information: Description;
Information required on entry summary form (7501): Detailed cargo
descriptions using 10-digit HTS numbers;
Information required on in-bond form (7512): General description of
goods (HTS numbers not required).
Type of information: Value;
Information required on entry summary form (7501): Accurate dollar
amount required for assessment of duties;
Information required on in-bond form (7512): Estimated value allowed.
Type of information: Quantity;
Information required on entry summary form (7501): Net quantity in
specified HTS units;
Information required on in-bond form (7512): Quantity in terms of the
smallest external packaging unit, such as containers, boxes, etc. (HTS
units not required).
Source: GAO analysis of CBP information.
[End of table]
CBP has also not used existing data it collects on in-bond to identify
risks in the system associated with potential revenue loss or trade
violations. Port officials indicated the lack of data entered into the
system limits the information that can be used for tracking in-bond
cargo. For example, officials at a major port told us that often for
transactions filed in hard copy, only about half of the more than 20
data elements in the form are entered into the ACS, due to the large
quantity of in-bond shipments and relatively few officers to review
them. In addition, CBP officials said that company names and numbers
may not be accurately entered into the ACS, further complicating risk
management decisions. Staff in CBP's Office of Information Technology
(OIT) explained that they are not generally required to provide
management, at the port or national level, with existing data on the
extent of the in-bond system and patterns of trade among in-bond ports.
According to staff, if any information is requested by management about
in-bond transactions, it is handled on an ad hoc basis. In addition,
according to OIT staff, ACS is inefficient in creating records that
allow analysis of the extent to which the in-bond system is used, of
trade flows, and diversion risks. Creating any type of report on the in-
bond system is laborious and time consuming. OIT staff indicated that
the ACE system under development to replace ACS should provide better
information to aid in managing the in-bond system.
Data Collection Limitations Impede CBP's Assessment of Potential
Revenue Losses:
Lack of accurate information on the value of in-bond cargo prevents CBP
from accurately determining the extent of any lost revenue. CBP staff
explained that regulations do not require the appraisement of in-bond
cargo; such appraisal and collection of duties occurs when the cargo is
entered at the destination port. CBP officials noted that they do not
require importers and shipping agents to provide accurate value
information on the in-bond form because it is not required under
legislation or current CBP in-bond regulations. Further, CBP does not
collect and report data showing the trade patterns for in-bond use. If
CBP knew which ports receive the most in-bond cargo from the major U.S.
ports it could better prioritize its oversight of the system. However,
CBP does not consider information on main receiving ports in managing
the system. In addition to allowing CBP to determine potential loss of
revenue, obtaining accurate information on value, specific category of
merchandise, and trade patterns could help CBP focus efforts on
monitoring in-bond cargo with high revenue.
CBP Also Cannot Accurately Assess Potential Trade Violations:
CBP's data management weaknesses impede its ability to target in-bond
cargo for trade violations at the arrival port. Currently, CBP uses the
Stratified Compliance Exam and the Cargo Selectivity System for trade
compliance purposes, such as identifying intellectual property rights
violations and revenue collection. The Stratified Compliance
Examination randomly selects cargo making official entry into the
United States for physical inspection, while the Cargo Selectivity
System uses criteria to evaluate information from an entry summary and
then selects cargo for inspection. Both systems use entry information
for cargo entering into U.S commerce at the arrival port to initiate
the exams. Because in-bond cargo does not make official entry at the
arriving port, the Stratified Compliance Examination is not applied to
in-bond cargo being exported and is not initiated for in-bond goods
entering at other U.S. ports until official entry occurs. Without
proper targeting of in-bond shipments at the arrival port, cargo
transiting to another U.S. port for official entry or exportation may
be diverted and stay in the United States, contraband or goods
violating intellectual property rights laws could be smuggled, duties
may be unpaid, or quotas could be violated. In fiscal year 2006 about
30 percent of seizure value for intellectual property rights violations
were associated with shipments that had moved through the in-bond
system. Examples of some past diversions that involved use of the in-
bond system include:
* From September 1999 through December 2002, more than 7,500 shipments
of wearing apparel shipped to Los Angeles from China and Hong Kong were
smuggled into the United States. The in-bond documents were filed in
Los Angeles for export to Mexico via Laredo, Texas. However, the goods
were diverted from Los Angeles to customers throughout the United
States. The declared foreign value of shipments was in excess of $600
million, and estimated loss of revenue to U.S. Customs was more than
$100 million.
* In 2006, CBP seized 77 containers of counterfeit athletic shoes and
designer clothing with an estimated domestic value of nearly $70
million. These containers entered the Los Angeles seaport, and in-bond
documents were filed for eventual export to Mexico. The goods moved in-
bond through California and Arizona before being seized by ICE agents.
While CBP performs a security screen for all arriving cargo, it does
not have a formal targeting system to identify trade concerns specific
to in-bond cargo. However, in some instances, CBP port officers do take
steps to target in-bond shipments on an ad-hoc basis. In most of the
ports we visited, port officials said that for in-bond shipments filed
using the paper in-bond form, cargo is often selected by CBP officers
at the time documentation is presented to the port office. CBP officers
inputting the in-bond data from the paper forms into the system may
select cargo for inspection based on experience and available
information. Cargo moving in-bond for which the in-bond form was filed
electronically is not screened by CBP officers for these types of
additional inspections, because approval of these transactions is
automated and officers do not regularly access this information.
Numerous Open In-Bond Records Reflect Lack of Control of In-Bond
Movements:
CBP often cannot ensure that cargo officially entered U.S. commerce, or
was exported, because many in-bond transaction records remain open with
uncertain disposition. An open in-bond record occurs when a paper or
electronic transaction has been initiated at the arrival port for an in-
bond shipment but the record has not been completed, or closed, because
CBP has not recorded the shipment's official entry at the destination
port. An open in-bond transaction record that is never closed
represents an internal control weakness in that there is no control in
place to ensure that open items are closed or to determine whether
potential revenue losses or trade violations have occurred. As previous
audit reports have noted, the number of open in-bond records is
substantial, however, CBP does not have accurate measures of the number
of open records. Several factors contribute to the high number of open
in-bond records. CBP does not appear to have placed a priority on
reducing the number of open in-bond records, in that it has not
consistently reconciled open records. In addition, CBP's in-bond
regulations that were intended to provide flexibility to business
result in it being more difficult to track in-bond transaction.
Finally, administrative errors by both CBP and the trade industry add
to the numbers of open in-bond records. CBP has recently issued
directives to address some of these issues, but it is too early to
judge their effectiveness.
