Details from DHS' Report on Audit Finding of Weak CBP Financial Controls Affecting Drawback, Info Technology, Etc. (Part II - Drawback)

This is Part II of a multi-part series of summaries of this report and provides an overview of the report's findings regarding CBP's FY 2007 deficiencies¹ in the area of drawback. The report indicates that drawback was also found to be a deficiency in FY 2006. See future issues of ITT for additional summaries.

High Risk of Fraudulent/Erroneous Drawback Claims Due to Lack of Automation, Etc.

The auditors identified a number of weaknesses related to CBP's internal controls over drawback, noting that much of CBP's drawback process is manual, placing an added burden on limited resources. The auditors also stated that while CBP used a sampling approach to compare, verify, and match consumption entry and export documentation to drawback claims submitted by importers, system and procedural limitations decreased the effectiveness of this approach. The auditors concluded that the inherent risk of fraudulent claims or claims made in error was high, which increased the risk of erroneous payments.

The auditors detailed these weaknesses as follows:

Lack of automated controls - the Automated Commercial System (ACS) lacked automated controls to detect and prevent excessive drawback claims and payments, necessitating inefficient manual processes that do not effectively compensate for the lack of automated controls. ACS did not have the capability to compare, verify, and track essential information on drawback claims to the related underlying consumption entries (UCEs) or export documentation upon which the drawback claim was based.

Problem with deemed-liquidated entries - ACS lacked controls to prevent overpayment of drawback claims at the summary line level that were subject to the deemed liquidation process put in place during FY 2006. CBP does not have the capability to determine the total drawback overpayments as the result of deemed-liquidation.

Unknown amount of overclaims - drawback review policies did not require drawback specialists to review all or a statistically valid sample of prior drawback claims against the UCE to determine whether, in the aggregate, an excessive amount was claimed. CBP has no absolute assurance that a selected import entry is not being over-claimed by different drawback claims.

Invalid statistics - CBP drawback review policy and procedures allowed drawback specialists, with supervisory approval, to judgmentally decrease the number of UCEs randomly selected by ACS for review, thus decreasing the review's effectiveness. CBP implemented a new sampling methodology for selecting UCEs, which the auditors concluded was not considered to be statistically valid.

Insufficient document retention period - the initial period for document retention related to a drawback claim is only 3 years from the date of payment. However, there are several situations that could extend the life of the drawback claim well beyond three years.

Auditor Recommendations to CBP to Improve Controls Over Drawback

In response to the problems outlined above, the auditors recommended that CBP take the following actions:

• implement effective internal controls over drawback claims as part of any new systems initiatives, including the ability to compare, verify, and track essential information on drawback claims to the related underlying consumption entries and export documentation for which the drawback claim is based, and identify duplicate or excessive drawback claims;
• implement automated controls within ACS to prevent overpayment of a drawback claim that is subject to deemed-liquidation;
• work with ACE developers to eliminate the need for statistical sampling of UCEs and prior related drawback claims as drawback claims;
• explore other statistical approaches until ACE is implemented; and
• work with Congress to lengthen document retention period.

¹The audit characterizes drawback as a significant deficiency that is also considered to be a material weakness. (See Part I of this series of summaries for the auditor's definitions of significant deficiency and material weakness.)

(See ITT's Online Archives or 12/20/07 news, 07122005, for Part I of BP's multi-part series of summaries on this report.)

DHS OIG report entitled "CBP's FY 2007 Internal Controls" (OIG-08-15, dated November 2007) available at http://www.dhs.gov/xoig/assets/mgmtrpts/OIG_08-15_Nov07.pdf.