Number of Open In-Bond Records Is Substantial, but CBP Lacks Accurate
Data:
Previous audit reports have noted that the high number of open in-bond
records impedes CBP efforts to track in-bond shipments and ensure that
they have properly entered U.S. commerce. An open in-bond record
indicates a risk that cargo could have been diverted without paying
applicable duties or in violation of trade regulations or quotas.
Without data on the value and volume of in-bond cargo, and information
on the number of in-bond records that remain open, CBP is not able to
account for them or set a high priority on tracking open in-bonds with
high duties. We reported this problem in 1994, 1997, and 2004 and made
recommendations to CBP for improving the monitoring of in-bond
shipments. However, in our current review, we found large numbers of
open in-bond records at all the ports we visited, and CBP admits that
there are many open in-bond records nationwide.
Of the 10 ports we visited, only 6 were able to provide fiscal year
2005 data on the number of open in-bond records in their systems. As
figure 5 shows, for the six ports that provided data, the percentage of
open in-bond transactions for fiscal year 2005, ran as high as 77
percent at one location. The other four ports, including Los Angeles--
the port with the largest estimated number of in-bond transactions--
were unable to provide reliable data on the number of open in-bond
records. Without consistent evaluation and reliable data on overdue
shipments, CBP cannot account for in-bond shipments that failed to meet
time requirements and trade regulations. CBP attributed some of the
open in-bond records to systemic problems that do not show in-bonds as
closed even after they have been completed.
Figure 5: CBP Estimate of Percentage of In-Bond Records Remaining Open
for Fiscal Year 2005:
[See PDF for image]
Source: GAO analysis of CBP data.
[End of figure]
CBP Has Not Consistently Reconciled Open In-Bond Records:
Ports that we visited have not consistently performed several CBP
designated reviews intended to resolve open in-bond records. For
example, CBP reports such as the Monthly List of In-Bond Shipments
Delivered Late for Export (MO2), along with the Monthly List of In-Bond
Shipments Delivered Late (MO6) and the Monthly List of In-Bond
Shipments Overdue (MO7), are designed to notify ports of in-bond
shipments that are delivered late for exportation, are delivered late,
or are overdue for delivery.[Footnote 12] We found most of the ports we
visited had not regularly conducted these reviews since CBP increased
emphasis on security after September 11, 2001. Since issuance of a June
2006 CBP headquarters directive requiring ports to track exportation in-
bond transactions in a timely manner, most ports we visited had
reinstituted this type of review. Officials at ports we visited stated
that these reviews were very time consuming and labor intensive.
CBP officials observed that there are many systemic problems with the
existing data system (ACS) used to generate these monthly lists of in-
bond transactions needing reconciliation. Officials noted that some in-
bond transactions appearing as open on these reports have already been
closed. Port officials also noted the difficult and time-consuming
nature of working with the ACS system. For example, staff in the
Seattle Field Office explained that because of limitations with the
system, it took 50 working hours to extract the data we had requested
on the number of in-bond transactions at their port. Furthermore, some
of the data was incomplete and contained other limitations.
According to CBP officials, the ACS was originally designed in 1984 and
has been increasingly difficult and expensive to operate, maintain, and
enhance due to its antiquated hardware and software and limited
processing capacity. CBP is in the process of replacing ACS with the
ACE system in 11 increments, referred to as "releases," with a
scheduled completion in approximately 8 1/2 years. The first three
releases are deployed and operating, and the fourth release is
currently being deployed. Other releases are in various states of
definition and deployment. CBP headquarters officials stated that they
were aware of problems in ACS, but they cited restrictions placed on
funding for changes to the legacy ACS as impeding changes to the
system.
Regulations Provide Trade Flexibility but Complicate CBP's Monitoring
of In-Bond Movements:
CBP's in-bond regulations provide considerable flexibility for the
importer and shipping agents, but such flexibility complicates CBP's
monitoring of in-bond movements. Some CBP regulations governing in-bond
movements make it difficult for CBP officers at the ports to track in-
bond shipments and ensure their proper disposition. For example, under
the regulations an importer or shipping agent can initiate an in-bond
shipment by ground transport to one U.S. port and then decide to
initiate another in-bond transaction to transport that same cargo to
another U.S. port, allowing an additional 30 days to transport cargo.
When the cargo finally reaches its ultimate destination and the most
recent in-bond transaction is closed, all previous in-bond transactions
associated with that cargo remain open. In other cases, the regulations
allow an importer or shipping agent to transport cargo in-bond to a
U.S. border port, place it in a warehouse, and obtain a second in-bond
transaction for exportation once a buyer is located abroad. Depending
on the mode of transport, regulations currently allow bonded carriers
from 15 to 60 days to reach their final destination and allow them,
with some exceptions, to change a shipment's final destination without
notifying CBP. Port officials stated that this makes it impossible to
know whether an in-bond shipment arrived at its declared destination
until a record appears later on an unresolved in-bond report. For an in-
bond shipment moving, for example, from Los Angeles to Laredo intended
for export to Mexico, the importer or shipping agent may at the last
minute change the port used for export; the CBP staff at the new
destination port would not know that they should expect such shipments
and thus would not be able to whether ensure the shipments actually
exited the United States.
Administrative Errors Contribute to High Number of Open In-Bond
Records:
Administrative errors by shipping agents and by CBP staff contribute to
the high numbers of open in-bonds. According to CBP officials, most
open in-bond records remain unresolved because of administrative or
procedural errors. CBP officials said that carriers have high staff
turnover and do not provide personnel with adequate training in in-bond
procedures. For example, the in-bond system depends on importer and
shipping agents personnel to file the correct paperwork. For in-bond
transactions filed electronically, the system allows carriers and
brokers to initiate, process, and close in-bond transactions without
CBP involvement, and CBP officials told us that many of these
individuals do not follow the proper steps to close in-bond
transactions. For in-bond transactions that are filed in paper format,
CBP officers are responsible for closing them at the destination port
(where the cargo makes official entry). According to CBP, personnel
sometimes make administrative errors and do not properly close the in-
bond transactions or may not process the documents at all.
CBP Recently Issued Directives to Address Open In-Bond Records, but It
Is Too Early to Determine Their Effectiveness:
To address some of the issues surrounding open in-bond transactions, in
March 2006, CBP issued several directives to the field describing
systemic changes made to the in-bond section in ACS. The first of these
changes requires second-leg in-bond records[Footnote 13] to reference
the first leg of the in-bond movement so that when the second in-bond
transactions is closed, the first in-bond transactions will be closed
as well. The second change requires the bill-of-lading field on the in-
bond form to be filled in to facilitate the tracking of in-bond
shipments and ensure that the bill of lading and in-bond transactions
are posted and closed out. Furthermore, in June 2006, CBP issued a
directive requiring ports to track in-bond transactions in a timely
manner by monitoring records that appear on the system's monthly in-
bond status reports.
CBP Has Not Consistently Performed Its Compliance Measurement Program
Reviews and Has Not Used Its Results to Manage the Program:
CBP instituted a compliance measurement program in 1998 known as
Tinman[Footnote 14] to help track in-bond movements, protect revenues,
and perform risk assessments. However, ports do not consistently
perform the reviews required under the program and CBP headquarters
does not collect national data describing the results of these reviews.
Due to the inconsistent performance of the physical inspections and
post-audits called for by this system, as well as the limited
collection and use of the data these reviews provide, CBP is unable to
fully determine compliance within the in-bond system and therefore
potential trade and revenue risks associated with the system.
While conducting our port visits, we found that some ports just
recently began conducting physical examinations and completing post-
audits required under Tinman because they previously did not have the
resources available to support these duties after September 11, 2001.
Tinman was designed to improve the tracking and monitoring of in-bond
cargo by initiating compliance examinations of cargo and post-audits.
Every week, ports are supposed to query the system to determine if a
Tinman exam has been designated. After a port has been notified of an
exam or audit, the mechanics of the examination are left to the
discretion of the port.[Footnote 15] The Department of the Treasury
Inspector General and its' independent auditor noted in their fiscal
year 2002 financial audit that Tinman inspections and post-audits had
been suspended in fiscal year 2002 to allocate resources to other
mission objectives. Although we found the ports making efforts to
complete the Tinman exams during our audit work, the fact that the
ports were not completing these physical inspections and audits
suggests that CBP has not been able to effectively measure revenue gaps
or the effectiveness of controls over trade compliance to the in-bond
process.
Moreover, no policies or procedures exist at the headquarters level to
monitor or use the results of the Tinman inspections and audits to
improve the management of the system. For example, we made repeated
requests to CBP to obtain national data on the number of Tinman
inspections and post-audits that were generated, completed, and that
resulted in some sort of negative findings over the past 5 years, but
we were provided little information on the results of these audits and
no summary conclusions. We were also told that, at the headquarters
level, reports generated from Tinman are not routinely produced and
that there is no overall report that management could use to evaluate
trade compliance and determine overall risks to the in-bond system.
Therefore, CBP management would have to rely on a review of port-by-
port results, and it would be difficult and labor intensive to
determine if the results of the audits or inspections showed an overall
compliance issue.
Limited Information Collected on In-Bond Cargo Impedes CBP Efforts to
Manage Security Risks:
CBP does not collect detailed information on in-bond cargo that could
aid in identifying cargo posing a security risk and promote effective
use of inspection resources. CBP uses the Automated Targeting System
(ATS) as one mechanism within its multilayered security strategy for
monitoring cargo arriving at U.S. ports. Manifest information for all
cargo arriving at U.S. ports, including in-bond cargo, is part of the
ATS security score. For regular cargo, the ATS score is updated with
more detailed information as the cargo makes official entry at the
arrival port, but ATS scores are not updated for T&E in-bond cargo and
are not updated for IT in-bond goods until official entry occurs. As a
result, in-bond goods transit the United States without having the most
accurate ATS security score, posing a potential security risk, and
potentially misdirecting scarce inspection resources to goods that
otherwise would not warrant inspection.
Automated Targeting System Is Part of the CBP Multilayered Security
Strategy for Cargo Arriving at U.S. Ports:
CBP has developed a multilayered security strategy to manage the risk
associated with the movement of cargo, including in-bond cargo. The ATS
is a key component of this multilayered security strategy.[Footnote 16]
ATS is a complex model of weighted rules CBP officers use to help
decide which cargo to inspect. CBP uses ATS to review documentation for
arriving shipments and assign a risk score for each shipment arriving
in the United States. CBP officers located at the ports then use these
ATS scores to help decide on the need for and extent of cargo
inspections. We have previously reported on improvements needed in ATS
targeting of cargo inspections.[Footnote 17]
The CBP risk management strategy includes taking steps such as using
ATS to limit potential security risks without unduly interfering with
the flow of commerce. The Congress and the President have endorsed risk
management, which involves a strategy of helping policymakers make
decisions about assessing risks, allocating resources, and taking
actions under conditions of uncertainty. The CBP Fiscal Year 2006
Performance and Accountability Report states its priority mission in
part as "preventing terrorists and terrorist weapons from entering the
United States, while also facilitating the flow of legitimate trade and
travel." CBP uses ATS as part of its risk management strategy of
identifying cargo warranting inspection based on risk and maintains
that it would be impossible to inspect all arriving cargo without
disrupting the flow of commerce.
CBP Uses Manifest Information for All Cargo, Including In-Bond Cargo,
to Aid in ATS Scoring and in Prioritizing Inspections:
CBP uses information it receives on all cargo arriving at U.S. ports,
including in-bond cargo, as input for ATS scoring to aid in identifying
security risks and setting inspection priorities. Although the
requirements vary by mode of transportation (sea, air, rail, and
truck), federal law generally requires carriers to submit manifest
information prior to goods arriving at U.S. ports. For example, CBP
generally requires ocean carriers to submit manifest information to CBP
24 hours before cargo shipped in containers is loaded on a ship at a
foreign port.[Footnote 18] CBP requires air carriers to submit manifest
information at departure or 4 hours before arrival at a U.S. airport.
These cargo manifests are prepared by the carrier and are composed of
bills of lading, which include a description of the shipment. ATS
analyzes the electronic data related to individual shipments and ranks
them in order of risk to develop an ATS score for each shipment. CBP
officers located at the ports then use ATS scores to help them make
inspection decisions.
CBP adjusts the ATS score assigned to arriving cargo when it receives
the more detailed information for cargo making official entry at the
arrival port. For example, CBP would have an ATS score for sea cargo
arriving in Los Angeles based on the ship's manifest information but
would adjust the ATS score when more detailed information is included
on the entry documents. CBP generally requires importers and shipping
agents to provide entry documentation for items arriving in the United
States within 15 calendar days of arrival so that it is not warehoused
at the port indefinitely. This entry information often provides more
detailed information on contents than does the manifest information.
For in-bond cargo, such adjustments are made at the destination port,
or are not made at all for cargo that is intended to be exported.
Entry information sometimes changes the ATS security score from that
based on manifest information. CBP provided data for four major
ports[Footnote 19] comparing the ATS score given cargo based on the
bill of lading to the ATS score given after goods made official entry
(see fig. 6). This data show that for the four ports, the ATS score
based on the bill-of-lading information stayed the same an average of
30 percent of the time after being updated with entry information.
However, for the four ports, ATS scores increased an average of 23
percent of the time and decreased in an average of 47 percent of the
time. A higher ATS score can result in higher priority being given to
cargo for inspection than otherwise would be given based solely on the
bill-of-lading information. A lower ATS score can result in cargo being
given a lower priority for inspection and potentially shift inspection
resources to cargo deemed a higher security risk.
Figure 6: Change in ATS Target Score after Obtaining Entry Information
for Selected Ports:
[See PDF for image]
Source: GAO analysis of CBP data.
[End of figure]
In-Bond Cargo Transits the United States without an Updated ATS Score:
In-bond cargo transits the United States without an updated ATS
inspection priority score because it does not make official entry at
the arrival port, and in-bond documents do not contain detailed data
similar to entry documents used to update the ATS score. CBP officers
with security responsibilities at several of the ports we visited
observed that the lack of entry information for in-bond cargo meant
that they did not have additional information for ATS scoring that
would help them assess the need for inspection. Although in-bond cargo
is given an ATS score based on manifest information, this score is not
generally updated prior to the movement of these goods within the
United States. For example, the ATS scores for IT in-bond transactions,
which represent about 70 percent of all in-bond documents, are not
updated until the cargo makes official entry at another U.S. port. T&E
in-bond cargo, which represents about 22 percent of in-bond documents,
does not make official entry, so additional entry data are not
available to update an ATS score. The in-bond form, required for in-
bond movement, does not have the same level of detail contained in
entry documents, and data from the form is not used to update ATS
scores. As a result, in-bond goods transit the United States without
having the most accurate ATS security score, posing a potential
security risk, and potentially misdirecting scarce inspection resources
to goods that otherwise would not warrant inspection.
Conclusions:
In managing the in-bond system, CBP must strive to balance its goals of
facilitating the efficient movement of cargo, ensuring effective
revenue collection, and providing a secure trade environment. The in-
bond system's overall objective is to facilitate global and domestic
trade. However, the in-bond system poses risk to CBP's other goals of
revenue collection and trade security. CBP will be less able to fulfill
its revenue collecting responsibilities if in-bond goods are diverted
and make illegal entry without the payment of applicable taxes or trade
tariffs. CBP may also be less able to fulfill its trade-security
responsibilities because the information collected for in-bond
movements across the United States is less detailed than that collected
for goods entering at their arrival port.
We found that CBP's ability to assess and manage the risks of the in-
bond cargo system is impaired by both (1) the limited information it
collects on in-bond cargo and (2) the limited analysis it performs on
available information. With the tremendous volume of trade coming
through U.S. ports, CBP needs detailed information and accurate
monitoring systems to set priorities for targeting and tracking cargo
shipments that have security or revenue interest. However, CBP does not
currently collect detailed information on the value or type of in-bond
cargo being transported through U.S. ports; the in-bond form asks only
for a general description. As a result, CBP does not have the
information needed to set priorities for targeting and tracking cargo
moving within the in-bond program, so as to concentrate on cargo of
highest security, law enforcement, or revenue impact.
CBP has also failed to perform even the most basic analyses of
available information. CBP was not able to tell us, for example, the
extent of the system's use, what products are shipped in-bond, or what
shipments are expected for entry (and thus expected revenue collection
from applicable trade duties) at inland ports. Despite prior audit
recommendations, important management weaknesses persist in CBP's
tracking of in-bond cargo, with the result that CBP still does not know
whether in-bond cargo shipments of greatest security or revenue
interest are in fact entered into U.S. commerce or exported as
required. In particular, CBP continues to have high numbers of open in-
bond transactions with uncertain disposition.
CBP is currently addressing the requirements of the SAFE Port Act,
which focuses on many of the same issues discussed in this report. CBP
must submit a report to the Congress by June 30, 2007. In addition, CBP
is in the midst of a multiyear development of its new ACE system, which
it expects to have improved capability to track in-bond documents.
However, the system is not expected to be fully implemented before 4 to
5 years. CBP has also recently issued administrative directives to
improve in-bond document tracking. However, these directives address
only some of the in-bond system weaknesses. Therefore, we believe
several additional changes are needed in a timely manner to resolve
persistent weaknesses in the in-bond system, consistent with the SAFE
Port Act.
Recommendations:
To improve management of the in-bond program through better informed
decisions affecting trade, revenue collection, and security goals, we
recommend that the Secretary of Homeland Security, acting through the
CBP Commissioner, take the following actions:
1. With respect to collecting more detailed information on in-bond
cargo,
* For all in-bond goods to be eligible for a consumption entry into the
United States, require additional information on the in-bond form (CBP
Form 7512) at the time of arrival. This information should include data
elements that provide a more precise description of the cargo and that
further identify the entities involved in the movement of these goods.
As part of this effort, CBP should--6 months after implementation of
new data requirements--report to Congress whether the enhanced data
obtained are adequate to address security and trade concerns for in-
bond transactions or whether current CBP authority should be adjusted.
* For all goods to be exported, revise the in-bond form (CBP Form 7512)
to include the six-digit code from the Harmonized Commodity Coding and
Classification System (Harmonized System).
* Use information collected in the revised in-bond form to ensure that
the new ACE system can generate reports useful to CBP management in
making prioritized, risk-based management decisions related to revenue
and security risks.
* Use information from the revised in-bond form as input to the Cargo
Selectivity process at the arrival port instead of limiting this
process to cargo that has made entry for consumption, to ensure that in-
bond shipments are adequately tracked between the arrival and
destination ports.
* Use information from the revised in-bond form to update ATS security
scores for in-bond movements at the arrival port instead of delaying
this process until after cargo has been transported through the United
States to the destination port.
2. With respect to improving monitoring of cargo moving within the in-
bond system,
* Conduct an analysis of the extent of use of the in-bond system and
the patterns of shipments within the system.
* Assess the systemic problems causing open in-bond transactions and
impeding their identification. Make adjustments to ACE and provide
appropriate tools to eliminate these problems and improve the capacity
of CBP officers, importers, and shipping agents to track and close open
in-bond transactions.
* Revise in-bond regulations to reduce the time allowed for
transporting cargo and to limit the ability of carriers to change the
final destination for cargo without CBP knowledge.
* Develop a more systematic enforcement strategy to increase bondholder
compliance in closing out open in-bond transactions within required
time frames.
* Prioritize closing in-bond records for shipments with high potential
risks of security, law enforcement, and revenue loss, using updated
information from the in-bond form.
3. To make the in-bond compliance measurement program a more effective
tool for monitoring compliance with in-bond regulations,
* Ensure that the current compliance measurement program (Tinman) or
any updated commercial compliance tool is consistently conducted by the
ports so as to inform CBP national and port management of needed
corrective actions.
Agency Comments and GAO Response:
We provided a draft of this report to DHS for review by CBP and ICE. We
received official written comments from DHS, which are printed in
appendix II. We made 11 recommendations to improve the management of
the in-bond system in three general areas (1) improving the level of
information available on in-bond cargo, (2) improving monitoring of in-
bond cargo, and (3) improving the efficiency of in-bond compliance
measurement programs. DHS agreed with seven of our recommendations,
disagreed with three, and stated that one has already been implemented.
DHS also provided technical comments, which we have incorporated in
this report as appropriate.
Regarding the first area of recommendations--for improving the level of
information available on in-bond cargo--DHS agreed with three of our
recommendations and disagreed with two. DHS agreed with our
recommendation to revise the in-bond form to contain more information,
with respect to goods that are to be exported. DHS also agreed with the
recommendation that CBP ensure that the new ACE system can generate
reports useful to CBP in making prioritized, risk-based management
decisions related to revenue and security risks. Additionally, DHS
agreed with the recommendation that it use information from the revised
in-bond form to update ATS security scores for in-bond movements at the
port of arrival instead of delaying this process until after the cargo
has been transported through the United States to the destination port.
However, DHS disagreed with our recommendation to require the 10-digit
HTS number for in-bond cargo to be eligible for import into the United
States. DHS stated that this would lead to a major legal problem and
represent a revolutionary change in the in the way in-bond business is
done. DHS stated that requiring the10-digit HTS number would require
Customs Brokers to file in-bond entries and bar carriers from doing so.
DHS stated that cost to the owner of the goods would rise because of
the mandated added party to the filing. We remain concerned that in-
bond cargo routinely transits the United States without a detailed
description of the cargo and the entities involved in the movement of
these goods. Therefore, we have revised our recommendation to call for
additional information to be collected for all in-bond goods to be
eligible for a consumption entry into the United States, in lieu of the
10-digit HTS number. This information should include data elements that
provide a more precise description of the cargo and that further
identify the entities involved in the movement of these goods. In
addition, we recommend that--6 months after the implementation of these
new data requirements--CBP report to Congress whether the enhanced data
obtained are adequate to address security and trade concerns for in-
bond transactions or whether its current authority should be adjusted.
DHS also disagreed with our recommendation that revised in-bond
information should be used in CBPs' Stratified Compliance Examination
and Cargo Selectivity processes. DHS stated that these exams apply only
to cargo for which official entry has been made. We revised this
recommendation to focus on using the additional information in CBP's
Cargo Selectivity process. CBP's current inability to track in-bond
shipments and the examples of notable trade and revenue violations
including in-bond cargo provide strong evidence of the need to identify
potential trade and revenue risks for in-bond cargo. The revised
recommendation indicates that CBP should use information from the
amended in-bond form as input to the Cargo Selectivity process at the
arrival port instead of limiting this process to cargo that has made
entry for consumption.
Regarding the second area of recommendations--for improving the
monitoring of in-bond cargo--DHS agreed with three of our
recommendations, stated that one has already been implemented, and
disagreed with one. DHS agreed to conduct an analysis of the extent of
the in-bond system and patterns of shipment within the system. DHS also
agreed that a systematic assessment of problems causing open in-bond
transactions should be used to improve ACE and assist CBP officers and
the trade in closing in-bond transactions. DHS agreed with our
recommendation and is planning to revise in-bond regulations to reduce
the time allowed for transporting cargo and to limit carriers' ability
to change the final destination for in-bond cargo.
Regarding our recommendation to develop requirements, including
penalties to ensure that bondholders close in-bond documents, DHS
responded that these requirements already exist. We note, however, that
the high number of open in-bond transactions indicates a persistent
problem. We modified the wording of this recommendation to emphasize
that CBP should develop a more systematic enforcement strategy in order
to increase bondholder compliance in closing out open in-bond
transactions within required time frames.
DHS disagreed with our recommendation to prioritize their activities
related to closing open in-bond transactions with potentially high
security, law enforcement, and revenue risks. DHS stated that they
already employ risk-based targeting for all shipments, including in-
bond cargo. However, we did not observe CBP efforts to prioritize
closing open in-bond transactions based on risk. Open in-bond
transactions appear on CBP reports without any designation of the
importance of individual records. With limited resources available, we
believe that CBP should prioritize its monitoring of open in-bond
transactions to those that pose the most significant risks to revenue
collection and other trade risks, and so we have not modified our
recommendation.
With respect to the third area of recommendations--for improving CBP's
compliance measurement program--DHS agreed with our recommendation to
ensure that the program is consistently conducted by the ports. DHS
stated that CBP management will issue updated guidance to the field
emphasizing the importance of conducting these audits in a timely
manner and accurately reporting their findings.
In our recommendations, we attempted to find a balance between the
commercial interests of the various parties involved in international
trade and the CBP requirements for information and structure in order
to ensure that security goals, as well as revenue and law enforcement
goals, are achieved. One of the persistent challenges of the in-bond
program is that the unusual flexibility that the program provides to
the trade community--the limited information required, the time periods
and lax notification requirements for shipments transiting the United
States, and the ability to use multiple in-bond transactions for a
single shipment--all exacerbate the challenges for CBP in performing
its security and trade enforcement duties.
As the report details, persistent weaknesses in the in-bond system
existed long before customs functions shifted to DHS and now create new
challenges for DHS in ensuring security of shipments entering the
United States. While DHS disagrees with three of our recommendations,
we believe that the evidence of weakness in the system overwhelmingly
demonstrates that a coherent set of modifications is needed.
As agreed with your office, unless you publicly announce the contents
of this report earlier, we plan no further distribution until 30 days
from the report date. At that time, we will send copies of this report
to interested congressional committees as well as the Secretary of
Homeland Security. We will also make copies of this report available to
others upon request. In addition, the report will be available at no
charge on the GAO Web site at http://www.gao.gov.
If you or your staff have any questions about this report, please
contact me at (202) 512-4347 or yagerl@gao.gov. Contact points for our
Office of Congressional Relations and Public Affairs may be found on
the last page of this report. GAO staff who made major contributions to
this report are listed in appendix III.
Signed by:
Loren Yager, Director:
International Affairs and Trade:
[End of section]
Appendix I: Objectives, Scope, and Methodology:
To determine how the in-bond program addresses its trade, revenue, and
cargo security functions, we examined relevant documents and conducted
interviews to answer the following questions: (1) What is the in-bond
system and to what extent is it used? (2) How has Customs Border
Protection (CBP) managed the system to ensure that revenues are
collected and trade concerns are minimized? and (3) How has CBP managed
the system to ensure that security-related inspections are properly
targeted?
To obtain an understanding of the CBP in-bond system and assess the
extent of its use, we analyzed laws, regulations, and relevant CBP
policies, procedures, and related documents. We interviewed officials
and examined documents at CBP headquarters and at six district port
offices, including Buffalo, New York; Los Angeles/Long Beach,
California; Laredo, Texas; Miami, Florida; New York, New York /Newark,
New Jersey; and Seattle, Washington. Our work at the Seattle port
district office included work at its Blaine, Washington, border port.
We also visited the Port of Dallas, Texas, which is a major inland
destination port for in-bond goods. We also discussed industry views of
the in-bond program with the National Brokers and Forwarders
Association of America, Association of American Railroads, American
Trucking Association, and National Association of Foreign Trade Zones.
The six CBP district offices we visited processed the greatest numbers
of noncourier in-bond transactions from October 2004 to March 2005. We
used data from this period because CBP officials stated that they had
recently assembled data for this period and that would pose a
substantial work load for them to obtain more recent 2006 data.
To determine how CBP has managed the system to address revenue and
trade concerns, we examined in-bond guidance, policies, procedures, and
practices at CBP headquarters and at the ports visited. To identify
previously identified weaknesses in CBP's management of trade and
revenue concerns related to the in-bond program, we examined audit
reports by GAO, DHS Inspector General and public accounting firms. We
noted internal control weaknesses in the in-bond program identified in
previous audit reports and discussed these weaknesses with CBP
headquarters and port officials. We discussed views of CBP headquarters
and port management personnel regarding any trade related and revenue
risks associated with processing in-bond cargo and discussed actions
taken to address these risks. We reviewed our previous work that
assessed CBP's data reliability and internal controls. We found some
inconsistencies between various data sets we received and reported
these inconsistencies to CBP. These inconsistencies, however, did not
indicate major discrepancies in the data, and for purposes of reporting
on general in-bond issues, we found CBP's data sufficiently reliable.
To determine how CBP has managed the system to ensure that security-
related inspections are properly targeted, we examined CBP procedures
for targeting security inspections of in-bond cargo and discussed these
practices at CBP headquarters and at the ports visited. To assess the
impact of not having entry information for in-bond cargo, we obtained
data showing the impact of this information on the ATS security score
assigned. We discussed views of CBP headquarters and port management
personnel on security-related concerns associated with in-bond
processing.
We conducted our work from January 2006 through February 2007 in
accordance with generally accepted government auditing standards.
[End of section]
Appendix II: Comments from the Department of Homeland Security:
Note: GAO comments supplementing those in the report text appear at the
end of this appendix.
U.S. Department of Homeland Security:
Washington, DC 20528:
April 2, 2007:
Mr. Loren Yager:
Director, International Affairs and Trade:
U.S. Government Accountability Office:
441 G Street, NW:
Washington, DC 20548:
Dear Mr. Yager:
RE: Draft Report GAO-07-561, International Trade: Persistent Weaknesses
in the In-Bond Cargo System Impede Customs and Border Protection's
Ability to Address Revenue, Trade, and Security Concerns (GAO Job Code
320369):
The Department of Homeland Security (DHS) appreciates the opportunity
to review and comment on the draft report referenced above. The
Government Accountability Office (GAO) makes eleven recommendations to
improve management of the in-bond program through better informed
decisions affecting trade, revenue collection, and security goals. We
agree with seven recommendations, disagree with three, and believe one
should be closed as implemented.
GAO makes three broad recommendations to the Secretary and the
Commissioner of U.S. Customs and Border Protection (CBP). First, with
respect to collecting more detailed information on the type and value
of in-bond cargo, GAO recommends that:
Recommendation 1.1: For all goods to be eligible for import into the
United States require additional information at the time of arrival
(i.e. the 10-digit Harmonized Trade Schedule number and more accurate
value information).
We disagree with the recommendation. Requiring 10-digit information and
more accurate value information at the time of arrival leads to a major
legal problem in that providing such detailed entry information will
rise to the level of Customs business as provided by 19 USC 1641. If
that is the case, only Customs brokers will be allowed to file in-bond
entries and carriers will be barred from doing so. That will cause a
revolutionary change in the way that in-bond business is done and will
involve considerable pushback from the carrier community. Costs to the
owner of the goods will rise because of the mandated added party to the
filing. Under current law, in-bond entries are specifically exempted
from Customs business as stated in 19 CFR 111.2.
Recommendation 1.2: For all goods to be exported, revise the in-bond
form (CBP Form 7512) to include the six-digit code from the Harmonized
Commodity Coding and Classification System (Harmonized System).
We agree with the recommendation. CBP personnel are amending 19 CFR
Part 18. The first draft of the new in-bond regulations should be
issued in March 2008.
Recommendation 1.3: Use information collected in the revised in-bond
form to ensure that the new Automated Commercial Environment (ACE)
system can generate reports useful to CBP management in making
prioritized, risk-based management decisions related to revenue and
security risks.
We agree with the recommendation. Full ACE deployment is expected by
December 2011.
Recommendation 1.4: Use information from the revised in-bond form to
initiate the Stratified Compliance Examination and Cargo Selectivity
process for in-bond movements at the arrival port instead of delaying
this examination until after the cargo has been transported through the
United States to the port of formal entry or exportation.
We disagree with the recommendation. Stratified Compliance Examinations
are 100% randomly generated trade exams that only apply to cargo for
which formal entry has been made. For in-bond cargo, formal entry is
not made until the cargo arrives at the port of destination. All in-
bond cargo is screened for terrorism risk through the Automated
Targeting System, and any high-risk cargo is already designated for
inspection at the initial port of arrival. Export cargo is not subject
to Stratified Compliance Examinations because no formal entry is ever
made. Stratified Compliance Examinations do not enhance anti-terrorism
efforts.
Recommendation 1.5: Use information from the revised in-bond form to
update Automated Targeting System security scores for in-bond movements
at the port of arrival instead of delaying this process until after
cargo has been transported through the United States to the destination
port.
We agree with the recommendation. CBP however will not be able to
implement this recommendation until after new regulations have been
approved and published. The first draft of the regulation changes is
due March 31, 2008.
Second, GAO recommends that with respect to improving monitoring of
cargo moving within the in-bond system, CBP officials:
Recommendation 2.1: Conduct an analysis of the extent of use of the in-
bond system and the patterns of shipments within the system.
We agree with the recommendation. CBP personnel will conduct an
analysis to determine the percentage of in-bond shipments by type and
will determine patterns that identify destination and origination
ports. An estimated time for completion is the end of February 2008.
Recommendation 2.2: Assess the systemic problems causing open in-bond
transactions and impeding their identification. Make adjustments to ACE
(Automated Commercial Environment) and provide appropriate tools to
eliminate these problems and improve the capability of CBP officers,
importers and shipping agents to track and close open in-bond
transactions.
We agree. CBP's Office of Field Operations has identified numerous
systemic causes of in-bonds remaining in an open status, and forwarded
these to CBP's Office of Information and Technology via memorandums in
August 2006 and October 2006. The assessment is already completed. Full
ACE deployment is expected by December 2011.
Recommendation 2.3: Revise in-bond regulations so as to reduce the time
allowed for transporting cargo and to limit the carriers' ability to
change the final destination for cargo without CBP knowledge.
We agree. CBP is amending 19 CFR Part 18. The first draft of the
regulation changes is due March 31, 2008.
Recommendation 2.4: Develop requirements, including penalties, to
ensure that bondholders close in-bond documents within required
timeframes.
CPB has met the intent of the recommendation and it should be closed.
These requirements already exist, as includes punishment provisions in
the form of liquidated damages, as provided for in 19 CFR 18.2, 19 CFR
18.8, and elsewhere.
Recommendation 2.5: Prioritize closing in-bond records for shipments
with high potential risks of security, law enforcement, and revenue
loss, using updated information from the in-bond form.
We disagree with the recommendation. CBP already employs risk based
targeting for all shipments, including those destined for in-bond, and
will continue to refine this targeting with regulation changes and
system improvements, to ensure that all in-bond are properly closed.
Third, in order to make the in-bond compliance measurement program a
more effective tool for monitoring compliance with in-bond regulations,
GAO recommends that CBP officials ensure that the current compliance
measurement program (TINMAN) or any updated commercial compliance tool
is consistently conducted/used by the ports so as to inform CBP
national and port management of needed corrective actions.
We agree. CBP will issue updated guidance to the field emphasizing the
importance of conducting these audits timely and accurately reporting
their findings.
Technical comments will be provided under separate cover. Sincerely,
Sincerely,
Signed by:
Steven J. Pecinovsky:
Director:
Departmental GAO/OIG Liaison Office:
The following are GAO's comments on the Department of Homeland Security
letter dated April 2, 2007.
GAO Comments:
1. We remain concerned that in-bond cargo routinely transits the United
States without detailed descriptive information and may pose trade,
revenue and security risks. However, in recognition of the legal
concerns raised by DHS, we revised our recommendation to obtain
additional information on in-bond cargo without requiring the 10 digit
HTS number. In addition, we recommended that CBP--after 6 months of the
implementation of new data requirements--report to Congress whether the
enhance data obtained are adequate to address security and trade
concerns or whether their current authority needs to be adjusted.
2. We revised this recommendation to focus on using the additional
information in CBPs' Cargo Selectivity process. Since the Stratified
Compliance Examination represents a randomly generated trade compliance
exam at cargo entry, CBP can develop similar information for in-bond
cargo when it implements our recommendation to improve it's Tinman
compliance measurement program. The revised recommendation indicates
that CBP should use information from the amended in-bond form as input
to the Cargo Selectivity process at the arrival port instead of
limiting this process to cargo that has made entry for consumption.
3. We modified the wording of this recommendation to state that CBP
should develop a more systematic enforcement strategy in order to
increase bondholder compliance in closing out open in-bond
transactions. Although CBP has authority to issue penalties to
bondholders for failure to close in-bond transactions, we noted a high
number of open in-bond transactions at many CBP ports. CBP should
consider strengthening its regulations to clearly communicate to
bondholders their responsibility to close open in-bond transactions and
increase enforcement of requirements to reduce the number of open in-
bond transactions.
4. We did not observe CBP efforts to prioritize closing open in-bond
transactions based on the potential risk. Open in-bond records appear
on CBP reports without any designation of the importance of individual
records. With limited resources available, CBP should place a high
priority on monitoring and closing open in-bonds transactions that pose
the most significant risks.
[End of section]
Appendix III: GAO Contact and Staff Acknowledgments:
GAO Contact:
Loren Yager, (202) 512-4128, or yagerl@gao.gov:
Staff Acknowledgments:
In addition to the individual named above, Virginia Hughes, Assistant
Director; Francisco Enriquez; Timothy Fairbanks; and Jessica Kaczmarek;
made significant contributions to this report. Ernie Jackson, Karen
Deans, Etana Finkler, and Stan Kostyla also provided assistance.
FOOTNOTES
[1] The term "official entry" is used throughout this report to refer
to the CBP process where importers or shipping agents are required to
provide accurate appraisement and description of goods, as well as
other detailed entry information for goods intended for consumption in
the United Stated. Through this process CBP also assesses appropriate
duties and taxes on imported goods that will enter the U.S. Commerce.
[2] The carrier has 60 days by vessel, 30 days by land, and 15 days by
air to deliver the in-bond cargo to the port of destination or
exportation. (19 C.F.R. 18.2 and 19 C.F.R. 122.118.)
[3] Sections 552 and 553 of the Tarriff Act of 1930, as amended (19
U.S.C. 1552 and 1553).
[4] GAO, Information Technology: Customs Has Made Progress on Automated
Commercial Environment System, but It Faces Long-Standing Management
Challenges and New Risks, GAO-06-580 (Washington, D.C.: May 31, 2006).
[5] Two separate GAO reports completed in 1994 found that Customs could
not readily determine the disposition of in-bond shipments. GAO,
Financial Management: Control Weaknesses Limited Customs' Ability to
Ensure That Duties Were Properly Assessed, GAO/AIMD-94-38, (Washington,
D.C.: Mar. 7, 1994) and GAO, Financial Audit: Examination of Customs'
Fiscal Year 1993 Financial Statements GAO/AIMD-94-119, (Washington,
D.C.: June 15, 1994).
[6] On March 1, 2003, the U.S. Customs Service was transferred to the
new Department of Homeland Security and became part of U.S. Customs and
Border Protection (CBP).
[7] For merchandise that is admitted into a bonded warehouse or FTZ,
duties and taxes are deferred until the goods are withdrawn for
consumption. Goods may also be withdrawn from a bonded warehouse for
export, thereby avoiding the payment of U.S. duties and taxes. Goods
admitted to an FTZ may be further processed and incorporated into new
products, such as automobiles or refined petroleum products.
[8] Among the activities permitted in an FTZ are assembly or
manufacturing of merchandise, as well as storing, packaging, and
processing of cargo.
[9] While there is a value field on the in-bond form (CBP Form 7512),
the value provided is most often what CBP describes as a "shipper's
valuation" for insurance purposes and not the actual value of goods.
[10] The official entry summary (CBP Form 7501) is used to complete the
entry for consumption and determine and collect duties and taxes on
goods imported into and intended for consumption in the Unites States.
[11] The HTS of the United States is the primary resource used by CBP
for determining tariff classification for goods imported into the
United States. HTS classifies a good by assigning a 10 digit tariff
classification number, based on such things as its name and use,
providing CBP detailed information to identify items entering the
United States. The HTS is based on the international Harmonized
Commodity Coding and Classification System (Harmonized System) six-
digit code, which has been establish by the World Customs Organization
and is used as the base for the tariff schedule for most countries.
[12] The MO reports provide the ports with data on paperless and
conventional in-bond movements that are overdue (MO7), delivered late
(MO6), or delivered late for export (MO2). In-bond movements that are
considered overdue will appear on the MO7 report if they have not
arrived at the destination port within 90 days of departure. In-bond
movements that have not been exported by the expiration of the lay
order period in the destination port will appear on the MO2 report and
should receive priority, according to the OFO Guide for In-bond Cargo
handbook.
[13] Cargo for which a second in-bond is issued after it reaches the
port where it is expected to enter U.S. commerce or be exported.
[14] Originally, the Tinman module in ACS was designed in response to a
1994 GAO report, where we found that the U.S. Customs Service did not
have a reliable means of monitoring the movement of in-bond shipments
from one port to another because the data were not properly maintained.
GAO, Financial Management: Control Weaknesses Limited Customs' Ability
to Ensure That Duties Were Properly Assessed (GAO/AIMD-94-38, Mar. 7,
1994).
[15] Headquarters staff assign the Tinman exams and post-audits on a
weekly basis. They determine the ports where the exam is to be
conducted, the in-bond type, and whether the tasking is a destination
or origin exam. In the case of post-audits, the specific in-bond number
that is to be reviewed will also be provided. After the Tinman exams
are assigned, it is at the discretion of the ports to determine the
mechanics of the exam (e.g., which bond is to be reviewed, which
station, etc.)
[16] Other features of CBP's multilayer security strategy include a
compliance measurement program that supplements ATS by randomly
selecting shipments to be inspected to determine whether the shipment
complies with supply chain security and trade laws; the Container
Security Initiative (CSI) whereby CBP places staff at foreign ports to
work with foreign counterparts to inspect high-risk cargo before it is
shipped to the United States; and the Customs-Trade Partnership Against
Terrorism (C-TPAT), which is a cooperative program between CBP and
members of the international trade community in which private companies
agree to take action to improve the security of their supply chains.
[17] GAO, Homeland Security: Summary of Challenges Faced in Targeting
Oceangoing Cargo Containers for Inspection, GAO-04-557T (Washington,
D.C.: Mar. 31, 2004).
[18] Cargo manifest transmission requirements are located in
regulations promulgated under Section 343 of the Trade Act of 2002,
Pub. L. No. 107-210, as amended by section 108 of the Maritime
Transportation Security Act of 2002, Pub. L. No. 107-295. Cargo
manifests are prepared by the carrier and are composed of bills of
lading for each shipment loaded on a vessel to describe the contents of
the shipments. Bills of lading are documents issued by a carrier
describing the goods, the details of the intended voyage, and the
conditions of transportation. Under 19 C.F.R. § 4.7(b)(4), ocean
carriers carrying bulk and break bulk cargo are not required to submit
a manifest 24 hours before the cargo is loaded at a foreign port,
provided, in the case of break bulk cargo, that they receive an
exemption from CBP. Rather, these ocean carriers must present their
manifests 24 hours prior to arrival in the United States if they use
CBP's Automated Manifest System (AMS), a system designed to control
imported merchandise from the time the carrier's cargo manifest is
submitted to CBP until the cargo is properly entered and released by
CBP. If a carrier does not use AMS, the carrier must submit the
manifest to CBP upon arrival.
[19] The four major ports included in the CBP analysis were Los
Angeles, Long Beach, Newark, and New York.
GAO's Mission:
The Government Accountability Office, the audit, evaluation and
investigative arm of Congress, exists to support Congress in meeting
its constitutional responsibilities and to help improve the performance
and accountability of the federal government for the American people.
GAO examines the use of public funds; evaluates federal programs and
policies; and provides analyses, recommendations, and other assistance
to help Congress make informed oversight, policy, and funding
decisions. GAO's commitment to good government is reflected in its core
values of accountability, integrity, and reliability.
Obtaining Copies of GAO Reports and Testimony:
The fastest and easiest way to obtain copies of GAO documents at no
cost is through GAO's Web site (www.gao.gov). Each weekday, GAO posts
newly released reports, testimony, and correspondence on its Web site.
To have GAO e-mail you a list of newly posted products every afternoon,
go to www.gao.gov and select "Subscribe to Updates."
Order by Mail or Phone:
The first copy of each printed report is free. Additional copies are $2
each. A check or money order should be made out to the Superintendent
of Documents. GAO also accepts VISA and Mastercard. Orders for 100 or
more copies mailed to a single address are discounted 25 percent.
Orders should be sent to:
U.S. Government Accountability Office 441 G Street NW, Room LM
Washington, D.C. 20548:
To order by Phone: Voice: (202) 512-6000 TDD: (202) 512-2537 Fax: (202)
512-6061:
To Report Fraud, Waste, and Abuse in Federal Programs:
Contact:
Web site: www.gao.gov/fraudnet/fraudnet.htm E-mail: fraudnet@gao.gov
Automated answering system: (800) 424-5454 or (202) 512-7470:
Congressional Relations:
Gloria Jarmon, Managing Director, JarmonG@gao.gov (202) 512-4400 U.S.
Government Accountability Office, 441 G Street NW, Room 7125
Washington, D.C. 20548:
Public Affairs:
Paul Anderson, Managing Director, AndersonP1@gao.gov (202) 512-4800
U.S. Government Accountability Office, 441 G Street NW, Room 7149
Washington, D.C. 20548:
