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Principles of

IMPORT AUDIT

Compliance Series By Clement Key

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COMPLIANCE MANUAL SUPPORT Factors to consider in a strong compliance system. 1. Whether the company has performed a meaningful risk analysis. 2. The existence of a formal written compliance program. 3. Whether appropriate senior organizational officials are responsible for overseeing the export (applies to Import also) compliance program. 4. Whether adequate training is provided to employees. 5. Whether the company adequately screens its customers and transactions. 6. Whether the company meets recordkeeping requirements. 7. The existence and operation of an internal system for reporting import/export violations. 8. The existence and result of internal/external reviews or audits. 9. Whether remedial activity has been taken in response to import/export violations. Self Audit (Internal Audit) Point 1 & 8 above . By performing and making determinations, you can accomplish 2 of the Manual points and in fact show the strengths or weaknesses. Some prior CBP Audit findings of interest and weakness (not all-inclusive) follow: Don’t Repeat (AVOID) 1. Manufacturing assists. 2. Supplemental Payments 3. Non-dutiable costs. 4. Merchandise classification. 5. American Goods Returned. 6. Use of American components. 7. Related-party transactions. 8. Buying commissions. 9. Record keeping. USE FOR TRAINING IMPORT COMPLIANCE. USE TO DIAGNOSE RISK. ESTABLISH CONTROL ENVIRONMENT.

Systemic Risk - Probability of loss or failure common to all members of entire system. Non-systemic – not universal across system but could happen. NOTE: The Trade Act of 2002 (“the Act”) was signed by President Bush on August 6, 2002. The Act contains a provision (Section 382) to offset duty overpayments with duty underpayments on liquidated entries during audits. The Act must be considered when computing actual or projected revenue loss.

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TOC Preparation Self-Audit Assessment Survey Section 1 Organization, Policy, Procedures

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Section 2 –Valuation of imported merchandise? Related Party Risk

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Statutory Additions Risk

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Section 3- Classification Section 4- 9801 Section 5- 9802 Section 6- GSP/FTA

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Section 7- NAFTA Section 8- AD/CVD Section 9- Intellectual Property Rights

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Other documentation to review Compliance Manual Components (Effective) Organization Chart

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IMPORT Audit – Planning & Implementing I. Control Environment II. Risk Assessment III. Control Procedures

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IV. Information & Communication V. Monitoring VI. Miscellaneous Electronic Data Exhibit 2B Focused Assessment Program Record System Link to People involved in Import

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Internal Control Assessment Areas Assessment Compliance Testing A. Classification

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B. Transaction Value C. Special Trade Programs/Special Duty

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Special Indicators C. 1 GSP C. 2 CBI (CBERA) & CBPTA C.3 Andean Trade C. 4 Israel Free Trade C. 5 Insular Possessions

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C. 6 All FTA Listed page C. 7 9801.00.10

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C. 8 9802.00.40 & 50 C. 9 9802.00.60

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C. 10 9802.00.80 D. Antidumping/CVD Best Practices

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E. Freign Trade Zones E.1 Quota/VISA

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F. Transshipment G. Bonded Warehouse

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H. Additional Sampling Issues Security

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ISF Problems CBP Enforcement 10 + 2

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RECAP Audit Points Import Control Procedures RED FLAGS

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Training

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Reference Materials

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Marking CBP Priority Issues Entry Type Risk

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How To References Errors Risk Assessment ESS QUERY

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Definition of Internal Control Relationship Between Objectives and Components

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Objectives Components Entity All of these are a system of internal control Benefits of Internal Control Assessments

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Assessing Risk Evaluating Internal Controls

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Assessing Risk Exposure

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Significance and Sensitivity Susceptibility

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Existence of any “Red Flags” Management Support

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Competent Personnel Assessing the Effectiveness of Internal Control System Identifying Controls

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Known Control Effectiveness Assessing Control Design

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Assessing Control Implementation Proper Transaction Documentation Determining Reliability of Computer-Processed Data Reporting on Internal Control Assessments

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How to Assess Internal Controls Internal Control Component Risk Assessment Control Activities

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Information and Communications Monitoring

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Control Environment Commitment to Competence Management’s Philosophy & Operating Style

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Organizational Structure Assignment of Authority and Responsibility Human Resource Policies and Practices Oversight Groups

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Risk Assessment Internal Control Point Risk Identification

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Managing Risks During Change Internal - Control Activities

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Internal - General Application

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TOC


Internal - Common Categories of Control Activities Internal Control Point

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Information and Communications Internal - Information

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Forms and Means of Communication Monitoring On Going Monitoring

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Separate Evaluations Audit Resolution

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Internal Control Interviewing Process Control Risk

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Control Risk Information & Communication Monitoring

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Example to Follow

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INTELLECTUAL PROPERTY RIGHTS (IPR)

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Red Flags

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Best Practices Documents & Information to Review Risk Assessment and Internal Review Risk Internal Control

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Testing Source Focus Assessment CBP Go to CBP Focus Assessment for other details on NAFTA steps and other FTA areas to perform reviews.

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CBP 7501

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7501 Instruction TOC

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Instructions to Broker & Audit review

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Entry Audit Checklist Review

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Preparation for Self-Audit Following is basically from CBP with slight format changes. USE to perform self-audit. The purpose of this document is to obtain information (YOUR evaluation) about your import operations and/over compliance with CBP laws and regulations. The contents of the PASQ (pre assessment survey questionnaire) will be tailored based on the auditors’ analysis the importer’s import activity and the audit team’s initial assessment of the potential risks for each of the audit areas that was identified in the PAR (pre audit request). Auditors may adapt or modify this document as needed or may develop alternate formats. Auditors may also request copies of documentation in conjunction with the PASQ. PRE-ASSESSMENT SURVEY QUESTIONNAIRE TOC INSTRUCTIONS TO THE IMPORT Manager FOR COMPLETING THE PASQ Please respond to all questions. The information you provide will assist us in focusing on the specific risks relative to your imported merchandise and the processes/procedures used to mitigate the risk of being noncompliant with CBP laws and regulations. In addition, your responses will help us to identify the individuals that are responsible for performing the procedures and the types of documentation that will be available for us to review. The audit team will review your responses and prepare supplemental questions that will be discussed with your personnel to further our understanding of your processes and procedures. This PASQ file is a word document that may be filled in with your responses and returned to the auditors either as a word or portable document format (pdf) file. We request that your complete response be provided to us by [insert date] so we may prepare our questions prior to the Entrance Conference. Name(s) of the person(s) preparing the form: If there are multiple preparers, you may identify a single person that can be contacted to obtain clarification of the responses. USE TO DEVELOP YOUR AUDIT APPROACH. Review page 34 for Entry Type and associated RISK Section 1 - Information about [name of importer] organization and policy and procedures pertaining to CBP activities Describe the company’s mission statement, code of ethics/conduct, and company’s objectives? How is the mission statement, code of ethics/conduct, and company’s objectives disseminated within the organization? (DO YOU HAVE ONE) Who is responsible for assessing the risks to achieving the company’s objectives? Indicate if there is a subgroup or individual responsible for assessing the risk for being noncompliant with CBP laws and regulations. Describe how the risk assessment is accomplished. Indicate, for example, when/how often the risk assessment is performed, what information is used, what thresholds/tolerances the company considers to be acceptable. When was the last risk assessment performed? Describe any significant changes that were made as a result of the risk assessment. Who, within your company, has overall responsibility ensuring compliance with CBP laws and regulations? _ Indicate if there is an import function or department and describe the chain of command (e.g., identify who they report to). _ Alternately, your company may entrust compliance to a Customs broker, Customs consultant, or other outside agent. Identify them and indicate who within your company (i.e., individuals or Copyright CM Key 2018

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groups) is/are responsible for interacting with the broker, consultant, or other outside agent (i.e., providing information to them and monitoring their work). If there is an import function or department, provide the following information: _ How is it staffed? Indicate if an individual is assigned as the manager and identify the number of employees that report to them. _ How long has the manager been assigned to his or her position? TOC What are the responsibilities of the manager and how are they accountable? Indicate if they are responsible for providing weekly activity reports and describe any performance measures. If compliance has been entrusted to a Customs broker, Customs consultant, or other outside agent (i.e., no import department per se), provide the following information: _ How long has the company engaged the current broker, consultant, or other outside agent? _ Describe the processes used to communicate information and to monitor their work? Indicate if there is a written contract or agreement. Who is responsible for developing and maintaining the written policies and procedures used to ensure compliance with CBP laws and regulations? How often are the written policies and procedures updated? (Important not static but alive) Section 2 – Information about the valuation of imported merchandise click NOTE What basis of appraisement is used for the value of imported merchandise? Who is responsible for transacting with the foreign vendors? Identify all individuals or groups/departments that are responsible. (best to stick with Transaction Value, most used) Describe how transactions are negotiated with foreign vendors? Describe all processes used and the conditions that apply. Describe the terms of sale used? If there are different terms of sale, explain the conditions when each is used. If applicable, describe the terms/conditions when discounts or rebates are made? If applicable, describe any additional expenses such as management fees or engineering services that are separately billed by the foreign vendors? What documentation shows the terms of sale and prices (e.g., contracts, distribution and other similar agreements, invoices, purchase orders, bills of lading, proof of payment, correspondence between the parties, and company reports or catalogs/brochures)? Describe the accounting procedures for recording purchases and payments. _ What accounts are used to record purchases of foreign merchandise? Identify or provide a list of vendor codes. _ What accounts are used to record payments made to foreign vendors? Explain the methods of payments used (e.g., wire transfer, letters of credit). If applicable, what accounting data/reports are provided to the import function or department? Indicate how often data/reports are provided (e.g., quarterly reports of price adjustments for purchases from foreign vendors). For risk pertaining to related party transactions click NOTE Describe the nature of the relationship between your company and the related foreign vendor/seller? Indicate if your company is the exclusive U.S. importer. Describe any financial arrangements (e.g. loans, financial assistance, and expense reimbursement) between your company and the foreign vendor/seller? If applicable, explain the terms and conditions of goods sold to your company on consignment. Describe how prices between your company and the foreign vendor/seller/manufacturer are determined? Identify all sources of data used and explain the accounting methodology or computational formulas where appropriate. If transaction value is used, indicate if your company supports circumstances of sale or test values. If applicable, provide the following information: Copyright CM Key 2018

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_ Describe when price adjustments are made. _ Identify any additional expenses such as management fees or engineering services that are separately billed to your company. Explain how transactions are accounted for? Indicate if your company maintains its own accounting books and records. What inter-company accounts are used? For risk pertaining to statutory additions Assists If applicable, describe the type of assists that are provided to the foreign vendors for free or at a reduced cost (e.g., tooling, hangtags, art or design work). Who decides (or determines) that the assists will be provided? Identify all individuals or groups/departments that are involved in the decision. When is it decided that the assists will be provided? _ What accounts are used to record the costs of the assists? Describe the procedures used to ensure that the costs of the assists are included in the values declared to CBP. Indicate who decides how the actual cost of the assist will be apportioned to the imported items and explain how the apportioned cost is tracked. Packing If applicable, describe the type of packing (i.e., labor or materials), containers (exclusive of instruments of international traffic), and coverings of whatever nature that is separately paid to the vendor to put the imported merchandise in condition ready for shipment to the United States. Who decides (or determines) that the cost of packing will be separately charged? Identify all individuals or groups/departments that are involved in the decision. _ When is it decided that the cost of packing will be separately charged? _ What accounts are used to record the costs of packing, containers, and coverings? Describe the procedures used to ensure that the cost of the packing is included in the values declared to CBP. Commissions TOC If applicable, describe the terms of sale with foreign vendors that require your company to separately pay for “selling agent” commissions. Identify the vendors. Who decides (or determines) that “selling agent” commissions will be paid directly to the intermediary? _ When is it decided that the “selling agent” commissions will be paid directly to the intermediary? _ What accounts are used to record the payment of these commissions? Describe the procedures used to ensure that these commissions are included in the values declared to CBP. Royalty and License Fees If applicable, describe the terms of sale with foreign vendors that require your company to pay, directly or indirectly, any royalty or license fee related to the imported merchandise as a condition of the sale of the imported merchandise for exportation to the United States. Identify the vendors. Who decides (or determines) that royalty or license fees will be paid as a condition of the sale? _ When is it decided that royalty or license fees will be paid as a condition of the sale? _ What accounts are used to record the payment of the royalty or license fees related to imported merchandise? What procedures ensure that royalty or license fees are included in the values declared to CBP? Proceeds of Any Subsequent Resale, Disposal, or Use Copyright CM Key 2018

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If applicable, describe any agreements with the foreign vendors where the proceeds of any subsequent resale, disposal, or use of the imported merchandise accrue directly or indirectly to the foreign vendor. Identify the vendors. Who decides (or determines) that the proceeds of any subsequent resale, disposal, or use of the imported merchandise will accrue directly or indirectly to the foreign vendor? _ When is it decided that the proceeds of any subsequent resale, disposal, or use of the imported merchandise will accrue directly or indirectly to the foreign vendor? _ What accounts are used to record the payment of these proceeds? TOC Describe the procedures used to ensure that proceeds of any subsequent resale, disposal, or use of the imported merchandise accruing directly or indirectly to the foreign vendor are included in the values declared to CBP. Section 3 – Information about the classification of imported merchandise click NOTE Who is responsible for determining how imported merchandise is classified? Identify all individuals or groups that are responsible. What records and other information (e.g., product specifications, engineering drawings, physical items, laboratory analyses, etc.) are used to determine the classification of merchandise? Does your company have a classification database? If there is a classification database, do you archive previous versions of it? Indicate how long previous versions are retained. If there is a classification database, is a copy provided to the broker? Indicate how it is provided to the broker. If there is a classification database, what procedures ensure that the information in the database is accurate? Section 4 – Information about special classification provisions HTSUS 9801 click NOTE Describe the type of merchandise that is imported under HTSUS 9801. Who decides (or determines) that products of the United States will be returned after having been exported? Identify all individuals or groups/departments that are involved in the process. _ When is it determined that products will be returned after having been exported? _ What documentation/records are maintained for the exported items? Describe the procedures that ensure the exported items have not been advanced in value or improved in condition by any manufacturing process or other means while abroad. Describe the procedures that ensure that drawback has not been claimed for the exported items. Section 5 – Information about special classification provisions HTSUS 9802 click NOTE Describe the type of merchandise that is imported under HTSUS 9802 What documentation/records are maintained for the exported items? For items imported under HTSUS 9802.00.40/9802.00.50: What documentation/records support the cost or value of the repair? Describe the procedures or means (e.g., unique identifiers) used to ensure that the articles exported for repair or alterations are the same articles being re-imported. For items imported under HTSUS 9802.00.40/9802.00.50: Describe the procedures that ensure the foreign operation (e.g., repair or alteration process) does not result in the exported item becoming a commercially different article with new properties and characteristics. Describe the procedures that ensure that drawback has not been claimed for the exported items. Section 6 – Information about GSP/FTA click NOTE If applicable, identify the name and MIDs for all of the foreign vendors from whom items are imported under GSP/FTA. Copyright CM Key 2018

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Describe any agreements with unrelated foreign vendors. Indicate if the unrelated vendors are required to provide cost and production records to CBP or are legally prevented from releasing the records. Describe the procedures used to ensure the origin of articles imported under GSP (or FTA) is wholly the growth, product, or manufacture of the BDC (or FTA country)? Identify who performs the procedures and when/how often the procedures are performed. What documentation/records are verified? Indicate if copies of the documentation/records are retained on file or may be obtained upon request. TOC Describe the procedures used to ensure the cost or value of the material produced in the BDC (or FTA country), plus the direct processing cost, is not less than 35 percent of the appraised value of the articles at the time of entry into the United States? Identify all individuals/groups that perform the procedures and when/how often the procedures are performed. What documentation/records are verified? Indicate if copies of the documentation/records are retained on file or may be obtained upon request. What documentation is maintained on file showing that the articles are shipped directly from the BDC (or FTA country) to the United States without passing through the territory of any other country, or if passing through the territory of any other country, that the articles did not enter the retail commerce of the other country? Section 7 – Information about NAFTA click NOTE Who is responsible for maintaining the certificates of origin from NAFTA vendors? Describe the procedures used to ensure that imported items are eligible for NAFTA? Should have records of determination reports. (methodology of how established eligibility) Section 8 – Information about AD/CVD click NOTE Who decides (or determines) that items may be subject to AD/CVD? Indicate when and how often items are reviewed. What information is used to determine whether items may be subject to AD/CVD? Identify all individuals or groups/departments that provide information as well as the documentation/records used. Describe the procedures used to ensure that the correct (true) country of origin is identified for items subject to AD/CVD. Describe the procedures used to ensure that the correct AD/CVD case numbers are identified on the entry. Section 9 – Information about IPR go to page 56 Identify all imported items for which your company has authorizations from the holders of IPR such as trade names, trademarks, or copyrights). Describe the item and indicate the type of IPR Who decides (or determines) that an imported item may have IPR belonging to other entities? Indicate when and how often items are reviewed. _ When is it decided that an imported item may have IPR belonging to other entities? _ What information is used to determine that the items have IPR belonging to other entities? Identify all individuals or groups/departments that provide information as well as the documentation/records used. Describe the procedures used to ensure there is a valid authorization/agreement between your company and the owner of the trade name, trademark, copyright or patent prior to the importation of the items? What accounts are used to record royalties, proceeds, and indirect payments related to the use of the IPR? Copyright CM Key 2018

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REQUEST FOR DOCUMENTATION DATE OF REQUEST: RESPONSE DUE: SUBJECT: When submitted in conjunction with the PASQ, the subject matter may be “Information about the organization and policies and procedures relative to compliance with CBP laws and regulations.” A copy of the organizational chart, if there is one. TOC A copy of written policies and procedures used to ensure compliance with CBP laws and regulations (e.g., an Import Compliance Manual). A copy of the GL working trial balance for the period ending [xxxx] and description of accounts used. A copy of written accounting procedures for recording purchases and Factors to consider in a strong compliance system. Click NOTE 1. Whether the company has performed a meaningful risk analysis. 2. The existence of a formal written compliance program. 3. Whether appropriate senior organizational officials are responsible for overseeing the import compliance program. 4. Whether adequate training is provided to employees. 5. Whether the company adequately screens its customers and transactions. 6. Whether the company meets recordkeeping requirements. 7. The existence and operation of an internal system for reporting import/export violations. 8. The existence and result of internal/external reviews or audits. 9. Whether remedial activity has been taken in response to import/export violations.

Example Organization – CHART OUT your TAX DEPARTMENT

DEVELOPMENT/DESIGN Communicate

PURCHASING/SOURCING

FINANCE/ACCOUNTING

TRANSPORTATION/LOGISTICS CUSTOMS MANAGER/DEPT BROKER U.S. CUSTOMS

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IMPORT AUDIT –Planning and Implementing TOC I. Control Environment A. Organizational Structure, Policy and Procedures, Assignment of Responsibilities 1. Provide a copy of the company’s organizational chart and related department descriptions. Include the detail to show the location of the Import Department identified and any structure descriptions that are relevant. 2. Identify the key individuals in each office responsible for Customs compliance (may be included on the organization chart). 3. Provide the names and addresses of any related foreign and/or domestic companies, such as the company’s parent, sister, subsidiaries, or joint ventures. 4. If the company has operating policies and procedures manuals for Customs operations, provide a copy of the manuals (preferably in electronic format). 5. If the policies and procedures have the support and approval of management, identify the individuals who approve the procedures. B. Employee Awareness Training 1. What specialized Customs training is required for key personnel working in the Import Department? If available, provide copies of training logs or other records supporting training. 2. What Customs experience have key personnel involved in Customs-related activities had? 3. Who in other departments is responsible for reporting Customs-related activities to the Import Department? 4. What training is provided to personnel in other departments responsible for reporting Customs-related activities to the Import Department? 5. How does the company obtain current information on Customs requirements? 6. Does the company use the Customs Web site (www.cbp.gov)? 7. Does the company request and disseminate binding rulings? II. Risk Assessment A. How does the company identify, analyze, and manage risks related to Customs activities? B. What risks related to Customs activities has the company identified, and what control mechanisms have been implemented? What are procedures and likely effectiveness? III. Control Procedures A. Using source records for support, provide a description and/or flowchart of the company’s activities, including general ledger account numbers for recording the acquisition of foreign merchandise in the following areas: * Purchase of foreign merchandise * Receipt of foreign merchandise * Recording in inventory * Payments made to foreign vendor * Distribution to customers (e.g., drop shipments) * Export of merchandise (e.g., assists, Chapter 98) B. For each aspect of value listed below, respond to the following. Where procedures are documented, reference the applicable sections. 1.What internal control procedures are used to assure accurate reporting to Customs? Copyright CM Key 2018

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2. Who is the person assigned responsibility for accurate reporting? 3. What records are maintained? Basis of Appraisement (19 CFR 152.101) Price Paid or Payable Packing Selling Commissions Assists (e.g., Materials/Component Parts, Tools, Dies, Molds, Merchandise Consumed, Engineering, Development, Art Work, Design Work, Plans) Royalties and License Fees Proceeds of Subsequent Resale Transportation Costs (e.g., International Freight, Foreign Inland Freight, Transportation Rebates, Insurance) Retroactive Price Adjustments Price Increases Rebates Allowances Indirect Payments Payment of Seller’s Debt by Buyer (e.g., Quota ) TOC Price Reductions to Buyer to Settle Debts (e.g., Reductions for Defective Merchandise ) Purchases on Consignment Quota/Visa Currency Exchange Adjustments C. For each of the following Customs-related activities, respond to the following. Where procedures are documented, reference the applicable sections. 1. What internal control procedures are used to assure accurate reporting to Customs? 2. Who is the person assigned responsibility for accurate reporting? 3. What records are maintained? Classification Quantity Reconciliation Trade Agreements (1) Generalized System of Preferences (GSP) (2) Caribbean Basin Initiative (CBI) and Special Access Provision (SAP) (3) Israel Free Trade (4) Insular Possessions (5) Andean Trade Preference Act (6) Trade Development Act of 2000 i. African Growth and Opportunity Act (AGOA). Caribbean Basin Trade Partnership Act (CBTPA) (3) 9802.00.50 (4) 9802.00.60 (5) 9802.00.80 (6) 9802.00.90 Antidumping/Countervailing Duties

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IV. Information and Communication 1. Describe the procedures for the Import Department to disseminate relevant Customs information to other departments. 2. Describe the procedures for other departments to communicate with the Import Department on matters affecting imported merchandise. 3. Describe the procedures for the Import Department to participate in major planning processes involving importation activities. V. Monitoring 1. What methods of oversight and monitoring does the Import Department management use to ensure compliance with Customs requirements? 2. Provide information and/or reports on the review and evaluation of compliance with Custom’s requirements by other internal and external entities (e.g., internal audit department, financial statement audits). 3. What level of management are these self-reviews reported to for action? VI. Miscellaneous Exhibit A. Provide a copy of your general ledger and post-closing trial balance. B. Identify the account numbers in which costs for imported merchandise are recorded. Electronic Data Processing (EDP) Questionnaire for Focused Assessments An important factor in conducting Focused Assessments (FAs) in a timely manner may include obtaining electronic data files needed to facilitate comparisons between the company’s data and Customs data, sampling, and transactional testing. TOC Exhibit Focused Assessment Program 1. List the files, or an equivalent of the same information, that are maintained on each of your computer systems, and describe how each system communicates or links with other systems. For system, identify the contact person responsible for maintaining that system or information. Identify which information is maintained manually. The following format may be used: Record System Link to Other System Contact Person Title Division Customs entry (CF 7501) Special duty provision Payment history Accounts Payable Purchase order Invoice line detail Inventory and receiving Shipping, freight, insurance, and bill of lading Vendor codes and addresses Finished product specifications Country of origin certification Imported product Cost data Letters of credit Wire transfers Cash disbursement 2. Provide flowcharts and/or narrative description of the data flow between systems. 3. Are your computer systems IBM Compatible? Yes/No 4. What types of electronic media do you use to transport data? [C-Tape, E-Tape, CD-ROM, Copyright CM Key 2018

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Zip Cartridge] 5. Specify the capacity for your electronic media. 6. List data center location(s). 7. Specify the EDP Department contact person and phone number. Internal Control Assessment Areas A. Classification B. Valuation – Transaction C. Special Trade Programs/Special Duty D. Antidumping/Countervailing Duties E. Transshipment F. Intellectual Property Rights G. Quantity H. Foreign Trade Zones I. Other Areas ASSESSMENT COMPLIANCE TESTING A. Classification TOC Sub-objective: Determine whether the importer met an acceptable level of compliance for classification of imported merchandise and/or compute revenue loss. Audit Step Initials & Date Work Paper Ref. (1) Using the sample selected, obtain the specifications, part numbers, or other applicable descriptions, lab reports, and binding rulings from the company for each selected article. Provide this information and the entry containing the article to the import specialist for a review of classification including Quota ADD/CVD Admissibility requirements Other classification issues. (2) Evaluate errors to determine if errors were systemic. Determine whether referrals should be made for enforcement action. Also see step (6) below. a) If systemic: (i) Include in computation of compliance rate, if applicable, and/or determination of acceptable level of compliance. (ii) Project the effect and recommend collection of unpaid duties and fees. Note: If projections are not appropriate, all reasonable means will be used to determine the unpaid duties and fees. b) For non-systemic errors: (i) Do not include in computation of compliance rate, if applicable, and/or determination of acceptable level of compliance. (ii) Recommend collection of duties and fees on identified errors. (3) Compute the compliance rate, if applicable. (4) Determine if the company met an acceptable level of compliance. a) If the company met an acceptable level of compliance, prepare the work paper. b) If the company did not meet an acceptable level of compliance: (i) Coordinate with the account manager to help the company develop a Compliance Improvement Plan (CIP). (ii) Prepare the finding sheet. (5) Compute actual or projected revenue loss, if applicable. Note: The Trade Act of 2002 (“the Act”) was signed by President Bush on August 6, 2002. The Act contains a provision (Section 382) to offset duty overpayments with duty underpayments on liquidated entries during audits. The Act must be considered when computing actual or projected revenue loss. (6) Discuss with company appropriate people and obtain comments. Copyright CM Key 2018

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B. Transaction Value Sub-objective: Determine whether the importer met an acceptable level of compliance for the transaction value of imported merchandise and/or compute revenue loss. Audit Step Initials & Date Work Paper Ref. TOC (1) Using the sample(s) selected, determine specific tests for areas requiring review, such as determining if the declared value was the price actually paid or payable and/or whether there were any payments or additions to the price actually paid or payable. (402(b)(1)(A)-(E) (2) Evaluate errors to determine whether errors were systemic. Determine whether referrals should be made for enforcement action. Also see step (6) below. a) If systemic: (i) Include in determination of acceptable level of compliance. (ii) Project the effect and recommend collection of unpaid duties and fees. Note: If projections are not appropriate, all reasonable means will be used to determine the unpaid duties and fees. b) For nonsystemic errors: (i) Do not include in determination of acceptable level of compliance. (ii) Recommend collection of duties and fees on identified errors. (3) Determine the total amount of undeclared value both actual and/or projected from different sampling frames and apply materiality criteria, if applicable. (4) Determine if the company met an acceptable level of compliance. a) If the company met an acceptable level of compliance, prepare the work paper. b) If the company did not meet an acceptable level of compliance: (i) Coordinate with the account manager to help the company develop a CIP. (ii) Prepare the finding sheet. (5) Compute actual or projected revenue loss, if applicable. Note: The Trade Act of 2002 (“the Act”) was signed by President Bush on August 6, 2002. The Act contains a provision (Section 382) to offset duty overpayments with duty underpayments on liquidated entries during audits. The Act must be considered when computing actual or projected revenue loss. (6) Discuss with the company appropriate people and obtain comments. C. Special Trade Programs and Special Duty Provisions (adapt to YOUR Internal Audit) Audit Step Initials & Date Work Paper Ref. (1)Use the Technical Information for Pre-Assessment Survey (TIPS) for the review area to conduct a preliminary internal control assessment of the review area. Use the Worksheet for Evaluating Internal Control (WEIC) in the TIPS for the review area to conduct interviews, review documentary evidence of control implementation, and document the internal control review. Complete Sections 1 and 2 of the WEIC. Assess internal control to determine the strength (weak, adequate or strong) of internal control by analyzing and comparing: · Responses to the Internal Control Questionnaire · Review of Policies and Procedures Manual · The walk through · Interview information · Documentation supporting control implementation · Other information. (2) Using the results of the preliminary assessment of risk and internal control review, determine which and how many sample items will be tested to determine if internal control is implemented and effective. Copyright CM Key 2018

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· Complete the matrix “Sample Sizes,” (in Section 3 of the WEIC for the review area) to determine the sample size. Multiple samples may be taken for the review area. TOC Complete the sampling plan, FA Program Exhibit 6, with particular emphasis on documenting reasons for selecting transactions. (3)Test the effectiveness and implementation of internal control and determine if internal control is adequate to control risk. · Review sample items from (2) above • Request documentation • Identify errors in the sample • Identify the cause of the errors • Relate systemic errors to internal control weaknesses • Identify potential corrective action • Complete Section 4 of the WEIC for the review area. (4) Using the results of the internal control review (including testing), develop an opinion whether risk is acceptable or unacceptable. Document the opinion in Section 5 of the WEIC for the review area. (5) If the risk to Customs is unacceptable, prepare a finding sheet, discuss the results with personnel and obtain their response. (6) If unacceptable risks are identified determine corrective actions. Special - IF YOU HAVE ENTRIES USING THESE INDICATORS Audit review! (c) Products Eligible for Special Tariff Treatment. (i) Programs under which special tariff treatment may be provided, and the corresponding symbols for such programs as they are indicated in the "Special" subcolumn, are as follows: Generalized System of Preferences.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A, A* or A+ United States-Australia Free Trade Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . AU Automotive Products Trade Act. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B United States-Bahrain Free Trade Agreement Implementation Act. . . . . . . . . . .BH Agreement on Trade in Civil Aircraft.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C North American Free Trade Agreement: Goods of Canada, under the terms of general note 12 to this schedule. .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ……….CA Goods of Mexico, under the terms of general note 12 to this schedule. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ……….MX United States-Chile Free Trade Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . CL African Growth and Opportunity Act. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . D Caribbean Basin Economic Recovery Act. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . E or E* United States-Israel Free Trade Area.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. IL United States-Jordan Free Trade Area Implementation Act.. . . . . . . . . . . . . . . . JO Agreement on Trade in Pharmaceutical Products. . . . . . . . . . . . . . . . . . . . . . . . .K Dominican Republic-Central America-United States African Growth and Opportunity Act. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .D Caribbean Basin Economic Recovery Act. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . E or E* United States-Israel Free Trade Area.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . IL United States-Jordan Free Trade Area Implementation Act.. . . . . . . . . . . . . . . . JO Agreement on Trade in Pharmaceutical Products. . . . . . . . . . . . . . . . . . . . . . . . .K Dominican Republic-Central America-United States Free Trade Agreement Implementation Act.. . . . . . . . . . . . . . . . . . . . . . ……… P or P+ Copyright CM Key 2018

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Uruguay Round Concessions on Intermediate Chemicals for Dyes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ……….L United States-Caribbean Basin Trade Partnership Act. . . . . . . . . . . . . . . . . . . . .R United States-Morocco Free Trade Agreement Implementation Act. . . . . . . . . .MA United States-Singapore Free Trade Agreement. . . . . . . . . . . . . . . . . . . . . . . . . SG United States-Oman Free Trade Agreement Implementation Act. . . . . . . . . . . . OM United States-Peru Trade Promotion Agreement Implementation Act. . . . . . . . PE United States-Korea Free Trade Agreement Implementation Act. . . . . . . . . . . . KR United States-Colombia Trade Promotion Agreement Implementation Act. . . . CO United States-Panama Trade Promotion Agreement Implementation Act............PA TOC C. 1. Generalized System of Preferences (GSP) APPLY Process TO ALL FREE TRADE Sub-objective: Determine whether the importer met an acceptable level of compliance for GSP entries and/or compute revenue loss. Audit Step Initials & Date Work Paper Ref. (1) Using the sample selected, determine eligibility for claimed GSP for each sample item by verifying: a) Country and merchandise are eligible for GSP treatment. b) Components of imported articles (i.e., sets) are produced in the beneficiary developing country (BDC). c) Merchandise was directly imported into the U.S. d) Merchandise was wholly the growth, product, or manufacture of a BDC. e) Merchandise was not wholly the growth, product, or manufacture of a BDC; however, the sum of the cost or value of the materials produced in the BDC plus the direct costs of processing operations performed in the BDC was not less than 35 percent of the appraised value. (2) Evaluate errors to determine if errors were systemic. Determine whether referrals should be made for enforcement action. Also see step (6) below. a) If systemic: (i) Include in computation of compliance rate, if applicable, and/or determination of acceptable level of compliance. (ii) Project the effect and recommend collection of unpaid duties and fees. Note: If projections are not appropriate, all reasonable means will be used to determine the unpaid duties and fees. b) For nonsystemic errors: (i) Do not include in computation of compliance rate, if applicable, and/or determination of acceptable level of compliance. (ii) Recommend collection of duties and fees on identified errors. (3) Compute the compliance rate, if applicable. (4) Determine if the company met an acceptable level of compliance. a) If the company met an acceptable level of compliance, prepare the work paper. b) If the company did not meet an acceptable level of compliance: (i) Coordinate with the account manager to help the company develop a CIP. (ii) Prepare the finding sheet. (5) Compute actual or projected revenue loss, if applicable. Note: The Trade Act of 2002 (“the Act”) was signed by President Bush on August 6, 2002. The Act contains a provision (Section 382) to offset duty overpayments with duty underpayments on liquidated entries during audits. The Act must be considered when computing actual or projected revenue loss. (6) Discuss with the company appropriate people and obtain comments.

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C.2. Caribbean Basin Economic Recovery Act (CBERA) & Caribbean Basin Trade Partnership Act (CBTPA) ALL FREE TRADE CLAIMS SHOULD BE SUPPORTED WITH Determination Report Determination Report is paper trail on how application of FTA was made. Sub-objective: Determine whether the importer met an acceptable level of compliance for entry under provisions of CBERA or CBTPA and/or compute revenue loss. Audit Step Initials & Date Work Paper Ref. TOC (1) Using the sample selected, determine eligibility for claimed CBERA or CBTPA for each sample item. (2) Evaluate errors to determine if errors were systemic. Determine whether referrals should be made for enforcement action. Also see step (6) below. a) If systemic: (i) Include in computation of compliance rate, if applicable, and/or determination of acceptable level of compliance. (ii) Project the effect and recommend collection of unpaid duties and fees. Note: If projections are not appropriate, all reasonable means will be used to determine the unpaid duties and fees. b) For non-systemic errors: (i) Do not include in computation of compliance rate, if applicable, and/or determination of acceptable level of compliance. (ii) Recommend collection of duties and fees on identified errors. (3) Compute the compliance rate, if applicable. (4) Determine if the company met an acceptable level of compliance. a) If the company met an acceptable level of compliance, prepare the work paper. b) If the company did not meet an acceptable level of compliance: (i) Coordinate with the account manager to help the company develop a CIP. (ii) Prepare the finding sheet. (5) Compute actual or projected revenue loss, if applicable. Note: The Trade Act of 2002 (“the Act�) was signed by President Bush on August 6, 2002. The Act contains a provision (Section 382) to offset duty overpayments with duty underpayments on liquidated entries during audits. The Act must be considered when computing actual or projected revenue loss. (6) Discuss with the company appropriate people and obtain comments. C. 3. Andean Trade Preference Act Audit steps for Andean Trade Preference Act will be determined by the auditor. C. 4. Israel Free Trade Audit steps for Israel Free Trade will be determined by the auditor. C. 5. Products of Insular Possessions Audit steps for Products of Insular Possessions will be determined by the auditor. C. 6. ALL FTA LISTED IF USED SEE PAGE 14 PARTICULAR TRADE ACTIVITY C. 7. HTSUS 9801.00.10 (refer Customs Regs 10.1) Sub-objective: Determine whether the importer met an acceptable level of compliance for imported merchandise entered under HTSUS 9801.00.10 and/or compute revenue loss. Audit Step Initials & Date Work Paper Ref. Copyright CM Key 2018

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(1) Using the sample selected, determine eligibility for each sample item by: a) Verifying U.S. origin; TOC b) Verifying reported value; and c) Determining if drawback was claimed on the exportation. (2) Evaluate errors to determine if errors were systemic. Determine whether referrals should be made for enforcement action. Also see step (6) below. a) If systemic: (i) Include in computation of compliance rate, if applicable, and/or determination of acceptable level of compliance. (ii) Project the effect and recommend collection of unpaid duties and fees.Note: If projections are not appropriate, all reasonable means will be used to determine the unpaid duties and fees. b) For nonsystemic errors: (i) Do not include in computation of compliance rate, if applicable, and/or determination of acceptable level of compliance. (ii) Recommend collection of duties and fees on identified errors. (3) Compute the compliance rate, if applicable. (4) Determine if the company met an acceptable level of compliance. a) If the company met an acceptable level of compliance, prepare the work paper. b) If the company did not meet an acceptable level of compliance: (i) Coordinate with the account manager to help the company develop a CIP. (ii) Prepare the finding sheet. (5) Compute actual or projected revenue loss, if applicable. Note: The Trade Act of 2002 (“the Act�) was signed by President Bush on August 6, 2002. The Act contains a provision (Section 382) to offset duty overpayments with duty underpayments on liquidated entries during audits. The Act must be considered when computing actual or projected revenue loss. (6) Discuss with the company appropriate people and obtain comments. C. 8. HTSUS 9802.00.40 and 9802.00.50 (refer Customs Regs 10.8) Sub-objective: Determine whether the importer met an acceptable level of compliance for imported merchandise entered under HTSUS 9802.00.40 and 9802.00.50 and/or compute revenue loss. Audit Step Initials & Date Work Paper Ref. (1) Using the sample selected, determine eligibility for each sample item by: a) Verifying that the items were exported for repair or alteration; b) Reviewing foreign operations to determine whether the operations qualify for partial exemption under the provisions of HTSUS 9802.00.40/50; c) Verifying that no drawback was claimed for the articles exported from the U.S.; d) Verifying that a repair or alteration took place; ande) Requesting and reviewing importer support for costs of repair work performed abroad. (2) Evaluate errors to determine if errors were systemic. Determine whether referrals should be made for enforcement action. Also see step (6) below. a) If systemic: (i) Include in computation of compliance rate, if applicable, and/or determination of acceptable level of compliance. (ii) Project the effect and recommend collection of unpaid duties and fees. Note: If projections are not appropriate, all reasonable means will be used to determine the unpaid duties and fees. b) For nonsystemic errors: (i) Do not include in computation of compliance rate, if applicable, and/or determination of acceptable level of compliance. Copyright CM Key 2018

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(ii) Recommend collection of duties and fees on identified errors. (3) Compute the compliance rate, if applicable. TOC (4) Determine if the company met an acceptable level of compliance. a) If the company met an acceptable level of compliance, prepare the work paper. b) If the company did not meet an acceptable level of compliance: (i) Coordinate with the account manager to help the company develop a CIP. (ii) Prepare the finding sheet. (5) Compute actual or projected revenue loss, if applicable. Note: The Trade Act of 2002 (“the Act”) was signed by President Bush on August 6, 2002. The Act contains a provision (Section 382) to offset duty overpayments with duty underpayments on liquidated entries during audits. The Act must be considered when computing actual or projected revenue loss. (6) Discuss with the company appropriate people and obtain comments. C. 9. HTSUS 9802.00.60 (Metal Articles Exported for Processing) (refer Customs Regs 10.9) Sub-objective: Determine whether the importer met an acceptable level of compliance for imported merchandise entered under HTSUS 9802.00.60 and/or compute revenue loss. Audit Step Initials & Date Work Paper Ref. (1) Using the sample selected, determine eligibility for each sample item by: a) Verifying that the article exported meets the definition of “metal”; b) Verifying no drawback was claimed for the articles exported from the U.S.; c) Verifying that imported metal articles were:· Manufactured in the U.S. and then exported for further processing at a foreign plant· Returned to the U.S. for further processing· Processed in the U.S. after return d) Ascertaining that foreign processing operations qualified for HTSUS 9802.00.60 treatment; and Obtaining and verifying the importers support for:· Total value of the imported article· Nondutiable value claimed under HTSUS 9802.00.60. (2) Evaluate errors to determine if errors were systemic. Determine whether referrals should be made for enforcement action. Also see step (6) below. a) If systemic: (i) Include in computation of compliance rate, if applicable, and/or determination of acceptable level of compliance. (ii) Project the effect and recommend collection of unpaid duties and fees. Note: If projections are not appropriate, all reasonable means will be used to determine the unpaid duties and fees. b) For nonsystemic errors: (i) Do not include in computation of compliance rate, if applicable, and/or determination of acceptable level of compliance. (ii) Recommend collection of duties and fees on identified errors. (3) Compute the compliance rate, if applicable. (4) Determine if the company met an acceptable level of compliance a) If the company met an acceptable level of compliance, prepare the work paper. b) If the company did not meet an acceptable level of compliance: (i) Coordinate with the account manager to help the company develop a CIP. (ii) Prepare the finding sheet. (5) Compute actual or projected revenue loss, if applicable. Note: The Trade Act of 2002 (“the Act”) was signed by President Bush on August 6, 2002. The Act contains a provision (Section 382) to offset duty overpayments with duty underpayments on liquidated entries during audits. The Act must be considered when computing actual or projected revenue loss. (6) Discuss with the company appropriate people and obtain comments. Copyright CM Key 2018

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C. 10. HTSUS 9802.00.80 (U.S. Articles Assembled Abroad) (refer Customs Regs 10.10) Sub-objective: Determine whether the importer met an acceptable level of compliance for imported merchandise entered under HTSUS 9802.00.80 and/or compute revenue loss. Audit Step Initials & Date Work Paper Ref. TOC (1) Using the sample selected, for each sample item verify: a) Claimed component(s) meet requirements for HTSUS 9802.00.80 treatment · No drawback claimed on component(s) · Component(s) maintain identity from time of U.S. exportation through time of assembly into article imported under HTSUS 9802.00.80 · Component(s) ready for assembly at time of U.S. exportation; no foreign fabrication required before assembly · Foreign operation was assembly and not manufacturing. b) Origin of claimed components. c) Claimed components were actually used to produce imported article (usage). d) Claimed 9802.00.80 value of the component, whether consigned or sold to the assembler, was the cost or value at the time of export for assembly. Ensure that claimed value included all costs (i.e., freight and insurance) to the U.S. port of exportation.(2) Evaluate errors to determine if errors were systemic. Determine whether referrals should be made for enforcement action. Also see step (6) below. a) If systemic: (i) Include in computation of compliance rate, if applicable, and/or determination of acceptable level of compliance. (ii) Project the effect and recommend collection of unpaid duties and fees. Note: If projections are not appropriate, all reasonable means will be used to determine the unpaid duties and fees. b) For nonsystemic errors: (i) Do not include in computation of compliance rate, if applicable, and/or determination of acceptable level of compliance. (ii) Recommend collection of duties and fees on identified errors. (3) Compute the compliance rate, if applicable. (4) Determine if the company met an acceptable level of compliance. a) If the company met an acceptable level of compliance, prepare the work paper. b) If the company did not meet an acceptable level of compliance: (i) Coordinate with the account manager to help the company develop a CIP. (ii) Prepare the finding sheet. (5) Compute actual or projected revenue loss, if applicable. Note: The Trade Act of 2002 (“the Act”) was signed by President Bush on August 6, 2002. The Act contains a provision (Section 382) to offset duty overpayments with duty underpayments on liquidated entries during audits. The Act must be considered when computing actual or projected revenue loss. (6) Discuss with the company appropriate people and obtain comments. D. Antidumping/Countervailing Duties (CR 141.61, 159.41, 159.58, 159.61 plus additional) Sub-objective: Determine whether the importer met an acceptable level of compliance for ADD/CVD and/or compute revenue loss. Audit Step Initials & Date Work Paper Ref. (1) Using the sample selected, for each sample item determine: a) The accuracy of ADD/CVD included on 03 and 07 entries. b) ADD/CVD omitted from Customs entries. (2) If errors were found when testing for undisclosed ADD/CVD: Copyright CM Key 2018

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a) Discuss with team members and decide course of action ( audit, investigation, etc.) b) Discuss with Strategic Trade Center (STC) or EET special agent. (3) Evaluate errors to determine if errors were systemic. TOC a) If systemic: (i) Include in computation of compliance rate, if applicable, and/or determination of acceptable level of compliance. (ii) Project the effect and recommend collection of unpaid duties and fees. Note: If projections are not appropriate, all reasonable means will be used to determine the unpaid duties and fees. b) For nonsystemic errors: (i) Do not include in computation of compliance rate, if applicable, and/or determination of acceptable level of compliance. (ii) Recommend collection of duties and fees on identified errors. (4) Compute the compliance rate, if applicable. (5) Determine if the company met an acceptable level of compliance. a) If the company met an acceptable level of compliance, prepare the work paper. b) If the company did not meet an acceptable level of compliance: (i) Coordinate with the account manager to help the company develop a CIP. (ii) Prepare the finding sheet. Note: The Trade Act of 2002 (“the Act”) was signed by President Bush on August 6, 2002. The Act contains a provision (Section 382) to offset duty overpayments with duty underpayments on liquidated entries during audits. The Act must be considered when computing actual or projected revenue loss. (6) Compute actual or projected revenue loss, if applicable. (7) Discuss with the company appropriate people and obtain comments. Support for ADA/CVD Audit EXAMPLES OF BEST PRACTICES ADD · Internal controls over ADD/CVD: Are in writing, Include having a copy of all applicable ADD/CVD orders, Include procedures for monitoring and feedback, and Are monitored by management. · One manager ultimately is responsible for control of the import department, including ADD/CVD. That manager has knowledge of Customs matters and the power to ensure that internal control procedures for imports are established and followed by all company departments. · Internal control procedures assign duties and tasks to a specific position rather than a person. · Company has good interdepartmental communication about Customs matters. · Company conducts and documents periodic reviews of ADD/CVD and uses the results to make corrections to entries and changes to its import operations as appropriate. · Purchasing, Engineering, other departments, and suppliers provide sufficient information for determining whether merchandise is subject to ADD/CVD. · Company conducts periodic reviews of the ITC web site to identify open orders and other pertinent new information. (www.usitc.gov) https://www.trade.gov/enforcement/operations/ on page go to AD/CVD Duty Orders click on Products Subject to AD/CVD Duties Copyright CM Key 2018

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ORDER of Process would be to focus on this page. IF IMPORT PRODUCTS from countries that have cases then look at cases and see if merchandise is under. NEED t review not only HTS Numbers but written scope of the case…. E. Foreign Trade Zone (CR 146) TOC Sub-objective: Determine whether the importer met an acceptable level of compliance for storing or processing non-quota merchandise in an FTZ and/or compute revenue loss. Audit Step Initials & DateWork Paper Ref. (1) If FTZ storage or processing of non-quota merchandise is an integral part of the company’s importing program (ratio of annual value of FTZ merchandise shipped from the zone is at least 30 percent of the total annual value of imported merchandise), refer to the FTZ audit program for audit steps. If it is not an integral part of the company’s importing program and does not process quota merchandise, document in work papers, but do not complete remaining steps. E.1. Quota/Visa Merchandise Entered in an FTZ (CR 146.43, 146.63, 146.65) Sub-objective: Determine whether the importer met an acceptable level of compliance for storing or processing quota merchandise in an FTZ and/or compute revenue loss. Audit Step Initials & Date Work Paper Ref. (1) Using the sample selected, for each sample item verify: a) Propriety and accuracy of circumstances associated with any quota/visa merchandise admitted into the FTZ. Document any quota merchandise that was transferred to another FTZ or to a bonded warehouse. b) Merchandise was admitted to the other FTZ or entered in the warehouse as quota merchandise for quota merchandise that was transferred to another FTZ or to a bonded warehouse. c) Quota was available at the time merchandise was withdrawn for consumption. If tariff rate quota was involved, verify that the appropriate duty rate was paid. (2) Evaluate errors to determine if errors were systemic. Determine whether referrals should be made for enforcement action. Also see step (6) below. a) If systemic: (i) Include in computation of compliance rate, if applicable, and/or determination of acceptable level of compliance. (ii) Project the effect and recommend collection of unpaid duties and fees. Note: If projections are not appropriate, all reasonable means will be used to determine the unpaid duties and fees. b) For nonsystemic errors: (i) Do not include in computation of compliance rate, if applicable, and/or determination of acceptable level of compliance. (ii) Recommend collection of duties and fees on identified errors. (3) Compute the compliance rate, if applicable. (4) Determine if the company met an acceptable level of compliance. a) If the company met an acceptable level of compliance, prepare the work paper. b) If the company did not meet an acceptable level of compliance: (i) Coordinate with the account manager to help the company develop a CIP. (ii) Prepare the finding sheet. (5) Compute actual or projected revenue loss, if applicable. Note: The Trade Act of 2002 (“the Act”) was signed by President Bush on August 6, 2002. The Act contains a provision (Section 382) to offset duty overpayments with duty underpayments on liquidated entries during audits. The Act must be considered when computing actual or projected revenue loss. (6) Discuss with the company appropriate people and obtain comments. Copyright CM Key 2018

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F. Transshipment (CR 123, 181 Sub-objective: Determine whether the importer met an acceptable level of compliance for controlling transshipment of merchandise. Audit Step Initials & Date Work Paper Ref. (1) Using the sample selected, develop specific audit steps for the import specialist to test for transshipment. (2) Evaluate test results and take appropriate action. (3) If no transshipment was found, prepare the work paper. (4) If any transshipment was found, discuss with appropriate supervisors/officers.. a) Determine the best course of action (prior disclosure etc.). b) Further action depends on individual circumstances. G. Bonded Warehouse (CR 19, 144 plus additional) TOC Sub-objective: Determine whether the importer met an acceptable level of compliance for quota merchandise stored in a bonded warehouse and/or compute revenue loss. Audit Step Initials & Date Work Paper Ref. (1) Using the sample selected, for each sample item verify: (a) Accuracy of tariff number b) Quantities for quota/visa merchandise entered into the warehouse. c) Re-warehoused quota merchandise was correctly classified as quota merchandise. d) Quota was available at the time merchandise was withdrawn for consumption. If tariff rate quota was involved, verify that the appropriate duty rate was paid. (2) Evaluate errors to determine if errors were systemic. Determine whether referrals should be made for enforcement action. Also see step (6) below. a) If systemic: (i) Include in computation of compliance rate, if applicable, and/or determination of acceptable level of compliance. (ii) Project the effect and recommend collection of unpaid duties and fees. Note: If projections are not appropriate, all reasonable means will be used to determine the unpaid duties and fees. b) For nonsystemic errors: (i) Do not include in computation of compliance rate, if applicable, and/or determination of acceptable level of compliance. (ii) Recommend collection of duties and fees on identified errors. (3) Compute the compliance rate, if applicable. (4) Determine if the company met an acceptable level of compliance. a) If the company met an acceptable level of compliance, prepare the work paper. b) If the company did not meet an acceptable level of compliance: (i) Coordinate with the account manager to help the company develop a CIP. (ii) Prepare the finding sheet. (5) Compute actual or projected revenue loss, if applicable. Note: The Trade Act of 2002 (“the Act�) was signed by President Bush on August 6, 2002. The Act contains a provision (Section 382) to offset duty overpayments with duty underpayments on liquidated entries during audits. The Act must be considered when computing actual or projected revenue loss. (6) Discuss with the company appropriate people and obtain comments.

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H. Additional Sampling Issues Sub-objective: Team members or other Customs officials may identify other issues that require testing. Determine the necessary audit steps to test these issues. Audit Step Initials & Date Work Paper Ref.(1) Using the sample(s) selected, develop tests for any additional sampling issues.

SECURITY 10 + 2 FORM TOC 10+2 ISF (Importer Security Filing - for "Containerized Shipments" Page 2 Notice : The ISF is required for containerized shipments of goods to be imported into the United States. Violations will be subject to liquidated damages defined by U.S. Customs as follows : Violation Consequences Failure to file complete, CBP shall withhold release of transfer of cargo until ISF received. accurate, and timely ISF CBP may limit permit to unlade so that cargo is not un-laden and may seize cargo that has been un-laden without permission. Filing an incomplete ) or inaccurate ISF ) Assess liquidated damages against the ISF Importer for Filing an untimely ISF ) $5,000.00 per violation; up to 2 violations may be assessed. Filing an inaccurate update ) Failing to withdraw an ISF Note : The ISF is filed for shipments consisting of goods intended to be entered into the United States and goods intended to be delivered to a Foreign Trade Zone. Although Customs flyers on the ISF filing requirement says : Eight Data Elements must be provided to U.S. Customs no later than 24 hours before the cargo is laden aboard a vessel destined to the United States, and Two additional Data Elements, the Container Stuffing Location, and Consolidator, are to be submitted to U.S. Customs as early as possible, but no later than 24 hours prior to the ship's arrival at a US port, 14 Data Elements as listed below and as required in the ISF Compliance Form be submitted to filer at least 48 HOURS PRIOR TO LOADING OF YOUR SHIPMENT AT THE PORT OF ORGIN OR PORT OF LOADING. Need all the 14 Data Elements at least 48 HOURS PRIOR TO LOADING IN ORDER TO AVOID CUSTOMS SANCTIONS FOR "UNTIMELY FILING OF ISF". Set your time guidelines * Seller * Buyer * Importer of Record * Consignee number(s) * Manufacturer (or Supplier) * Ship to party * Country or Origin * Commodity Harmonized Tariff Schedule of the United States (HTSUS) number

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* MB/L number (Master Ocean Bill of Lading Number) - this will identify on what vessel your containerized shipment is loaded; TOC * Name of Vessel and Voyage Number - this will confirm the MB/L number; * SCAC (This is the Vessel SCAC - the 1st four letters of the M/BL number - this will identify the steamship lines; * AMS HB/L number (AMS stands for Automated Manifest System [reported to U.S. Customs]. You will need this if you are a co-loader in the container holding your shipment. Your co-load shipment will be identified thru this AMS HB/L and your shipment will be considered as timely reported to U.S. Customs and complied with the ISF requirement. * Container stuffing location; and * Consolidator filled-up and completed and within 48 HOURS PRIOR TO LOADING AT PORT OF LOADING OR ORIGIN. ISF problems‌address AND AVOID MAKING Bill of Lading errors carrier record vs House Bill NVOCC HTS filed ISF vs entry HTS errors ISF never filed ISF filed after loading = late filing ISF missing required fields or info provided not accurate ISF does not match to automated manifest system (usually misrepresentation of BOL number CBP Enforcement Options Do not load order Intensive exam required (x-ray) Withhold release of cargo Monetary fines Steps to take Need to review process Make sure filings are timely and accurate

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RECAP Points of Audit Written Manual Officer Support Risk Evaluation Recordkeeping Training Audit Record Security (Party Screening) Violation Reporting Record of Punishment – Classification 95% Valuation 99% Admissibility Security

TOC

IMPORT CONTROL PROCEDURES • Describe/Flow Chart • Purchase of foreign merchandise • Receipt of foreign merchandise • Recording in inventory • Payments made to foreign vendor • Distribution to customers (e.g., drop shipments) • Export of merchandise (e.g., assists, Chapter 98) Red Flags Import * Is the imported item, manufacturer, country of origin, or other element designated as high risk by Customs? * Does Customs have information that indicates internal control weaknesses pertaining to the importer? * Do incentives to make false representations/ declarations outweigh the penalties? * Are requirements imposed reasonable, or are they so complicated and cumbersome that failure to comply can be expected? * Does the activity have numerous transactions or diverse activities? * Does the importer contract out activities without adequate control systems? The Existence of any “Red Flags” The Customs team should be alert to and consider any red flags, including: * A prior history of Customs problems; * A history of material weaknesses described in prior Customs audits; * Poorly defined and documented internal control procedures; * Lack of or ineffective monitoring of Customs operations; * Complex Customs transactions; * Lack of specific performance measures for Customs operations, thereby making accountability for results difficult or impossible to measure; * Management inability to correctly establish priorities; * A high rate of personnel turnover in key occupations related to Customs activities; * Inadequate Customs training for personnel responsible for reporting, monitoring or otherwise involved in Customs activities; Copyright CM Key 2018

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* Poor communication systems regarding Customs requirements and reporting; and * Poor oversight of Customs brokers and other agents involved in Customs activities. TRAINING BACK TOC It is important for all employees to be aware of their responsibilities under the Customs laws and to keep current as to any changes in the legal requirements applicable to imports. The Import Department will develop training programs for their employees. Determine Party responsible for Training and review record. (Include as part of audit report) Documentation All training sessions will be documented, including a list of attendees, training date(s), and topics covered. In addition, the Import Department will maintain training materials on file for reference. Is there Training Documentation? What employees have received training? New Employees Supervisors Employees • Import • Accounting • Customer Service • Purchasing • Shipping/Receiving Engineering Employees with Customs responsibilities in the following departments will have a refresher Customs Compliance training course Yearly Record of: • Accounting • Purchasing • Shipping/Receiving • Engineering Services New Employee Training All new employees will receive a minimum of two hours of Customs Compliance Training. The training will be coordinated and provided by the Personnel Department. The training will cover at a minimum: • Your organizational structure for Customs activities and its policy regarding Customs compliance; • The role of the Import Department; and Information on how to obtain assistance if a Customs issue or question arises. Supervisors Training Supervisors for the following Departments will receive yearly refresher training on Customs IMPORT Compliance procedures:

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• Upper Level Management • Accounting • Purchasing • Shipping/Receiving • Engineering Director Import Department will review the Import/ Customs Compliance Manager’s training files to ensure required training of supervisors and current employees is being conducted. Train on Classification Valuation Admissibility Security Reference Materials (include in audit report) BACK TOC The Customs Service has issued a number of “Informed Compliance Publications” which are designed to assist importers in complying with the Customs Laws and Regulations. The following is a list of some of the Informed Compliance Publications available from the Import Department or Customs Web site, WWW.CBP.GOV: What Every Member of the Trade Community Should Know About: • Bona Fide Sales and Sales For Exportation • Buying And Selling Commissions • Customs Value • Tariff Classification • Proper Deductions for Freight & Other Costs • Reasonable Care • Records and Recordkeeping Requirements • The ABC’s of Prior Disclosure • Informed Compliance Publications In addition to the above publications, the Import Department has the following publications available for reference: • Code of Federal Regulations, Title 19, Parts 1 to 199 (Customs Regulations) • Harmonized Tariff Schedule of the United States (with Explanatory Notes) • Importing Into the United States

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MARKING Marking falls under Admissibility. Import personnel trained in Customs Regulations Part 134. TOC CBP inspections in this area result in delays and extra costs as result of not meeting this admissibility requirement. How many shipments have received notice to mark? What instructions have been given to purchasing to require adherence to marking requirements?

CBP PRIORITY TRADE ISSUES Agriculture and Quota ANTIDUMPING AND countervailing Duty (AD/CVD) Import Safety Intellectual Property Rights go to page 57 illustration Revenue Textile/Wearing Apparel Trade Agreements

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ENTRY TYPE POINT TO RISK AREAS Determine type codes on your entries and indicator codes BLOCK 2) ENTRY TYPE (CR 141, 142, 143, 144, 146, 147 Record the appropriate entry type code by selecting the two-digit code for the type of entry summary being filed. The first digit of the code identifies the general category of the entry (i.e., consumption = 0, informal = 1, warehouse = 2). The second digit further defines the specific processing type within the entry category. The following codes shall be used: BACK TOC RISK evaluate your activity type ENTRY TYPE can be a risk indicator Consumption Entries Free and Dutiable 01 Quota/Visa 02 Antidumping/Countervailing Duty (AD/CVD) 03 Appraisement 04 Vessel Repair 05 Foreign Trade Zone Consumption 06 Quota/Visa and AD/CVD combinations 07 Duty Deferral 08 Informal Entries Free and Dutiable 11 Quota Other than textiles 12 Warehouse Entries Warehouse 21 Re-Warehouse 22 Temporary Importation Bond 23 Trade Fair 24 Permanent Exhibition 25 Foreign Trade Zone Admission 26 Warehouse Withdrawal For Consumption 31 Quota/Visa 32 AD/CVD 34 Quota/Visa and AD/CVD combinations 38 Government Entries Defense Contract Management Command (DCMAO NY) Military Only (P99 filer) 51 Any U.S. Federal Government agency (other than DCMAO NY) 52 Note: When the importer of record of emergency war materials is not a government agency, entry type codes 01, 02, 03, etc., as appropriate, are to be used. Transportation Entries Immediate Transportation 61 Transportation and Exportation 62 Immediate Exportation 63 TYPE ENTRY POINTS TO RISK COMPLEXITY

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HOW TO Importer is required to exercise “Reasonable Care” in conducting business . In law the “Prudent Businessman Rule” is defined as “to act as a reasonable prudent businessman would under similar circumstances”. The Customs Modernization Act triggered the first audit program, Draft Importer Audit Program, DIAP1095) October 1995. In that report there were some results and recommendations that you should consider in performing an internal audit. TOC

References A. Customs Booklet "Importing Into the United States" published annually. B. 19 CFR 141 - Entry of Merchandise. C. 19 CFR 142 - Entry Process. D. Customs Directive 3550-24, dated September 8, 1987, Subject: Entry Simplification - Entry Summary and Entry/Entry Summary Flow. E. Customs Directive 3550-061, dated September 18, 1992, Subject: Instructions for Preparation of CF 7501 F. 19 CFR 152 (Subpart E) – Valuation of Merchandise. G. Customs Handbook, dated October 1981, Re: Customs Valuation Under the Trade Agreements Act of 1979. H. Customs Handbook, dated December 1984, Re: Customs Valuation Rulings Under the Trade Agreements Act of 1979 (Volume I). I. Customs Handbook, dated August 1987, Re: Custom Valuation Rulings Under the Trade Agreements Act of 1979 (Volume II). J. Customs Valuation Encyclopedia, 1980 - 1996(7)* These are available on CBP site or other internet sites. Check of references should show these as used or available. YOUR internal audit should fall under Importer Self Assessment based upon the Focused Assessment. Focused Assessment is performed by CBP Auditors and can be very thorough and time consuming. You want to avoid . ERRORS 1. Manufacturing assists. 2. Supplemental payments. 3. Non-dutiable costs. 4. Merchandise classification. 5. American Goods Returned. 6. Use of American components. 7. Related-party transactions. 8. Buying commissions. 9. Record keeping. RISK ASSESSMENT Automated Commercial System (ACS) queries can be made on many different factors. Examples of criteria queries are: • Manufacturer Identification Code (MID) Copyright CM Key 2018

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• Importer Identification Number/Consignee • Country of Origin • Tariff Number • Export Date • Relationship

TOC

• Other These queries provide information: Identify consignees importing the particular merchandise under review. Identify consignees that are unrelated or related to the manufacturer. Identify entries of merchandise exported to the U.S. at or about the same time as those subject to review. Queries will provide discrepancy incidents recorded in the system. Classification Value Unit/Origin Special Programs Currency Discounts Quantity IR-Tax Anti-Dumping Countervailing Duty Assists Clerical Error Marking Quota/Visa Trademark/Copyright Other Agency Restrictions/Prohibitions ACS Data Query is an enforcement tool for all disciplines. It enables the user to select data from the ACS data base files to manipulate and display selected data returns as desired.

ENTRY TYPE IS GOOD RISK INDICATOR!

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A screen example follows: ESS HISTORY QUERY MENU DATE

TOC

Fill in requested key data fields for one of the keys below KEY 1 = RDP:_____________CONSIGNEE:___________TARIFF:____________ MID:_______________________C/O:________CREATE DATE(YYMM):_____ KEY 2 = CONSIGNEE:__________________TARIFF:______________ KEY 3 = CONSIGNEE:__________________MID:_______________C/O:_____RDP:______ KEY 4 = MID:________________________C/O:_______CONSIGNEE:__________________ KEY 5 = C/O:______CONSIGNEE:____________RDP:______CREATE DATE (YYMM)____ KEY 6 = TARIFF:___________C/O:______CREATE DATE (YYMM)________ KEY 7 = RDP:_______MID:______________TARIFF:___________CREATEDATE:_____ KEY 8 = RDP:________TARIFF:____________CONSIGNEE:__________________ KEY 9 = RDP:________C/E_________TARIFF:_________CONSIGNEE:________________ KEY A = C/E:____________TARIFF:____________CONSIGNEE:_______________ This is an illustration of one screen of queries available through the import Automated Commercial System (ACS). Similar export screens are available for data extraction and enforcement. Census and Bureau of Industry and Security databases are available on export. This is an illustration of one screen of queries available through the import Automated Commercial System (ACS). Similar export screens are available for data extraction and enforcement. Census and Bureau of Industry and Security databases are available on export. Importer No. ACTIVITY SNAPSHOT 54-763254201A HTSUS Value C/O X20 3217654-3 8467.21.0030 1000000 X20 3217654-3 A8467.21.0030 5000000 X20 3217654-3 MX8467.21.0030 4000000 MX X20 3217655-2 8482.10.5044 500000 X20 3217745-9 8483.10.5000 1000000 X20 3227654-6 8483.30.8070 50000 X20 3417612-5 9802.00.8060 100000 X20 3527713-4 8431.39.0050 25000000 X20 3626662-7 8708.99.8080 10000000 X20 3514321-8 8431.20.0000 5000000 X20 3621428-3 7318.15.2065 1000000 X20 3542156-2 7318.22.0000 1000000

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DE TH DE UK IT BR VZ FR JP JP DE


Importer No. ACTIVITY SNAPSHOT 54-763254201A HTSUS Value C/O X20 3621432-7 A7318.15.6080 500000 TH X20 3621432-7 CL7318.15.6080 750000 CL X20 3621432-7 SG7318.15.6080 100000 SG X20 3621432-7 7318.15.6080 100000 CH X20 3325621-6 J7326.90.8505 900000 BO X20 3335526-1 CA7318.12.0000 750000 CA X20 2526663-2 7318.24.0000 10500 FI X20 2526663-2 7320.20.5020 1500 IT X20 2526663-2 7318.15.8020 8500 JP X20 2526663-2 7307.22.1000 7425 DE X20 2526663-2 7307.92.3030 8575 CN X20 2526663-2 7307.99.5060 8950 TW X20 2526663-2 4009.11.0000 12500 JP X20 2526663-2 4009.21.0000 11450 JP X20 2665432-1 4016.93.1010 7500 DE X20 2665432-1 4016.93.5010 8450 DE X20 2665432-1 4016.93.5010 8450 DE X20 2665432-1 4016.93.5050 14525 NL X20 2665432-1 4016.99.6050 4525 UK X20 2665432-1 4017.00.0000 12250 UK Risk Assessment X20 3217654-3 8467.21.0030 1000000 DE (1) X20 3217654-3 A8467.21.0030 5000000 TH (2) X20 3217654-3 MX8467.21.0030 4000000 MX (3) X20 3217655-2 8482.10.5044 500000 DE (4) X20 3217745-9 8483.10.5000 1000000 UK (5) X20 3227654-6 8483.30.8070 50000 IT (6) X20 3417612-5 9802.00.8060 100000 BR (7) X20 3527713-4 8431.39.0050 25000000 VZ (8) X20 3626662-7 8708.99.8080 10000000 FR (9) X20 3514321-8 8431.20.0000 5000000 JP (10) X20 3621428-3 7318.15.2065 1000000 JP (11) X20 3542156-2 7318.22.0000 1000000 DE (12) X20 3621432-7 A7318.15.6080 500000 TH (13) X20 3621432-7 CL7318.15.6080 750000 CL (14) X20 3621432-7 SG7318.15.6080 100000 SG (15) X20 3621432-7 7318.15.6080 100000 CH (16) X20 3325621-6 J7326.90.8505 900000 BO (17) X20 3335526-1 CA7318.12.0000 750000 CA (18) (1) drills – correct class? (2) Drills – Thailand GSP? (3) Drills – Mexico NAFTA (4) Bearings – dumping (5) Transmissions (other ? class) Copyright CM Key 2018

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BACK TOC


(6) Plain shaft bearings class vs. radial bearings duty rate?– dumping (7) Assembly ops (8) Class parts eo nominee free as class’d vs individual duties (9) Parts other vs. specific class (10) Parts vs specific provisions Free Vs dutiable (11) bolts (free) vs screws 8.5% (12) other washers vs. spring/lock 5.8% (13) GSP and class by type/diameter (14) Chile free vs. 6.2% as well as class (15) Singapore 4.6% vs 6.2% and Class 6mm or more 8.5% (16) regular col 1 rate 6.2% (17) Origin 2.9% col 1 rate (18) regular rate 12.5%; transshipment ? Importer No. BACK TOC 54-763254201A HTSUS Value C/O X20 3527713-4 8431.39.0050 25000000 VZ X20 3626662-7 8708.99.8080 10000000 FR X20 3514321-8 8431.20.0000 5000000 JP X20 3217654-3 A8467.21.0030 5000000 TH X20 3217654-3 MX8467.21.0030 4000000 MX X20 3621428-3 7318.15.2065 1000000 JP X20 3542156-2 7318.22.0000 1000000 DE X20 3217745-9 8483.10.5000 1000000 UK X20 3217654-3 8467.21.0030 1000000 DE X20 3325621-6 J7326.90.8505 900000 BO X20 3621432-7 A7318.15.6080 500000 TH X20 3621432-7 CL7318.15.6080 750000 CL X20 3335526-1 CA7318.12.0000 750000 CA X20 3217655-2 8482.10.5044 500000 DE X20 3621432-7 7318.15.6080 100000 CH X20 3621432-7 SG7318.15.6080 100000 SG X20 3417612-5 9802.00.8060 100000 BR X20 3227654-6 8483.30.8070 50000 IT X20 2665432-1 4016.93.5050 14525 NL X20 2665432-1 4017.00.0000 12250 UK X20 2665432-1 4016.93.5010 8450 DE X20 2665432-1 4016.93.1010 7500 DE X20 2665432-1 4016.99.6050 4525 UK X20 2526663-2 7318.24.0000 10500 FI X20 2526663-2 4009.11.0000 12500 JP X20 2526663-2 7307.99.5060 8950 TW X20 2526663-2 7307.92.3030 8575 CN X20 2526663-2 7318.15.8020 8500 JP X20 2526663-2 4009.21.0000 11450 JP X20 2526663-2 7307.22.1000 7425 DE X20 2526663-2 7320.20.5020 1500 IT SORT by value shows areas that should be addressed by priority (to a degree). It is a point to begin a self assessment. Copyright CM Key 2018

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You MUST GRAB DATA EITHER THROUGH YOUR RECORDS OR CBP Account Representative assigned through C-TPAT participation. Manipulate the data to obtain overview of risks and address the import activity. You should have a Compliance Manual for Imports and for Exports. Without a manual highly likely at RISK. There should be an effective internal control system. It should reflect regular monitoring.

Trained personnel and communication are essential. THE FOLLOWING SHOULD BE EVALUATED. Then, the specifics of entries. If lacking a manual; internal controls; information & communication, monitoring –high risk. For Internal Audit look at company's organizational structure and internal controls related to Customs transactions, the company's import operations and internal control structure.: • General Corporate Structure • Control Environment

TOC

• Risk Assessment • Control Procedures • Information and Communication • Monitoring • Miscellaneous (general ledger, post closing trial balance, import costs accounts) There are not requirements for company compliance manuals for import or export. It is advisable to have them. Without a manual, the risk is high that you are not in compliance. It is very difficult to try to play catch-up. Having a manual and internal controls are indicators that the risk of non-compliance is reduced. Does company have them? The auditor selects entry records for that importer from Customs' database of entries for that importer. Often Customs has found that the price stated on the commercial invoice is not always the “total price paid or payable” for imported merchandise. Importers often provide assists, in the form of parts, tooling, equipment, design information, or make separate payments to the supplier or a third party for such items. Customs value law requires that importer declare these assists or supplemental payments at the time of entry. Failure to do so is a violation of law, and can subject the importer to penalties. Customs audits will likely address if any assists or supplemental payments exist by examining the importer's financial transactions from accounts payable and general ledger records. Many importers do not segregate their foreign vendor payments from payments made to domestic suppliers; this often leads to delays. Clearly, an importer can screen out payments and reimbursements to employees and vendors for maintenance of domestic facilities. However, it is also likely that some foreign vendors will request payment be made to a U.S. address or bank. Likewise, it is also possible that a U.S. domiciled supplier may provide parts, tooling, or equipment to a foreign assembler at the request of the importer. It is, therefore, important to discuss early on with your Auditor what this report is to look like, of what it is to consist, and what information is required. Once the Auditor has the report in hand, he or she will select a Copyright CM Key 2018

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number of transaction payments (between 10 and 20 plus/minus) for review. Customs will ask for all records related to the payment, including the original invoice, and a description of what the payment was for. If the payment was for imported merchandise or related to the production or shipment of imported merchandise, Customs will request a copy of the entry document or other record showing that the payment was reported to customs. This audit follows the GAO Yellow Book Chapter 6 Field Work Standards for Performance Audits. This (Internal Audit) follows a performance audit standard. www.gao.gov/assets/590/587281.pdf

Definition of Internal Control AICPA SAS 78 (paragraphs 6–7) states the following regarding internal controls: Internal control is a process — effected by an entity’s board of directors management, and other personnel—designed to provide reasonable assurance regarding the achievement of objectives in the following categories: TOC (a) reliability of financial reporting, (b) effectiveness and efficiency of operations, and (c) compliance with applicable laws and regulations. Internal control consists of the following five interrelated components. a. Control environment sets the tone of an organization, influencing the control consciousness of its people. It is the foundation for all other components of internal control, providing discipline and structure. b. Risk assessment is the entity’s identification and analysis of relevant risks to achievement of its objectives, forming a basis for determining how the risks should be managed. c. Control activities are the policies and procedures that help ensure that management directives are carried out. d. Information and communication are the identification, capture, and exchange of information in a form and time frame that enable people to carry out their responsibilities. e. Monitoring is a process that assesses the quality of internal control performance over time. Relationship Between Objectives and Components The relationship between objectives and components of internal controls is explained in AICPA SAS No. 78 as summarized and illustrated below. There is a direct relationship between objectives, which are what an entity strives to achieve, and components, which represent what is needed to achieve the objectives. In addition, internal control is relevant to the entire entity or to any of its operating units or business functions. These relationships are depicted in the following figure.

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Generally, controls that are relevant to an audit pertain to the entity’s objective of preparing financial statements for external purposes. Controls relating to operations and compliance are particularly relevant to Customs compliance audits because they pertain to the Customs team’s evaluation of the risk to Customs that the company’s importing process may result in significant noncompliance with laws and regulations (Sarbanes-Oxley noted) Objectives • *financial reporting • *operations • *compliance

Components • *control environment • *risk assessment • *control activities • *information & communication • *monitoring Entity • *functions • *units

TOC

All of these are a system of internal control. The five components of internal control are applicable to assessments of compliance with Customs requirements. The components should be considered in the context of the following: • The entity’s size. • The entity’s organization and ownership characteristics. • The nature of the entity’s business. • The diversity and complexity of the entity’s operations. • The entity’s methods of transmitting, processing, maintaining, and accessing information. • Applicable legal and regulatory requirements. Benefits of Internal Control Assessments Internal control assessments can help auditors perform assignments more quickly and work with greater assurance that objectives are achieved. Such assessments help to: Copyright CM Key 2018

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• Determine when internal controls can be relied on to reduce audit testing, • Focus on areas of weakness for emphasis during the assignment, and • Identify potential causes of problems or deficiencies to which recommendations for corrective action can be directed. TOC Internal controls, no matter how well designed and implemented, can provide only reasonable assurance regarding achievement of an entity’s control objectives. The likelihood of achievement is affected by limitations inherent to internal control, such as human judgment in decision making and human errors or mistakes. In addition, the cost of internal controls should not exceed the expected benefits. Usually, precise measurement of costs and benefits is not possible. Accordingly, management makes both quantitative and qualitative estimates and judgments in evaluating cost-benefit relationships. The steps taken to assess controls may simultaneously help attain other objectives, such as resolving the overall assessment objective or assessing compliance with applicable laws and regulations. The audit objective determines the extensiveness of internal control assessment as well as the scope and methodology of the audit. Assignments with broad objectives are generally more difficult and require more resources and time than assignments with limited objectives. Therefore, objectives should be defined as precisely as possible to preclude unnecessary work while meeting the assignment’s purpose. Assessing Risk The following guidance should be used for assessing risk: • If the Customs team concludes that transaction testing can be limited because the company has an acceptable level of internal controls, the Customs team must document the controls and tests of those controls made to assure their operation and effectiveness. • The Customs team can use a combination of different types of tests to get sufficient evidence of a control’s effectiveness. • Inquiries alone generally will not support an assessment that internal controls are adequate and effective. • Observation provides evidence about a control’s effectiveness only at the time observed; it does not provide evidence about its effectiveness during the rest of the period under audit. • The Customs team can use evidence from tests of controls done in prior audits, but it has to obtain evidence about the nature and extent of significant changes in policies, procedures, and personnel since it last performed those tests. Evaluating Internal Controls The first step in evaluating internal controls is to determine the risk exposure, which is the likelihood of significant noncompliance with laws and regulations. The next step in the process is to review the system of internal control. The relationship of risk exposure to the system of internal control determines the nature and extent of audit tests. The audit tests provide an evaluation of the effectiveness of internal controls. The combined results from the risk exposure, review of the design of the internal control system, and tests of internal controls are the basis for an opinion on the adequacy of internal controls. The extensiveness of tests of internal controls is illustrated Determining Extensiveness of Audit Test Risk Exposure + System of Internal Control = Extensiveness of Audit Test High Weak High Copyright CM Key 2018

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Table adapted from the GAO Gray Book. TOC AICPA SAS 78 (paragraphs 19–21) provides the following internal control guidance: In all audits, the auditor should obtain an understanding of each of the five components of internal control sufficient to plan the audit by performing procedures to understand the design of controls relevant to an audit of financial statements, and whether they have been placed in operation. In planning the audit, such knowledge should be used to— • Identify types of potential misstatements. • Consider factors that affect the risk of material misstatement. • Design substantive tests. The nature, timing, and extent of procedures the auditor chooses to perform to obtain the understanding will vary depending on the size and complexity of the entity, previous experience with the entity, the nature of the specific controls involved, and the nature of the entity’s documentation of specific controls. For example, the understanding of risk assessment needed to plan an audit for an entity operating in a relatively stable environment may be limited. Also, the understanding of monitoring needed to plan an audit for a small, noncomplex entity may be limited. Whether a control has been placed in operation is different from its operating effectiveness. In obtaining knowledge about whether controls have been Focused Assessment Program Exhibit 3B placed in operation, the auditor determines that the entity is using them. Operating effectiveness, on the other hand, is concerned with how the control was applied, the consistency with and by whom which it was applied. For example, a budgetary reporting system may provide adequate reports, but the reports may not be analyzed and acted on. This Statement does not require the auditor to obtain knowledge about operating effectiveness as part of the understanding of internal control. Although SAS 78 does not require the auditor to obtain knowledge about operating effectiveness as part of understanding of internal control, knowledge about operating effectiveness is necessary to determine the reliability of internal controls, decide the extent of audit testing, and assess risk. Therefore, Customs assessments of internal controls will include evaluations of the effectiveness of internal controls. Copyright CM Key 2018

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Assessing Risk Exposure The key considerations of risk exposure for audits of Customs compliance are: • Significance and Sensitivity • Susceptibility • The Existence of “Red Flags” • Management Support • Competent Personnel

Significance and Sensitivity The Gray Book (pages 16–17) defines significance and sensitivity as follows: TOC Significance refers to the importance of items, events, information, matters, or problems. Frequently significance can be assessed in terms of dollars. In other instances, assessing significance requires a more subjective judgment. For example, the unauthorized use of a government vehicle in a single instance is normally considered of limited significance, but unsafe operation of a nuclear power plant is of great significance since a failure could be a catastrophe. Sensitivity refers to the likely perception and emotional response by others to conditions or circumstances. Determining sensitivity requires judgment based on the circumstances in each case, but some issues likely to be judged as sensitive include: • issues that have received media coverage; • issues that have been the subject of congressional interest and inquiry; • issues of a highly partisan nature; • issues involving mistreatment of children or the elderly; and • issues involving environmental contamination or pollution. A high degree of risk exposure may be indicated by either the significance or the sensitivity of the subject matter under review, or matters may be both significant and sensitive. Issues likely to be judged significant and sensitive by Customs include the issues listed above as well as issues of antidumping/countervailing duty, transshipments, Intellectual Property Rights, health and safety, and others. Susceptibility Susceptibility refers to the propensity for noncompliance with laws and regulations. An issue of large significance does not necessarily involve great susceptibility. For example, the risk of misclassification of large quantities of imports may have a high significance because the total duty involved may be high. But these imports may not have a high susceptibility to misclassification if a limited number of Harmonized Trade Schedule of the United States (HTSUS) numbers are involved and the classification issues are not complex. The Customs team should formulate questions to assess susceptibility based on the inherent nature of the import. Examples of questions to ask follow: • Is the imported item, manufacturer, country of origin, or other element designated as high risk by Customs? • Does Customs have information that indicates internal control weaknesses pertaining to the importer? • Do incentives to make false representations/ declarations outweigh the penalties? Copyright CM Key 2018

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• Are requirements imposed reasonable, or are they so complicated and cumbersome that failure to comply can be expected? • Does the activity have numerous transactions or diverse activities? • Does the importer contract out activities without adequate control systems?

Existence of any “Red Flags” TOC Be alert to and consider any red flags, including: • A prior history of Customs problems; • A history of material weaknesses described in prior Customs audits; • Poorly defined and documented internal control procedures; • Lack of or ineffective monitoring of Customs operations; • Complex Customs transactions; • Lack of specific performance measures for Customs operations, thereby making accountability for results difficult or impossible to measure; • Management inability to correctly establish priorities; • A high rate of personnel turnover in key occupations related to Customs activities; • Inadequate Customs training for personnel responsible for reporting, monitoring or otherwise involved in Customs activities; • Poor communication systems regarding Customs requirements and reporting; and • Poor oversight of Customs brokers and other agents involved in Customs activities. If there is not compliance manual, there is not a monitoring system, there is not a internal control system, a high risk exists for non-compliance. Management Support The Customs team should consider whether management recognizes the importance of, and has made a commitment to implement, internal controls of Customs operations. Examples of questions to ask follow: • Has management set the right tone by clearly stating, in writing, its expectations for compliance with Customs requirements? • Is there a strong and competent organization within the company to assure Customs compliance? • Does the Import Department have sufficient authority within the organization to assure Customs compliance? • Does management require periodic reviews of Customs operations? • Does management promptly respond when Customs problems are identified, or have problems been repeatedly disclosed in prior audits/evaluations? • Is management knowledgeable about Customs and potential Customs issues? • Is management willing to discuss various aspects of Customs operations cooperatively? AICPA SAS 78 (paragraph 25) discusses this concept as the control environment that sets the tone of a organization, influencing the control consciousness of its people. The control Copyright CM Key 2018

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environment is the foundation of all other components of internal control, providing discipline and structure. Competent Personnel Managers and employees responsible for Customs operations should maintain a level of competence that allows them to accomplish their duties as well as understand the importance of developing and implementing good internal controls. Examples of questions to ask follow: • Is there a stable management team with continuity? • Are employees periodically reminded of their responsibilities? • Are employees provided with needed formal and on-the-job training? TOC Assessing the Effectiveness of the Internal Control System After assessing risk exposure, the Customs team should review the internal control system and then test internal controls to assess the effectiveness of the internal control system. In most cases, internal control assessments are necessary to ensure that audit work will meet assignment objectives. Any transaction examined might be atypical. Control assessments give evidence whether transactions are likely to be handled in the same manner. Internal controls for Customs compliance should be designed to include the five components of internal control: (1) control environment, (2) risk assessment, (3) control activities, (4) information and communications, and (5) monitoring. The Gray Book lists the following key steps in assessing internal controls: • Identify and understand relevant internal control(s); • Determine what is already known about control effectiveness; • Assess adequacy of control design; • Determine if controls are properly implemented;& • Determine if transactions are properly documented. Internal control testing is particularly important in the last three steps for assessing internal controls. The objective of determining the effectiveness of internal controls is to determine the extent to which they can be relied on and thereby reduce the extent of audit testing. The greater the reliance that can be placed on internal controls, the less testing may be required. Identifying Controls The auditor must identify the controls that are needed to assure Customs compliance. An effective internal control system consists of five components. Internal control of Customs activities should be designed to include controls for the five components. The following information can be used to identify the controls necessary to assess the components of a Customs control system: • The control environment sets the tone of the organization. Management and employees should have a positive and supportive attitude toward Customs internal control and conscientious management of Customs-related operations. Management should support the development and maintenance of effective internal control. The control environment includes a message of integrity and ethical values, commitment to competence of personnel, an organizational structure that contributes to effective internal control for Customs operations, and a philosophy and operating style that supports the development and maintenance of effective internal control. • Risk assessment is an evaluation of risk pertaining to Customs activities. Management should establish clear and consistent company-wide objectives and support activity-level Copyright CM Key 2018

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objectives related to Customs activities. Management should make a thorough identification of risks from both internal and external sources. Management should analyze those risks and develop an appropriate approach to manage risk. Mechanisms should be in place to identify changes that may affect the company’s ability to achieve its missions, goals, and objectives related to Customs activities. TOC • Control activities are policies, procedures, techniques, and control mechanisms to ensure adherence to established Customs requirements. Proper control activities should be developed for each of the company’s Customs activities. A system for Customs compliance includes the methods and records used to identify, assemble, analyze, classify, record, and accurately report Customs information and maintain accountability for Customs compliance. • Information and communication systems must be in place to identify and record pertinent operational and financial information relevant to Customs activities. A system must be in place to communicate information to management responsible for Customs activities and others within the company who need it, in a form that enables them to carry out their duties and responsibilities efficiently and effectively. Such a system also assures that effective external communications occur with groups that can affect the achievement of the company’s missions, goals, and objectives related to Customs. • Monitoring assesses the quality of performance related to Customs activities over time. Management should have procedures in place to monitor internal control continuously as a part of the process of carrying out its regular activities. In addition, separate evaluations of internal control should be performed periodically and deficiencies investigated. Findings of all audits and other reviews should be evaluated, decisions made about the appropriate response, and actions taken to correct or otherwise resolve the issues. Internal control component guidance is modified from the GAO Exposure Draft Internal Control Management and Evaluation Tool.4 Known Control Effectiveness The Customs team should consider what is known about control effectiveness. If Customs or another organization made an internal control assessment, the Customs team should consider how recent and thorough the assessment was, as well as the organization’s reputation, qualifications, and independence. A determination can then be made whether to rely on the results or do additional tests. If prior control assessments are considered to be sufficiently recent and thorough, the Customs team need not further assess internal control design and effectiveness. Assessing Control Design Considering the information developed during the assessment of risk exposure, the Customs team should decide what is most likely to be wrong (e.g., valuation, classification, special trade programs). Then the internal controls should be examined to determine whether they are logical, reasonably complete, and likely to deter or detect possible failures or errors that will result in noncompliance. Generally, the greater the risk exposure, the stronger the internal controls should be. Controls should provide reasonable but not absolute assurance of deterring or detecting noncompliance. In assessing the extensiveness of needed controls, the Customs team should consider the reasonableness of the controls in relation to the benefits to be gained.

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Assessing Control Implementation TOC Even though internal controls may be logical and well-designed and may seemingly be strong, system effectiveness may be impaired if control procedures are not correctly and consistently used. . . .Thus, the extent that control procedures are adhered to should be determined. Control procedures may not be complied with because management may override them; employees may secretly be working together (collusion) to avoid using or circumvent them; and employees may not be correctly applying them due to fatigue, boredom, inattention, lack of knowledge, or misunderstanding. Sufficient testing should be conducted to afford a reasonable basis for determining whether the controls are being consistently applied. Proper Transaction Documentation Transactions and events pertaining to Customs compliance should be clearly documented, and documentation should be readily available for examinations. Examples of questions to ask follow: • Are internal control objectives and procedures formalized in writing? • Are all transactions and events adequately documented, and is documentation readily available for examination? • Does documentation show personnel involved in monitoring, evaluation methods used, key factors considered, tests performed, and conclusions reached? • Does documentation show corrective actions taken for problems identified during monitoring processes? • Are follow-ups to verify adequacy of corrective actions documented? In summary, when evaluating internal control, Customs audits must consider the five components of internal control, five factors for determining risk exposure, and five factors for assessing the design and effectiveness of the internal control system. This internal control approach is summarized in the 5-5-5 Guidance in Appendix I. Determining Reliability of Computer-Processed Data Generally accepted government auditing standards in the Yellow Book (paragraph 6.62) require that computer-processed data be valid and reliable when those data are significant to the auditors’ findings. This is generally done through tests such as macro tests, comparison of company data to Customs Data, and verifications of computer data to audited financial statements when possible. Reporting on Internal Control Assessments The Yellow Book sets specific standards for reporting on internal controls. These standards will be applied in Customs audits. 1 United States General Accounting Office, Government Auditing Standards, 1999 revision. 2 United States General Accounting Office, Office of Policy, Assessing Internal Controls in Performance Audits, GAO/OP-4.1.4, September 1990. 3 American Institute of Certified Public Accountants, Statement on Accounting Standards No. 78, Consideration of Internal Control in a Financial Statement Audit, December 1995 . 4 United States General Accounting Office, Internal Control Management and Evaluation Tool EXPOSURE DRAFT, GAO-01-131G, February 2001. Copyright CM Key 2018

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How to Assess Internal Controls 5 Considerations for 5 Considerations to Risk Exposure, Determine: Assess Control Effectiveness: * Significance and Sensitivity * Identify and Understand Controls. * Susceptibility * What Is Known about Control Effectiveness? * Examine Control Design. * Red Flags * Management Support * Are Controls Implemented? * Competent Personnel * Are Transactions Documented?

TOC

Internal Control Component Control Environment Management and employees have a positive and supportive attitude toward Customs internal control and conscientious management of Customs-related operations. Management conveys the message that integrity and ethical values must not be compromised. Management has a philosophy and operating style that is appropriate to the development and maintenance of effective internal control for Customs as evidenced by the following: • The company demonstrates a commitment to the competence of its personnel responsible for Customs-related activities. • The company’s organizational structure and the way in which it assigns authority and responsibility for Customs operations contribute to effective internal control. • The company’s management cooperates with auditors, does not attempt to hide known problems from them, and values their comments and recommendations. Risk Assessment The company has established clear and consistent company-wide objectives and supporting activity-level objectives related to Customs activities as evidenced by the following: • Management has made a thorough identification of risks pertaining to Customs activities, from both internal and external sources that may affect the ability of the company to meet those objectives. • An analysis of those risks has been performed, and the company has developed an appropriate approach for risk management. • Mechanisms are in place to identify changes that may affect the company’s ability to achieve its missions, goals, and objectives related to Customs activities. Control Activities Appropriate policies, procedures, techniques, and control mechanisms have been developed and are in place to ensure adherence to established Customs requirements. Control activities are evidenced by the following: • Proper control activities have been developed and documented for each of the company’s Customs activities. • The control activities identified as necessary are actually being applied properly. • All documentation of transactions and records are properly managed, maintained, and reviewed as necessary. • Control procedures are reviewed and revised as necessary. Copyright CM Key 2018

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Information and Communications TOC Information systems are in place to identify and record pertinent operational and financial information relevant to Customs activities. Management ensures that effective internal communications take place. The company employs various forms of communications appropriate to its needs and manages, develops, and revises its information systems in a continual effort to improve communications. Effective information and communication for Customs are evidenced by the following: • Appropriate information is identified, recorded, and communicated to management responsible for Customs activities and others within the company who need it and in a form that enables them to carry out their duties and responsibilities efficiently and effectively. • Effective external communications occur with groups that can affect the achievement of the company’s missions, goals, and objectives related to Customs activities. • Individual roles and responsibilities for Customs activities are communicated through policy and procedure manuals. Monitoring Company internal control monitoring assesses the quality of performance related to Customs activities over time. Monitoring is evidenced by the following: • Procedures to monitor internal control occur on an ongoing basis as a part of the process of carrying out regular activities. • Separate evaluations of internal control are periodically performed, and deficiencies found are investigated. • Procedures are in place to ensure that the findings of all audits and other reviews are promptly evaluated, decisions are made about the appropriate response, and actions are taken to correct or otherwise resolve the issues promptly. Source: Adapted from United States General Accounting Office, Internal Controls Management and Evaluation Tool EXPOSURE DRAFT, GAO-01-131G, February 2001.Focused Assessment Program (Also listed as 4H) This document is an Internal Control Management and Evaluation Tool. Although use of this tool is not required, it is intended to help management and evaluators determine how well a company’s internal control is designed and functioning and help determine what, where, and how improvements, when needed, may be implemented. This is a good tool for auditors to use when developing questions and conducting interviews with company personnel, particularly in large, complex companies. The tool is presented in five sections corresponding to the five components of internal control: (1) control environment, (2) risk assessment (3) control activities, (4) information and communications (5) monitoring Space is provided beside each issue for the user to note comments or provide descriptions of the circumstances affecting the issue. Comments and descriptions usually will not be of the “yes/no” type, but will generally include information on how the company does or does not address the Copyright CM Key 2018

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issue. This tool is intended to help users reach a conclusion about the company’s internal control as it pertains to the particular component. TOC This tool could be useful in assessing internal control in compliance with laws and regulations. It could also be useful in assessing internal control as it relates to various Customs activities within a company. This tool is not authoritative but is intended as a supplemental guide that managers and evaluators may use in assessing the effectiveness of internal control and identifying important aspects of control in need of improvement. Users should keep in mind that this tool is a starting point and that it can and should be modified to fit the circumstances, conditions, and risks relevant to the situation of the company. Not all of the issues need to be considered for every company or activity. Not all of the points or subsidiary points need to be considered for every company or activity. Users should consider the relevant points and subsidiary points and delete some or add others as appropriate to their particular entity or circumstances. Control Environment According to the first internal control component, which relates to control environment, management and employees should establish and maintain an environment throughout the organization that sets a positive and supportive attitude toward internal control and conscientious management. Several key factors affect the accomplishment of this goal. Management and evaluators should consider each of these control environment factors when determining whether a positive control environment has been achieved. The factors that should be focused on are listed below. Management and evaluators should concentrate on the substance of controls rather than their form, because controls may be established but not acted upon. Internal Control Point Comments/Descriptions Integrity and Ethical Values 1.Management has promoted a climate that emphasizes integrity and ethical behavior by its Import Department employees. The company employs a code of conduct that emphasizes proper behavior and sets penalties for unethical conduct. 2.Dealings with Customs are conducted on a high ethical plane. • Reports to Customs are proper and accurate (not intentionally misleading). • Management cooperates with auditors and other evaluators, does not attempt to hide known problems from them, and values their comments and recommendations. 3.The company has a well- defined and understood process for dealing with Customs requests and concerns in a timely and appropriate manner. Commitment to Competence 1. Management has performed analyses of the knowledge, skills, and abilities needed to perform Customs-related jobs in an appropriate manner. 2. The company provides training and counseling in order to help employees maintain and improve their competence for the job relating to Customs. • There is an appropriate training program to meet the needs of employees. • The company emphasizes the need for continuing training and has a control mechanism to help ensure that all employees actually received appropriate training. Comments/ Descriptions Management’s Philosophy & Operating Style 1. Management employs a philosophy that emphasizes the correct reporting of information to Customs. Copyright CM Key 2018

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2. Management places a high degree of importance on retaining competent personnel in key functions over its Customs transactions. TOC 3. The company Import Department has adequate authority to interact with other offices as needed, and strong synchronization and coordination exist between the Import Department and other departments with responsibilities or information related to Customs activities. 4. Management places a high degree of importance on the work of Customs officers, external audits, and other evaluations and studies with Customs information and is responsive to information from such officers. 5. There is appropriate interaction between management of the company Import Department and senior management. Organizational Structure 1. The company’s Import Department is appropriately located within the organization. 2. Key areas of authority and responsibility relative to Customs activities are defined and communicated throughout the organization. Consider the following: • Executives in charge of major activities or functions are fully aware of their duties and responsibilities. • Executives and key managers understand their internal control responsibilities and ensure that their staff also understands their own responsibilities. Assignment of Authority and Responsibility 1. The company appropriately assigns authority and delegates responsibility for Customs activities to the proper personnel to deal with organizational goals and objectives. • Authority and responsibility are clearly assigned throughout the organization and clearly communicated to employees. • Responsibility for decision making is clearly linked to the assignment of authority and responsibility. (* Along with increased delegation of authority and responsibility, management has effective procedures to monitor results.) 2. Each employee knows how his or her actions related to Customs activities interrelate to others’ actions and is aware of his or her related duties concerning Customs internal control. 3. Delegation of authority is appropriate in relation to the assignment of responsibility for Customs activities. • Employees at the appropriate level are empowered to correct problems or implement improvements. • There is an appropriate balance between the delegation of authority at lower levels to “get the job done” and the involvement of senior-level personnel. Human Resource Policies and Practices Employee’s responsibilities for Customs activities are properly supervised. Oversight Groups Within the company, there are mechanisms in place to monitor and review operations and programs. • The company has a committee or senior management council that reviews internal audit work of Customs activities. • The internal audit function reviews the company’s Customs activities and systems and provides information, analyses, recommendations, and counsel to management. Copyright CM Key 2018

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RISK ASSESSMENT TOC The second internal control component addresses risk assessment. A precondition to risk assessment is the establishment of clear, consistent company goals and objectives at both the entity level and the activity level. Once the objectives have been established, the company needs to identify the risks that could impede the efficient and effective achievement of those objectives. Internal control should provide for an assessment of the risks the company faces from both internal and external sources. Once risks have been identified, they should be analyzed for their possible effect. Management then must formulate an approach for risk management and decide upon the internal control activities required to mitigate those risks and achieve the internal control objectives of efficient and effective operations, reliable Customs reporting, and compliance with laws and regulations. A manager or evaluator will focus on management’s processes for setting objectives, risk identification, risk analysis, and management of risk during times of change. Listed below are factors a user might consider. (The list is a starting point. It is not all-inclusive, nor will every item apply to every company or activity within the company. ) Even though some of the functions and points may be subjective in nature and require the use of judgment, they are important in performing risk assessment. An entity’s risk assessment differs from the auditor’s consideration of audit risk exposure. The purpose of an entity’s risk assessment is to identify, analyze, and manage risks that affect entity objectives. The auditor assesses risk exposure relative to audit objectives. Internal Control Point Comments/ Descriptions Establishment of Activity-Level Objectives Company Customs office objectives are linked with company objectives. Risk Identification 1. Management identifies Customs risk. • Qualitative and quantitative methods are used to identify risk and determine relative risk rankings on a scheduled and periodic basis. • How risk is to be identified, ranked, analyzed, and mitigated is communicated to appropriate staff. • Risk identification and discussion occur in senior-level management meetings. • Risk identification takes place as part of short- and long-term forecasting and strategic planning. • Risk identification occurs as a result of consideration of findings from audits, evaluations, and other assessments. 2. Adequate mechanisms exist to identify risks to Customs activities arising from external factors. The company should consider the risks: • Arising from changing needs or expectations by Congress, Customs officials, or the public. • Posed by new legislation, regulations, rulings, and court decisions. • Resulting from business, political, or economic changes. • Associated with major suppliers, brokers, contractors, and agents. • Resulting from interactions with other companies and outside parties. 3. Adequate mechanisms exist to identify risks to Customs activities arising from internal factors. The company should consider the risks: • Resulting from downsizing operations and personnel. • Associated with major changes of operating processes, foreign sourcing, or importing operations. Copyright CM Key 2018

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• Resulting from new lines, products, or other business activities. • Associated with restructuring and reorganizations. • Posed by disruption of information systems. • Posed by highly decentralized Customs operations. TOC • Posed by personnel turnover or personnel who are not adequately qualified and trained. • Resulting from heavy reliance on agents or other parties to perform critical company operations. • Resulting from rapid growth or expansion of import operations. 4. Management assesses other factors such as a history of compliance problems. Comments/ Descriptions Risk Analysis xxxx 1. After Customs risks have been identified, management should undertake an analysis of their possible effect. Consider the following: • Management has established a formal or informal process to analyze risks. • Criteria have been established for determining low, medium, and high risks. • Appropriate levels of management and employees are involved in the risk analysis. • Risks identified and analyzed are relevant to the corresponding activity objective. • Risk analysis includes estimating the risk’s significance and sensitivity. • Risk analysis includes estimating the likelihood and frequency of occurrence of each risk (susceptibility) and determining whether it falls into the low-, medium-, or high-risk category. • A determination is made on how best to manage or mitigate the risk and what specific actions should be taken. 2. Management has developed an approach for risk management related to Customs compliance and control based on how much risk can be prudently accepted. Consider the following: • The approach will vary from company-to-company based on the company’s Customs activities. • The approach is designed to keep risks within levels judged to be appropriate, and management takes responsibility for setting the tolerable risk levels. • Specific control activities are decided upon to manage or mitigate specific risks, and their implementation is monitored. Managing Risks During Change 1. The company has mechanisms in place to anticipate, identify, and react to risks presented by changes in government, economic, industry, regulatory, operating, or other conditions that can affect Customs compliance. 2. The company gives special attention to risks presented by changes that can have a more dramatic and pervasive effect on Customs compliance. The company is attentive to risks related to: • Changes in Customs information systems. • Rapid growth and expansion or rapid downsizing. • Imports under Customs programs and activities that are new to the company. • Imports from a new geographical area. Focused Assessment Program (Also listed as 4H) Exhibit 3D Control Activities The third internal control component addresses control activities. Internal control activities are the policies, procedures, techniques, and mechanisms that help ensure that management’s directives to mitigate risks identified during the risk assessment process are carried out. Control activities are an integral part of the company’s planning, implementing, and reviewing processes. Copyright CM Key 2018

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Control activities occur at all levels and functions of the company. They include a wide range of diverse activities, such as approvals, authorizations, verifications, reconciliation, performance reviews, security activities, and the production of records and documentation. A manager or evaluator should focus on control activities in the context of the company’s management directives to address risks associated with established objectives for each significant activity. Therefore, a manager or evaluator will consider whether control activities relate to the risk assessment process and whether they are appropriate to ensure that management’s directives are carried out. In assessing the adequacy of internal control activities, a reviewer should consider whether the proper control activities have been established, whether they are sufficient in number, and the degree to which those activities are operating effectively. This should be done for each significant activity. This analysis and evaluation should also include controls over computerized information systems. A manager or evaluator should consider not only whether established control activities are relevant to the risk assessment process, but also whether they are being applied properly. TOC Given the wide variety of control activities that companies may employ, it would be impossible for this tool to address them all. However, there are some general, overall points to be considered by managers and evaluators, as well as several major categories or types of control activity factors that are applicable at various levels throughout practically all companies. In addition, some control activity factors are specifically designed for information systems. These factors and related issues are listed below as examples of issues to be considered. They are meant to illustrate the range and variety of control activities that are typically used. (The control activities put into place in one company may vary considerably from those used in a different company. The difference may occur because of (1) variations in missions, goals, and objectives of the companies; (2) differences in their environment and the manner in which they operate; (3) variations in degree of organizational complexity; (4) differences in company histories and culture;(5) differences in the risks that the companies face and are trying to mitigate. It is probable that, even if two companies did have the same missions, goals, objectives, and organizational structures, they would employ different control activities. This is because different people apply their own individual judgment in implementing internal control. All of these factors affect a company’s internal control activities, which should be designed accordingly to contribute to the achievement of the company’s missions, goals, and objectives. Given the wide variety of control activities that companies may employ, it would be impossible for this tool to address them all. However, there are some general, overall points to be considered by managers and evaluators, as well as several major categories or types of control activity factors that are applicable at various levels throughout practically all companies. In addition, some control activity factors are specifically designed for information systems. These factors and related points and subsidiary points are listed below as examples of issues to be considered. They are meant to illustrate the range and variety of control activities that are typically used. The list is a starting point. It is not all-inclusive, nor will every item apply to every company or activity within the company. Even though some of the functions and points may be subjective in nature and require the use of judgment, they are important in assessing the appropriateness of the company’s internal control activities. October 2002)

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Internal Control Point Comments/ Descriptions General Application 1. Appropriate policies, procedures, techniques, and mechanisms exist with respect to Customs activities. TOC • All relevant objectives and associated risks have been identified in relation to the risk assessment and analysis function of internal control. • Management has identified the actions and control activities needed to address the risks and directed their implementation. 2. Control activities identified as necessary are in place and being applied. Consider the following: • Control activities described in policy and procedures manuals are actually applied and applied properly. • Supervisors and employees understand the purpose of internal control activities. • Supervisory personnel review the functioning of control activities. • Timely action is taken on exceptions, implementation problems, or information that requires follow-up. Internal Control Point Comments/ Descriptions Common Categories of Control Activities 1. Management tracks Customs compliance in relation to goals. • Managers at all activity levels review performance reports, analyze trends, and measure results against targets. • Appropriate control activities are employed such as reconciliation of summary information to supporting detail. 2. The company effectively manages its workforce to achieve Customs compliance. • Procedures are in place to ensure that personnel with appropriate competencies are recruited and retained. • Employees are provided with orientation, training, and tools to perform their duties and responsibilities, improve their performance, and meet the demands of changing organizational needs. • Qualified and continuous supervision is provided to ensure that internal control objectives are being met. 3. The company employs a variety of controls of Customs activities to ensure accuracy and completeness of information processing. 4. The company has established and monitors performance measures and indicators for Customs activities. • Actual performance data are continually compared and analyzed against expected or planned goals. • Unexpected results or unusual trends are investigated to identify circumstances where achievement of goals for Customs compliance is threatened. Corrective action is taken. 5. Customs transactions and other significant events are properly classified and promptly recorded so that they maintain their relevance, value, and usefulness to management in controlling operations and making decisions. 6. Only authorized individuals can make adjustments to Customs information. 7. Internal control and all transactions and other significant events related to Customs activities are clearly documented. • Written documentation exists for the company’s internal control structure and all significant transactions and events. Copyright CM Key 2018

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• Documentation is readily available for examination. • Documentation for internal control includes identification of the company’s activitylevel functions and related objectives and control activities and appears in management directives, administrative policies, accounting manuals, and other such manuals. • Documentation of transactions and other significant events is complete and accurate and facilitates tracing the transaction or event and related information from before it occurs, through its processing, to after it is completed. TOC • Documentation, whether in paper or electronic form, is useful to managers in controlling their operations and to auditors and others involved in analyzing operations. • All documentation and records are properly managed, maintained, and periodically updated. 8. This analysis and evaluation should also include controls over computerized information systems. Information and Communications TOC According to the fourth internal control component, for a company to run and control its operations, it must have relevant, reliable information relating to external as well as internal events. That information should be recorded and communicated to management and others within the company who need it in a form and within a time frame that enables them to carry out their internal control and operational responsibilities. Managers and evaluators should consider the appropriateness of information and communication systems to the entity’s needs and the degree to which they accomplish the objectives of internal control. Listed below are factors a user might consider. The list is a starting point. It is not all-inclusive, nor will every item apply to every company or activity within the company. Even though some of the functions and points may be subjective in nature and require the use of judgment, they are important in collecting appropriate data and information and in establishing and maintaining good communication. Internal Control Point Comments/Descriptions Information 1. Information related to Customs activities from internal and external is obtained and provided to management as a part of the company’s reporting on operational performance relative to established objectives. 2. Pertinent information related to Customs activities is identified, captured, and distributed to the right people in sufficient detail, in the right form, and at the appropriate time to enable them to carry out their duties and responsibilities efficiently and effectively. 3. Management ensures that effective internal communications occur related to Customs activities. • Employees understand the aspects of internal control, how their role fits into it, and how their work relates to the work of others. • Employees are informed that when the unexpected occurs, they must give attention not only to the event but also to the underlying cause, so that potential internal control weaknesses can be identified and corrected before they can do further harm. • Mechanisms exist to allow the easy flow of information down, across, and up the organization and to allow easy communications to exist between functional activities. • Informal or separate lines of communications exist to serve as a “fail-safe” control for normal communications avenues. • Mechanisms are in place for employees to recommend improvements in operations. 4. Management ensures that effective external communications occur with groups that can have a serious impact on Customs compliance. Copyright CM Key 2018

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• Open and effective communications have been established with customers, suppliers, consultants, brokers, and others who can provide significant input relative to Customs compliance. • Communication with external parties such as Customs and other federal agencies is encouraged since it can be a source of information on how well internal control is functioning. • Management makes certain that advice, rulings, and recommendations from Customs officers are fully considered and that actions are implemented to correct any problems or weaknesses they identify. Forms and Means of Communication TOC 1. The company employs many and various forms and means of communicating important information with employees and others (policies and procedures manuals, memorandums to staff and regular meeting with staff, etc.). Monitoring Monitoring is the fifth and final internal control component. Internal control monitoring should assess the quality of performance over time and ensure that the findings of audits and other reviews are promptly resolved. In considering the extent to which the continued effectiveness of internal control is monitored, both ongoing monitoring activities and separate evaluations of the internal control system, or portions thereof, should be considered. Ongoing monitoring occurs during normal operations and includes regular management and supervisory activities, comparisons, reconciliation, and other actions that people take in performing their duties. Separate evaluations are a way to take a fresh look at internal control by focusing directly on their effectiveness at a specific time. These evaluations may take the form of self-assessments as well as review of control design and direct testing, and may include the use of this Management and Evaluation Tool or some similar device. In addition, monitoring includes policies and procedures for ensuring that any audit and review findings and recommendations are brought to the attention of management and are resolved in a timely manner. Managers and evaluators should consider the appropriateness of the company’s internal control monitoring and the degree to which it helps them accomplish their objectives. Internal Control Point Comments/Descriptions Ongoing Monitoring 1. Management has a strategy to ensure that ongoing monitoring of Customs activities is effective and will trigger separate evaluations where problems are identified or systems are critical and testing is periodically desirable. • Management’s strategy provides for routine feedback and monitoring of performance and control objectives. • The monitoring strategy includes identification of critical operational Customs-related systems that need special review and evaluation. • The strategy includes a plan for periodic evaluation of control activities for critical Customs activities. 2. In the process of carrying out their regular activities, company personnel obtain information about whether internal control is functioning properly. 3. Communications from external parties corroborate internally generated data or indicate problems with internal control. • Communications from Customs officers about compliance or other matters that reflect on the functioning of internal control is used for follow-ups on any problems indicated. Copyright CM Key 2018

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4. Meetings with employees are used to provide management with feedback on whether internal controls are effective. Comments/Descriptions Separate Evaluations TOC 1. Scope and frequency of separate evaluations of internal control are appropriate for the company. • Risk assessment results and the effectiveness of ongoing monitoring determine the scope and frequency of separate evaluations. • Separate evaluations may be prompted by events such as major strategies, expansions, or downsizing, etc. • Appropriate portions or sections of internal controls are evaluated regularly. • Personnel with required skills, who may include the company’s internal auditor or an external auditor, conduct separate evaluations. 2. The methodology for evaluating the company’s internal control is logical and appropriate. Consider the following: • The methodology used may include self-assessments using checklists, questionnaires, or other such tools, and it may include the use of this Management and Evaluation Tool or some similar device. • The separate evaluations may include a review of the control design and direct testing of the internal control activities. • The evaluation team develops a plan for the evaluation process to ensure a coordinated effort. • If the evaluation process is conducted by company employees, it isby an executive with the requisite authority, capability, and experience. • The evaluation team gains a sufficient understanding of the company’s objectives related to Customs compliance. • The evaluation team gains an understanding of how the company’s internal control system is supposed to work and how it actually works. • The evaluation team analyzes the results of the evaluation against established criteria. • The evaluation process is properly documented. 3. Deficiencies found during separate evaluations are promptly resolved. • Deficiencies are promptly communicated to the individual responsible for the function and also to at least one level of management above that individual. • Serious deficiencies and internal control problems are promptly reported to top management. Comments/Descriptions Audit Resolution 1. The company has a mechanism to ensure the prompt resolution of findings from audits and other reviews. Consider the following: • Managers promptly review and evaluate findings resulting from audits and assessments, including those showing deficiencies and those identifying opportunities for improvements. • Management determines the proper actions to take in response to findings and recommendations. • Corrective action is taken or improvements made within established time frames to resolve the matters brought to management’s attention.

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• In cases where there is disagreement with the findings or recommendations, management demonstrates that those findings or recommendations either are invalid or do not warrant action. • Management considers consultation with auditors when it is believed to be helpful in the audit resolution process. 2. Company management is responsive to the findings and recommendations of audits and other reviews aimed at strengthening internal control. 3. The company takes appropriate follow-up actions with regard to findings and recommendations of audits and other reviews. TOC • Problems are corrected promptly. • Under lying causes giving rise to the findings or recommendations are investigated by management. • Actions are decided upon to correct the situation or take advantage of the opportunity for improvements. • Management and auditors follow up on audit and review findings, recommendations, and the actions decided upon to ensure that those actions are taken. • Top management is kept informed through periodic reports on the status of audit and review resolutions so that it can ensure the quality and timeliness of individual resolution decisions. Source: Adapted from United States General Accounting Office, Internal Controls Management and Evaluation Tool EXPOSURE DRAFT, GAO-01-131G, February 2001. Internal Control Interviewing Process Introduction The following questions are designed to illustrate the type of questions that can be used to obtain information needed to evaluate the adequacy of internal controls. They are intended to illustrate the type of questions that may be used to evaluate each internal control component and may be used as deemed necessary. They are not intended to be all-inclusive or exhaustive. Control Environment • Do individuals receive training, and is it updated periodically through distribution of latest information relevant to their responsibilities, classroom training, etc.? • Do individuals have specific knowledge and tools needed to perform their duties— relevant rulings on value to the legal department, etc.? • Is there evidence that the company’s Customs department and its operations are supported by upper management and management throughout the organization? • Can the individual interviewed make recommendations for improvement to the processes related to Customs? • Can company Customs representatives make recommendations pertaining to Customs operations in other offices, and are they seriously considered and implemented when appropriate? Risk Assessment • Are the responsible individuals aware of the specific risks to Customs that they must address in their work—the risk to Customs if the engineering department does not report information on the use of foreign companies for research and development? Copyright CM Key 2018

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• Are individuals periodically asked to make risk assessments of possible negative impact to Customs from their operations and asked to identify any improvements that are needed to processes or internal controls, e.g., training, better manuals, improved communication? • Are company Customs representatives included in planning processes and operational changes— specifically, when foreign purchases and imports are involved? Control Activities TOC • Are individuals aware of their responsibilities to record and report significant events and transactions to Customs—does the department authorizing foreign payments understand that it must report payments related to imports to the Customs department even if the payments are not specific invoices for the imports? • Do individuals with responsibility for Customs-related activities document their activities and transactions and retain the documentation? • Do the individuals understand the importance and significance of internal control procedures—does the purchasing department know why it must report all foreign payments to the Customs department? • Do responsible individuals maintain analytical information to support decisions regarding reporting to Customs—does legal retain information to support decisions related to reporting of commissions, royalty agreements, etc.? • Is the documentation readily available, and does it include adequate information to track transactions to ensure accurate reporting to Customs? Information and Communication • Are responsible individuals aware of the communication requirements that are necessary to ensure that Customs receives appropriate information—is the representative in the legal department aware of reporting requirements pertaining to any contracts involving international purchasing, provisions for assists to foreign entities, etc.? • Do the company Customs representatives have open and effective communication channels to other offices in the company? • Does the Customs department have open and effective external communication with foreign suppliers, agents, brokers, and U.S. Customs? • Are external parties clearly informed of the company’s ethical standards, and do they understand that improper and illegal Customs activities will not be tolerated? • Does management use effective communication methods, which may include policy and procedures manuals, management directives, memoranda, bulletin board notices, Internet and intranet Web pages, etc.? • Does upper management support clear communication regarding Customs operations? Monitoring • Do supervisors review the functioning of control activities—is someone in purchasing assigned to review the purchasing log, purchasing account, or appropriate purchasing records to ensure that appropriate purchasing information is reported to the Customs department? • Are review and monitoring processes of Customs-related activities and internal controls in operation? • Are the results or review and monitoring processes used to improve operations and correct errors and deficiencies in controls? • Does management have a process for ensuring timely and accurate responses to inquiries from Customs? Copyright CM Key 2018

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• Does management have a process for making system or internal control changes when necessary as a result of inquiries from Customs, etc.? • Does management have a system for ensuring that advice and recommendations of import specialists, account managers, and other Customs officers are fully considered and that actions are implemented to correct any problems or internal control procedures they identify? • What methods are used by the company to evaluate its internal Customs control processes? • Does the company’s internal audit function monitor Customs activities?

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The following IPR is an example to use for each area of activity company is involved. Classification Valuation 9801 GSP/NAFTA/Other FTA Antidumping/CVD Foreign Trade Zones TOC Transshipment IPR SECURITY Entry Data Accuracy • *control environment • *risk assessment • *control activities • *information & communication • *monitoring Evaluate each area identified and perform assessment and determine results. INTELLECTUAL PROPERTY RIGHTS (IPR) TECHNICAL INFORMATION FOR PRE-ASSESSMENT SURVEY (TIPS) Note: This technical guide should be used where the importer may be subject to Intellectual Property Right (IPR) issues. Identifying potential IPR issues will require additional analysis such as profile information, port information, AUDITt enforcement action, or other means that indicate a AUDITt history of receipts subject to IPR. Unlike other parts of the AUDIT the scope and sampling should be performed on entries of current shipments where there is physical inventory to be viewed for verification of IPR PART 1 BACKGROUND The purpose of this document is to provide guidance for performing a AUDIT of the company’s internal control for IPR and evaluating the results. Generally Accepted Government Auditing Standards require the AUDIT team to obtain a sufficient understanding of internal control to plan the audit and determine the nature, timing, and extent of tests to be performed. PART 2 IPR GUIDANCE Intellectual property is the tangible product of a person’s intellect or creativity. Literary works, musical scores, computer programs, paintings and drawings are a few examples of intellectual property. Depending on the nature of the intellectual property, the owner of that property may protect it from being exploited by others by registering it with the U.S. Copyright Office or the U.S. Patent and Trademark office. U.S. Customs and Border Protection (Customs) has the responsibility for halting the importation of merchandise which violated trade names, registered trademarks, and copyrights when their owners have sought protections by recording their rights with Customs. Customs also enforces exclusion orders issued by the International Trade Commission (ITC).

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In most cases importation of genuine articles without consent of the IPR owner is permissible. It is only in the case of certain trademarked items that the mark owners consent is required for imports. Any IPR work by RAD must be coordinated closely with the Office of Field Operations and the Office of Regulations and Rulings. Listed below are summaries of each of the IPR protected by Customs. 2.1 TRADEMARKS AND TRADE NAMES TOC Customs has the authority to exclude articles bearing copying or simulating trademarks and trade names, and certain restricted gray market goods. To obtain protection against such importations, the trademark holder must register the trademark with the U.S. Patent & Trademark Office and request Customs to collect and retain information related to the trademark holders rights for a specific time. Customs monitors imports to prevent the importation of violating articles based on the trademark-holders request or on Customs initiative. To receive protection against imports of articles bearing a copying or simulating trade name, the trade name holder must record the trade name with Customs. 19 CFR §§ 133.1 133.7 establishes the authority for registered trademarks to be recorded with Customs. 19 CFR § 133.11 133.15 establishes the authority for the trade names to be recorded with Customs. 19 CFR § 133.21 establishes the authority for Customs to seize imported articles bearing counterfeit trademarks. 19 CFR § 133.22 establishes the authority of the port director to detain articles bearing a mark or name copying or simulating a recorded mark or name. 19 CFR § 133.23 restricts the importation of “gray market articles”. Gray market articles are foreign-made articles bearing a genuine trademark or trade name identical with or substantially indistinguishable from one owned and recorded by a citizen of the United States. Or a corporation or association created or organized within the United States and imported without the authorization of the United States owner. 19 CFR § 133.24 establishes the restrictions on articles accompanying importer and mail imports. However, 19 CFR § 148.55 provides that a person arriving in the United States may import one article of a type bearing an unauthorized protected trademark. 19 CFR § 133.25 establishes the procedures for the detention of articles that possibly violate trademark owner rights. 19 CFR § 133.26 establishes the authority for the port director to demand the redelivery of the articles that violated a copyright owners interest. If the articles are not redelivered to Customs, a claim of liquidated damages is made in accordance with § 141.113(h) of this chapter. 19 CFR § 133.27 establishes that Customs can file civil fines for those involved in the importation of counterfeit trademark goods. 2.2 COPYRIGHT In general, a copyright protects original works of authorship, including written music, computer programs, video games, toy designs and the intellectual creations against unauthorized reproductions, derivations, distribution or display. This protection is available to both published and unpublished works. To provide protections against the importation of infringing copies, Customs offers copyright owners an enforcement option. Claims to copyright which have been registered in accordance with the Copyright Act of July 30, 1947, as amended, or the Copyright Act of 1976, as amended, may be recorded with Customs for import protection. Copyright CM Key 2018

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19 CFR §§ 133.31 133.37 establishes the authority for the copyright recordation with Customs. 19 CFR § 133.42 establishes the authority for Customs to seize imported articles that are infringing copies or records of works copyrighted in the United States. 19 CFR § 133.43 establishes the procedures for detention of imported articles that possibly violate the copyright owner rights and review of the status of the articles. 19 CFR § 133.44 establishes the authority of the port director to seize the imported article and institute forfeiture proceedings in accordance with part 162 of this chapter. 19 CFR § 133.46 establishes the authority for the port director to demand the redelivery of the articles that are subject to the restrictions or prohibitions relating to copyrighted articles. If the articles are not redelivered to Customs, a claim for liquidated damages shall be made in accordance with § 141.113(h) of this chapter. TOC 2.3 EXCLUSION ORDERS Under Section 337 of the Tariff Act of 1930, as amended, unfair methods of competition and unfair practices in the importation or sale of articles, the effect or tendency of which is to destroy, substantially injure, or prevent the establishment of an efficiently and economically operated in U.S. industry, or to restrain or monopolize trade and commerce in the United States, are unlawful. 19 CFR § 12.39 authorizes the procedures to restrict imported articles involving unfair methods or competition or practices. The regulation establishes procedures for the enforcement of exclusion orders and seizure and forfeiture orders of the U. S. International Trade Commission (ITC) pursuant to 19 U.S.C. 1337, which prohibits unfair methods of competition in the import trade. The ITC completes an investigation of an alleged violation to determine if the section has been violated. The Exclusion Orders are sent to the President for his final judgment to enforce the Exclusion Order. The approved Exclusion Orders are issued and administrated by the Office of Rules and Regulations, IPR Branch, but are processed by the Office of Field Operations. Once goods have been denied entry pursuant to an exclusion order, the ITC can issue a seizure and forfeiture order directing Customs to seize and forfeit future importations of the same goods by the same importer. 2.4 PATENTS A patent is a legal monopoly, granted by the U.S. Government, which secures to an inventor for a term of years the exclusive right to make, use, or sell his invention. U.S. Customs patent enforcement is more limited than the trademark and copyright importation restrictions. Customs role in enforcing patent infringement has been limited to the enforcement of certain court orders and conducting Patent Import Surveys under 19 CFR §12.39a. Patent Import Surveys are requested through the Office of Regulations & Rules, Intellectual Property Rights (IPR) Branch. When the owner of a patent registered in the United States believes that merchandise is being imported into the United States, which infringes the patent, an application for a survey to assist the patent owner in taking appropriate action may be filed. In order to assist the patent owner, Customs will, for a fee, undertake to monitor importations on a nationwide basis and report to the patent holder, the names and addresses of importers who have imported goods, which appear to infringe upon a particular patent. Regulatory Audit does not become involved in Patent Import Surveys but this information is provided for information and background purposes.

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2.5 MASK WORK 19 CFR §12.39(e) mandates that, in compliance with the Semiconductor Chip Protection Act of 1984, if the owner of a mask work registered in the copyright office seeks to have Customs deny entry to any imported semiconductor chip products which infringe on his rights, the owner must obtain a court order enjoining, or an order of the U.S. International Trade Commission (USITC) to cease the importation of such products. The exclusion orders approved by the ITC and the President are published in the Federal Register and are available at the web address http://www.access.gpo.gov/su_docs/fedreg/frcont01.html. This site groups the Federal Register notices by agency and shows the International Trade Commission publication of all importation restriction orders for each day. 2.6 EXAMPLES OF RED FLAGS TOC The following examples of red flags (conditions that may indicate a potential IPR problem) are broken down into three categories: red flags for all IPR, red flags for importers that may manufacture goods of IPR merchandise and red flags for importers that are distributors/wholesalers/mass marketers of IPR merchandise. A. Red Flags for All IPR - importation of IPR protected merchandise. Examples: · The company has insufficiently documented, poorly defined, or no internal control for prevention of The company does not monitor or interact with the broker on IPR issues. · The company relies on one employee to handle transactions where IPR issues could occur, and there are poor or no management checks or balances over this employee. · The company does not exercise adequate control over their agents (buying/selling) regarding IPR. · The company’s import staff lacks knowledge of IPR issues. · Company offers unreasonable explanations to Customs. · Company fails to cooperate with or respond to Customs. · Company has high turnover of people in key positions. · Customs (e.g., import specialist, account manager, compliance measurements, prior audit, other Customs information) shows a history of problems with IPR merchandise. · Company imports merchandise that has a readily recognizable trade name, i.e. Disney, CocaCola, Tommy Hilfiger, Nike, but the importer does not have a royalty agreement or a license agreement with the trademarks owner. · The company’s records, i.e. purchase orders, invoices, have an IPR identifier in the merchandise description but the company does not maintain a license agreement or a royalty agreement with the IPR’s owner or pays no royalties. · Company is not aware of dutiability of royalty fees · Profile indicates specific exporters known to have produced counterfeit merchandise in the AUDIT are vendors for the importer. · Importer has a history of enforcement actions for IPR violations. · Merchandise shipped in small quantities on informal entries. · Shipment originates from a source country with known IPR problems. · Unusually vague invoices or invoices lacking model or catalogue numbers. · Merchandise missing lot numbers, factory codes, expiration dates, dates of manufacture, or other national requirements. · Merchandise is shipped c.o.d. rather than by letter of credit. (risk of seizure of the good is borne by the exporter not the importer). · Shipment is described in vague or unusual terms, such as articles of plastic, metal discs, Copyright CM Key 2018

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samples, parts, molds, dies, etc. · Shipment is declared at an unusually low or high value for the merchandise. · Merchandise under-insured for goods of that type. · Merchandise imported from a country not identified by the rights holder as a country where genuine goods are manufactured. TOC B. Red Flags for Importers that may Manufacture Goods of IPR Merchandise · Merchandise shipped in small quantities on informal entries. · Designer or brand merchandise shipped in bulk or component parts rather than in consumer packaging, such as designer perfumes or watches that are not generally shipped in bulk or in parts. · Shipments of merchandise described as labels, patches, tags, imprinted boxes, or dies. · Merchandise imported from a country not identified by the rights holder as a country where genuine goods are manufactured. · Merchandise missing copyright or trademark notice, especially on well-known copyright works or well-known trademarks. C. Red Flags for Importers that are Distributors/Wholesalers/Mass Marketers of IPR Merchandise · Merchandise is of a commodity commonly counterfeited or pirated such as CDs and other media, sunglasses, watches, wearing apparel, handbags, toys, etc. · Invoices with descriptions related to current “fad” items such as “alien doll”, “Mermaid”, or popular designers such as “Duck Logo”. · Unusual product combinations such as collections of computer programs, video games, sound recordings when each component is a product of a different manufacturer, studio, or artist. · Compact discs shipped on spindles and compact discs or cassettes not marked with the artists name or title of work. · Compact discs, audiocassettes, or videocassettes, shipped as “blank” or “unfinished”. · Merchandise fails to conform to country of origin marking requirements, weight designations, ingredient listings, electrical standards, consumer safety standards or other national requirements. · Merchandise missing copyright or trademark notice, especially on well-known copyright works or well-known trademarks. · Merchandise shipped in nonstandard packaging (watches in plastic bags rather than boxes, shoes in bags rather than boxes). · Textile articles not labeled with fiber content or cleaning instructions. · Clothing or other merchandise of non-standard sizing or sized to the standards of a different country. · Merchandise is of a commodity commonly counterfeited or pirated such as computer parts. · International mail shipments (especially of high technology goods). 2.7 EXAMPLES OF BEST PRACTICES BACK 63 · Internal controls over IPR: · Are in writing, · Include procedures for monitoring and feedback, and · Are monitored by management. · One manager is ultimately responsible for control of the Import Department, including ensuring the adherence to IPR laws and guidelines. That manager has knowledge of Customs matters and the authority to assure internal control procedures for imports are established and followed by all company departments. · Written internal control procedures assign duties and tasks to a position rather than a specific Copyright CM Key 2018

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person. · Company has good interdepartmental communication about Customs matters, including IPR issues. · Company and import department has access to IPR laws, guidelines, and procedures governing imported merchandise subject to IPR analysis. TOC · Company conducts and documents periodic reviews of its imported merchandise, having IPR implications, and uses the results to make corrections to entries and changes to their import operations as appropriate. · Company receives authorization of the merchandise subject to IPR by appropriate agreements with the owner of the trademark, trade name, copyright or patent prior to the importation. · Royalties, proceeds, and indirect payments related to the use of the IPR are accounted for, and where applicable included in the price actually paid or payable. · Import department has access to, and can readily produce: · Detailed description of imported merchandise identifying type of IPR and its specific requirements and issues, · Listing of all imported merchandise having IPR implications, · Contract(s) and/or other formal documentation indicating agreed to IPR importation practices and activities between the company and its foreign supplier(s). 2.8 EXAMPLES OF DOCUMENTS AND INFORMATION TO REVIEW · Internal control policies and procedures. · The company’s response to the questionnaire. · Interviews with company staff concerning actual procedures and controls specific to IPR issues. · Company’s documentation that supports monitoring and verification of established and/or written internal control over IPR issues. · Documentation that identifies IPR to merchandise such as royalty agreements or license agreements with the trademarks owner and financial statements, general ledger, foreign tax reports, and schedules. · Invoices (should show such items as model numbers, catalog numbers, lots, factory codes, and/or expiration dates). · Letters of credit. · Other documents affecting IPR merchandise such as purchase orders, contracts, or other formal documentation indicating agreed to IPR importation practices and activities between the company and its foreign supplier(s). PART 3 RISK ASSESSMENT AND INTERNAL CONTROL GUIDANCE AUDIT team judgment should be used to determine the type and amount of testing needed to evaluate how effective internal control is and whether there is sufficient risk to warrant proceeding to the Assessment Compliance Testing (ACT) process. Using the chart and the guidelines below, determine through limited judgmental testing whether the company’s internal control is effective. To determine the extensiveness of internal control testing, it is necessary to evaluate: 1. Risk; and 2. The internal control system, by determining whether the controls are in operation, how the controls were applied, how consistently they are applied, and who applied them.

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3.1 RISK A. Preliminary Assessment of Risk TOC Before any audit work begins at the company the team should make a preliminary assessment of risk (PAR) using information obtained from Customs or publicly available information. The purpose of the PAR is to evaluate identified potential risks to Customs based on analytical reviews of Customs data and other Customs information. This review will identify areas of potential risk and eliminate some areas with insignificant risk. The PAR should be conducted using the form in Attachment 1 to the AUDIT Audit Program. B. Evaluation of Risk Acceptability After the audit work begins with the company the team will refine the assessment of risk. After all audit work has been completed the team will determine whether risk is acceptable or unacceptable using the AUDIT Audit Program as summarized in the following steps. · Determine what activities pose a significant risk to Customs. · Test the existence, effectiveness and implementation of internal control and determine if internal control is adequate to control risk. · Using the results of the internal control review, develop an opinion whether risk is acceptable or unacceptable. 3.2 INTERNAL CONTROL To evaluate the internal control system: 1. Consider the five components of internal control: · Control Environment. · Risk Assessment. · Control Activities. · Information and Communication. · Monitoring 2. Review relevant Customs and company documents to identify and understand relevant internal control over IPR. (Examples of documents and information to review are listed on prior page). 3. Determine if the company established and follows procedures. Review: · Documentary evidence of the results of periodic internal control reviews/testing and corrective action implemented. · Documentary evidence of communication with the broker and company on IPR issues. Including verification that the broker followed company instructions. · Documentary evidence of inter-company communications to ensure correct information is provided to Customs. · Training records and materials used to educate and inform staff on IPR. 4. Review written policies and procedures and interview applicable company personnel to complete appropriate sections of the Worksheet for Evaluating Internal Control (WEIC) for IPR in PART 4 of this document. Note: The internal control assessment should include steps to: · Identify and understand internal control. · Determine what is already known about control effectiveness. · Assess the adequacy of internal control design. · Determine whether controls are implemented and effective. · Determine whether transaction processes are documented.

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3.3 EXTENSIVENESS OF AUDIT SAMPLE TESTS (TESTING LIMIT) TOC The purpose of limited AUDIT testing is to take a survey in order to determine the necessity for and extent of substantive tests. In some circumstances, the AUDIT team may decide that it probably will not be able to form an opinion based on limited AUDIT testing. In that case, it may be necessary to proceed immediately to the ACT process. If the AUDIT team believes that it can form an opinion based on limited AUDIT testing, test the appropriate number of controls and associated transactions using the following table.

Based on a review of the profile (company is in an industry heavily known for IPR), questionnaire, written procedures, etc. the team concluded that the preliminary risk exposure was considered moderate. The company’s internal control procedures manual required the Import Manager to review a certain number of importations associated with IPR to ensure that royalties are properly declared to Customs. In addition, an IPR review log is maintained to document this review of importations. The Import Manager documented the transactions reviewed and corrected entries as necessary. The team concluded that the internal control system over IPR was strong. Using the table above (based on moderate risk exposure and strong preliminary internal control evaluation), the team concluded that they would test five control items. The team judgmentally selected importations from the IPR Review Log. The team determined that the importations were not subject to IPR and were correctly reported to Customs.

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TOC

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7501 ENTRY Instructions TOC 2 1. Entry Number

73

2. ENTRY TYPE CODE

74

3. ENTRY SUMMARY DATE 4. ENTRY DATE 5. PORT CODE 6. BOND NUMBER7. BOND TYPE CODE 7. Bond Type Code 8. BROKER/IMPORTER FILE NO. 9. ULTIMATE CONSIGNEE NAME AND ADDRESS 10. CONSIGNEE NUMBER 11. IMPORTER OF RECORD NAME AND ADDRESS 12. IMPORTER NUMBER 13. EXPORTING COUNTRY with an "E". 14. EXPORT DATE#34D (Visa Number). 15. COUNTRY OF ORIGIN 16. MISSING DOCUMENTS

76 76 76 77

17. I.T. NUMBER 18. I.T. DATE 19. BILL OF LADING OR AIR WAYBILL NUMBER 20. MODE OF TRANSPORTATION 21. MANUFACTURER I.D. 22. REFERENCE NUMBER" 23. IMPORTING CARRIER 24. FOREIGN PORT OF LADING 25. LOCATION OF GOODS/G.O. NUMBER 26. U.S. PORT OF UNLADING 27. IMPORT DATE 28. LINE NUMBER 29. DESCRIPTION OF MERCHANDISE 30. A. HTS NUMBER 31. A. GROSS WEIGHT

78 79

80 80 81

82 83 84 85

86

88

32. NET QUANTITY IN HTS UNITS 89 33. A. ENTERED VALUE 34. A. HTS RATE 91 35. DUTY AND I.R. TAX 93 36. DECLARATION 37. DUTY 94 38. TAX 39. OTHER 40. TOTAL 95 41. SIGNATURE OF DECLARANT, TITLE, AND DATE

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TOC


INSTRUCTIONS FOR PREPARATION OF CF 7501 TOC 2 ALL PORTS WILL ACCEPT CF 7501'S COMPLETED IN ACCORDANCE WITH THE INSTRUCTIONS CONTAINED HEREIN. NO ADDITIONAL INFORMATION OR AGENDA MAY BE REQUIRED ON THE CF 7501 BY ANY REGION, DISTRICT, AREA, OR PORT, WITHOUT THE EXPRESS WRITTEN APPROVAL OF CUSTOMS HEADQUARTERS. IT IS ESSENTIAL THAT UNIFORMITY IN THE PREPARATION AND ACCEPTANCE OF THE CF 7501 BE MAINTAINED. THE INSTRUCTIONS CONTAINED HEREIN ARE APPLICABLE TO BOTH CONSUMPTION AND WAREHOUSE ENTRY SUMMARIES AND ENTRY/ENTRY SUMMARIES. 1. ENTRY NUMBER Record the 11 digit alphanumeric code. Always begin with the three digit code assigned to the filer, followed by the seven digit number, and finally, the one digit check digit. Due to a space limitation in this block, the three character entry filer code is to be printed outside and immediately to the left of this block. The assigned entry number, with hyphen and check digit, is to be shown inside the block. See example below. Entry Filer Code XXX Entry No. NNNNNNN-N XXX represents the three character alphanumeric filer code assigned to the broker or importer by Customs. NNNNNNN represents the seven digit number assigned by the filer. The number may be assigned in any manner convenient, provided that the same number is not assigned to more than one CF 7501. Leading zeros must be shown. N represents the check digit which is computed on the previous 10 characters. Detailed instructions concerning the entry number are contained in Customs Directive 3500-08, dated June 19, 1986, (Customs), and Customs Directive 3500058, dated September 10, 1991. The formula for computing the check digit is included in this issuance as Appendix A. An entry number, in this format, is required on all broker/importer prepared informal (which require a CF 7501) and warehouse entries. Where the entry summary covers more than one release (consolidated entry summary), refer to the instructions on page 28 of this directive. Where the entry summary consists of more than one page, record the entry number on the first page of the CF 7501, as well as on each additional page.

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2. ENTRY TYPE CODE (TYPE - Risk level indicator)

TOC 2

Record the appropriate entry type code by selecting the two digit code for the type of entry summary being filed. The first digit of the code identifies the general category of the entry (i.e., consumption =0, informal =1, warehouse =2, etc.). The second digit further defines the specific processing type within the entry category. Therefore, a consumption quota entry should be recorded under code 02, an informal free or dutiable entry under code 11, etc. Automated Broker Interface (ABI) processing requires an ABI status indicator. This indicator must be recorded in block 2 following the two digit entry type code. It is to be shown for those entry summaries with ABI status only, and must be shown in one of the following formats: (1) ABI/S = ABI statement entry summaries paid by check or cash (2) ABI/A = ABI statement entry summaries paid through the Automated Clearinghouse (ACH) (3) ABI/N = ABI non-statement entry summaries (4) ABI/P = ABI periodic payment statement entry summaries (this capability not yet operational) Note: Either a slash (/) or hyphen (-) may be used to separate ABI from the indicator (i.E., ABI/S or ABI-S). If an entry/entry summary (live entry) is presented, an additional indicator is required to be shown in the following formats: (1) ABI/A/L = ABI statement live entry summaries paid through ACH (2) ABI/N/L = ABI non-statement live entry summaries (3) ABI/P/L = ABI periodic payment statement live entry summaries (4) "LIVE" or "L" for non-ABI entry summaries An entry/entry summary is considered "LIVE" when duties are deposited and which results in release of the merchandise. Note: The word "ACH" is no longer required to be written in the upper right hand corner of the CF 7501. ENTRY TYPE CODES Entry Type Consumption Entries Free and Dutiable Quota/Visa Copyright CM Key 2018

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Countervailing/Antidumping Duty 03 Appraisement 04 Vessel Repair 05 Foreign Trade Zone (Consumption) 06 Quota/Visa and AD/CVD combinations 07 Informal Entries Free and Dutiable 11 Quota (Other than textiles) 12 Warehouse Entries Warehouse 21 Re-Warehouse 22 Temporary Importation Bond 23 Trade Fair 24 Permanent Exhibition 25 Foreign Trade Zone (Admission) 26 Warehouse Withdrawal For Consumption 31 Quota/Visa 32 Aircraft and Vessel Supply (Immediate 33 Export) Countervailing and Antidumping Duty 34 For Transportation 35 For Immediate Exportation 36 For Transportation and Exportation 37 Quota/Visa and ADA/CVD combinations 38 Drawback Entries Manufacturer 41 Same condition 42 Rejected Importation 43 Government Entries Defense Contract Management Command 51 International (DCMC-I) (formerly DCASR) is the importer of record and filer of the entry Any U.S. Federal Government agency (other 52 than DCMAO) is the importer of record. Note: When the importer of record of emergency war materials under HTS #9808.00.3000 is not a government agency, entry type codes 01, 02, 03, etc., as appropriate, are to be used. ALSO, ENTRY TYPE CODE 53 HAS BEEN DELETED. *Transportation Entries Copyright CM Key 2018

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Immediate Transportation Transportation and Exportation Immediate Exportation Barge Movement Permit to Proceed Baggage

61 62 63 64 65 66

3. ENTRY SUMMARY DATE TOC 2 This block is to record the date the entry summary is filed with Customs (six digit numeric code showing month, day, and year - MMDDYY). The record copy of the entry summary will be time stamped by the filer at the time of presentation of the entry summary. In the case of entry summaries submitted on an ABI Statement, only the statement is required to be time stamped. This block should not be printed or typed prior to presentation of the entry/entry summary. Use of this field is optional for ABI statement entries. The time stamp mandated by Customs Directive #3550-24 date September 8, 1987, entitled "Entry Summary and Entry/Entry Summary Flow" will serve as the entry summary date. This mandate was also published as Treasury Decision 88-27. The filer will record the proper import specialist team number designation in the upper right portion of this block (three character team number code). For ABI entry summaries, the team number is supplied by ACS in the summary processing output message. All dates required to be shown on the CF 7501 may use slashes, dashes, and spaces. 4. ENTRY DATE Record the six digit numeric code: month, day, and year (MMDDYY). Normally, it is the date the goods are released except for immediate delivery, quota goods, or where importer/broker requests another date prior to release (see 19 CFR 141.68). It is the responsibility of the filer to ensure that the entry date shown for entry/entry summaries is the date of presentation (i.e., the time stamp date). 5. PORT CODE Record the four digit numeric code of the U.S. port where the merchandise was entered under an entry or released under an immediate delivery permit. U.S. port codes can be found in Annex C of the Harmonized Tariff Schedule. The port code should be shown as follows: NNN (no spaces or hyphens) Do not show the name of the port instead of the numeric code.

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6. BOND NUMBER TOC 2 Record the three digit numeric code that identifies the surety company on the bond. This code number can be found in block #7 of the Customs Form 301/Customs Bond. This code number is also available through ACS to ABI filers, via the importer bond query transaction. For U.S. Government importations and entry types not requiring surety, the code 999 should appear in this block. When cash or Government securities are used in lieu of surety, use code 998. 7. BOND TYPE CODE Record the single digit numeric code as follows: 0 - U.S. Government or entry types not requiring a bond 8 - Continuous 9 - Single Transaction Bond type "0" should be used in conjunction with surety code "999" for government entries secured by stipulation cited in C.R. 10.101(d). Bond type "8" or "9", as appropriate, should be used in conjunction with surety code "998" when cash or government securities are deposited in lieu of surety. Bond type "9" should be used in conjunction with surety code "999" when surety has been waived in accordance with C.R. 142.4 (c). 8. BROKER/IMPORTER FILE NO. This block is reserved for a broker's or importer's internal file or reference number. 9. ULTIMATE CONSIGNEE NAME AND ADDRESS For a period of 90 days from the date of issuance of this directive, record the name and address of the individual or firm for whose account the merchandise is shipped. If this information is the same as the importer of record, leave blank. Effective on the 91st day from the date of issuance of this directive, record the name and address of the individual or firm purchasing the merchandise or, if a consigned shipment to whom the merchandise is consigned, or if those parties are not known, to whose premises the merchandise is being shipped. If this information is the same as the importer of record, leave blank. In the space provided for indicating the state, report the ultimate state of destination of the imported merchandise, as known at the time of entry summary Copyright CM Key 2018

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filing. If the contents of the shipment are destined to more than one state or if the entry summary represents a consolidated shipment, report the state of destination with the greatest aggregate value. If, in either case, this information is unknown, the state of the ultimate consignee, or the state where the entry is filed, in that order, should be reported. However, before either of these alternatives are used, a good faith effort should be made by the entry filer to ascertain the state where the imported merchandise will be delivered. In all cases, the state code reported should be derived from the standard postal two-letter state or territory abbreviation. The reporting of the ultimate state of destination was made mandatory for all entry summaries and entry/entry summaries filed on or after July 1, 1991. TOC 2 NOTE: A list of two-letter U.S. Postal Service state and territory codes are listed as Appendix F to this issuance. To facilitate mailing of requests and/or notices on Customs Form 28 or 29 to a party other than the importer of record, the following alternate procedure shall be used. Where this block is modified by the legend "c/o" followed by the name and address of a different party, Customs Form 28 or 29 will be sent to the name and address that follows the "c/o" legend. The broker's copy will continue to be sent to the broker when they are involved (Manual Supplement 2112- 04, 9/22/78). 10. CONSIGNEE NUMBER Record the IRS, Social Security, or Customs assigned number of the consignee. This number must reflect a valid identification number filed with Customs via the CF 5106 or its electronic (ACS) equivalent. When the consignee number is the same as the importer of record number, the word "SAME" may be used in lieu of repeating the importer of record number. Only the following formats shall be used: IRS Number . . . . . . . . . . . . . . NN-NNNNNNN IRS Number with suffix . . . . . . . NN-NNNNNNNXX Social Security Number . . . . . . . . NNN-NN-NNNN Customs Assigned Number. . . . . . . YYDDPP-NNNNN For permitted and proper consolidated shipments, enter zeros in this block in the "IRS Number" format shown above (e.g. 00-0000000). The reporting of zeros on the entry summary document is limited to consolidated shipments only. 11. IMPORTER OF RECORD NAME AND ADDRESS (could be mistake) Record the name and address, including the standard two letter postal state or territory abbreviation, of the importer of record. The importer of record is the individual or firm liable for payment of all duties and meeting all statutory and regulatory requirements incurred as a result of importation.

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12. IMPORTER NUMBER Record the IRS, Social Security, or Customs assigned number of the importer of record. For format, see instructions under "Consignee Number." 13. EXPORTING COUNTRY (history can be incorrectly applied)) Record the exporting country utilizing the two character alpha ISO country codes specified in the International Standard ISO 3166 (a list of the ISO two character alpha codes is provided as Appendix C in this issuance). TOC 2 The country of exportation is that country from which the merchandise was shipped to the United States having last been a part of the commerce of the country and without contingency of diversion. For merchandise entering the U.S. Customs territory from a U.S. Foreign Trade Zone, leave blank. For multiple countries of export, record the word "MULTI" in this block, and associate the country of export with each line number (or where line numbers are segregated by invoice, associate with each invoice) in column 28 prefixed with an "E". 14. EXPORT DATE For merchandise exported by vessel, record the month, day, and year on which the carrier departed the last port in the exporting country (format: MMDDYY). For merchandise exported by air, record the month, day, and year in which the aircraft departed the last airport in the exporting country (format: MMDDYY). For overland shipments from Canada or Mexico and shipments where the port of lading is located outside the exporting country (e.g., goods are exported from Switzerland but laden and shipped from Hamburg, West Germany), record the month, day, and year in which the goods crossed the border of the exporting country (Switzerland in this example; format: (MMDDYY). For mail shipment, record the date of export as noted on the Customs Form 3509, Notice to Addressee (format: MMDDYY). For goods entering the U.S. Customs territory from a U.S. Foreign Trade Zone, leave blank. Copyright CM Key 2018

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For multiple dates of export, record the word "MULTI" in this block, and associate the date of export with each line number (or where line items are segregated by invoice, associate with each invoice) in column 28. For textile merchandise, refer to the additional requirements in paragraph #34D (Visa Number).

15. COUNTRY OF ORIGIN (known errors) TOC 2 Record the country of origin utilizing the ISO country codes specified in International Standard ISO 3166 (listed as Appendix C in this issuance). The country of origin is the country of manufacture, production, or growth of any article. If the article consists of material produced or derived from, or processed in, more than one foreign territory or country, or insular possession of the U.S., it shall be considered a product of that foreign territory or country, or insular possession where it last underwent a substantial transformation. For purposes of reporting on the CF 7501 only, whenever merchandise has been returned to the U.S. after undergoing either repair, alteration, or assembly under HTS heading 9802, the country of origin should be shown as the country in which the repair, alteration, or assembly was performed. When merchandise is invoiced in or exported from a country other then than in which it originated, the actual country of origin shall be specified rather than the country of invoice or exportation. When a single entry summary covers merchandise from more than one country of origin, record the word "MULTI" in this block and in column 28, directly below the line number, and prefixed with the letter "O", indicate a separate ISO code for the country of origin corresponding to each line number. 16. MISSING DOCUMENTS Record the appropriate document code number(s) to indicate one or two documents not available at the time of filing the entry summary. The bond charge should be made on the entry summary only for those documents that are required to be filed with the entry summary. For specific instructions concerning missing document policy, consult Customs Directive No. 3550-27, "Entry Simplification Missing Documents", dated September 8, 1987. The following codes shall be used: 01. - Commercial Invoice 02.to 09. - Reserved 10. - CF 5523 (19 CFR 141.89) 11.to 13 - Reserved 14. - Lease Statement [19 CFR 10.108] 15. - Re-Melting Certificate [19 CFR 54.6(a)] 16. - Corrected Commercial Invoice (19 CFR 141.89, et al) Copyright CM Key 2018

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17. - Other Agency Forms (19 CFR Part 12) 18. - Duty Free Entry Certificate (19 CFR 10.102; 9808.00.30009 HTS) 19. - Scale weight (19 CFR 151, Subpart B) 20. - End Use Certificate (19 CFR 10.138) 21. - Coffee Form O 22. - Chemical Analysis 23. - Outturn Report (19 CFR 151, Subpart C) 24.to 25. - Reserved 26. - Packing List [19 CFR 141.86(e)] 27.to 97. - Reserved 98. - Not Specified Above 99. - If three or more documents are missing, record the code number for the first document and insert code "99" for any additional documents. TOC 2 Exception: Duty Free Certificate (#18), and End Use Certificate (#20) are excepted from the requirement that Customs specifically request the document from an importer or broker. These forms cannot be waived and importers or brokers shall be obligated to file the forms within the appropriate time limits. If a document has been waived prior to entry summary filing or is not required at time of entry summary do not record that document as a missing document. 17. I.T. NUMBER Record the In-bond Entry Number obtained from the CF 7512C or, if applicable, the air waybill number. If multiple, place additional I.T. numbers across lines 30 to 32 or list on a separate attachment. If AMS Master in-bond movement (MIB), record the 11 digit in bond number obtained from the AMS carrier. Neither the CF 7512 or CF7512C are used for the AMS master in-bond program. If merchandise moves on an I.T. into a Foreign Trade Zone, do not record that number on the CF 7501 when the merchandise is removed from the zone. 18. I.T. DATE Record the date (format MMDDYY) of the In Bond Entry Number (CF 7512) or if applicable, the Transit Air Cargo Manifest (TACM), or the AMS Master inbond movement. If multiple, place additional dates across lines 30 to 32 associated with each additional I.T. number to which it is applicable. Note: I.T. date cannot be prior to import date. 19. BILL OF LADING OR AIR WAYBILL NUMBER Record the number assigned on the manifest by the international ocean or air carrier delivering the goods to the United States. Completion of this field is not required for modes of transport other than sea or air. Effective March 31, 1989, and pursuant to Treasury Decision #88-69, each bill of lading for vessel shipment will be required to conform to a new unique number format. This unique bill of lading number format will change the current master Copyright CM Key 2018

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bill of lading number format from 12 to 16 maximum characters in length and will be comprised of 2 elements. The first element is the first four characters of the unique bill number consisting of the SCAC code of the issuer of the bill. The second element may be any length up to a maximum 12 characters and may be alpha and/or numeric. The format of the unique bill of lading number that must be shown on the CF 7501 is as follows: ABCD1234567 If multiple, list additional B/L or AWB's across the top of columns 30 to 32 or list on a separate attachment. 20. MODE OF TRANSPORTATION TOC 2 Record the method of transportation by which the imported merchandise entered the U.S. port of arrival from the last foreign country utilizing the following two digit numeric codes: 10 - Vessel, non-container (including all cargo at first U.S. port of unlading aboard a vessel regardless of later disposition. Lightered, land bridge and LASH all included). If container status unknown but goods did arrive by vessel, use this code. 11 - Vessel, container 12 - Border, Waterborne (used in cases where vessels are used exclusively to ferry automobiles, trucks, and/or rail cars, carrying passengers and baggage and/or cargo and merchandise, between the U.S. and a contiguous country). 20 - Rail, non-container 21 - Rail, container 30 - Truck, non-container 31 - Truck, container 32 - Auto 33 - Pedestrian 34 - Road, other 40 - Air, non-container 41 - Air, container 50 - Mail 60 - Passenger, hand carried 70 - Fixed transport installation (includes pipelines, powerhouse, etc.) 80 - Not used at this time For merchandise arriving in the U.S. Customs territory from a U.S. Foreign Trade Zone, leave blank 21. MANUFACTURER I.D. This block is provided to accommodate the manufacturer/ shipper identification number. This identifies, by a constructed code, the manufacturer/shipper of the merchandise. For the purposes of this number, the manufacturer should be construed to refer to the invoicing party or parties (manufacturers or other direct suppliers). The name and address of the invoicing party, whose invoice accompanies the Customs entry, should be used to construct the I.D. The method for deriving this number as contained in Customs Directive 3500-13, November Copyright CM Key 2018

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24, 1986, entitled "Instructions for Deriving Manufacturer/Shipper Identification Code", is included in this issuance as Appendix B. The manufacturer/shipper identification number is required for all entry summaries and entry/entry summaries, including informal entries, filed on the CF 7501. When merchandise is imported from Canada and produced by a Canadian Vendor, the ISO Code for Canada (CA) will be replaced by the appropriate two letter Province Code listed below. PROVINCE/TERRITORY CODE ALBERTA XA BRITISH COLUMBIA XC MANITOBA XM

TOC 2

NEW BRUNSWICK XB NEWFOUNDLAND (INCL. LABRADOR) XW NORTHWEST TERRITORIES XT NOVA SCOTIA XN ONTARIO XO PRINCE EDWARD ISLAND XP QUEBEC XQ SASKATCHEWAN XS YUKON TERRITORY XY When a single entry summary has more than one manufacturer, record the word "MULTI" in this block and, in block #30 indicate for each line item the manufacturer I.D. Code applicable to the particular Harmonized Tariff Schedules of the United States. The Harmonized Tariff Schedules of the United States will hereinafter be referred to as the "HTS". Additionally, if there is more than one vendor for a particular HTS number, separate line items will be required for each. 22. REFERENCE NUMBER Record the IRS, Social Security, or Customs assigned number of the individual or firm to whom refunds, bills or notices of extension or suspension of liquidation are to be sent (if other than the importer of record and if the CF 4811 is on file). For correct format of number, see instructions under "Consignee Number". Do not use this block to record any other information. 23. IMPORTING CARRIER For merchandise arriving in the U.S. by vessel, record the name of the vessel which transported the merchandise from the foreign port of lading to the first U.S. port of unlading. Do not record the vessel identifier code in lieu of the vessel name. Pursuant to General Statistical Note 1 (a) (ii) of the HTS, the vessel flag is not required to be reported. For merchandise arriving in the U.S. by air, record the IATA code corresponding to the name of the airline which transported the merchandise from the last airport of foreign lading to the first U.S. airport of unlading. Use the IATA two digit alpha code for each airline. A copy of this listing is included in this issuance as Appendix D. Copyright CM Key 2018

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If the carrier file does not contain a specific air carrier's code, write the Designation "*C" for Canadian airlines,, "*F" for other foreign airlines, and "*U" for U.S. airlines. These designations should be used only for unknown charter and private aircraft. When a private aircraft (HTS 8801.90.0000, 8802.20.0040, 8802.20.0050, 8802.20.0060, 8802.20.0080, 8802.30.0030, 8802.30.0040, 8802.30.0050, 8802.30.0060, 8802.30.0080, 8802.40.0040, 8802.40.0060, 8802.40.0070, and 8802.40.0090) is being entered under its own power (ferried), the designation "**" will be used. For merchandise arriving in the U.S. by means of transportation other than vessel or air, leave blank. Do not record the name of a domestic carrier transporting merchandise after initial lading in the U.S. For merchandise arriving in the U.S. Customs territory from a U.S. Foreign Trade Zone, insert "FTZ" followed by the FTZ number. The following format should be used: FTZ NNNN 24. FOREIGN PORT OF LADING TOC 2 For merchandise arriving in the U.S. by vessel, record the five digit numeric code listed in the Department of Commerce Schedule K for the foreign port at which the merchandise was actually laden on the vessel that carried the merchandise to the U.S. (NOTE: A January 1, 1991 edition of the Schedule K listing is included in this issuance as Appendix E). If the foreign port of lading is not provided for by name in the Schedule K, use the code for "all other ports" for the port of foreign lading for the country. For merchandise entering the U.S. Custom territory from a U.S. Foreign Trade Zone, leave blank. When a single entry summary covers merchandise laden at more than one foreign port, place the word "MULTI" in this block and record the foreign port of lading separately in column #28 directly below the line number of each line item (or group of line items if segregated by invoice) for the merchandise laden at each foreign port (where there are multiple ports of lading and also multiple countries of origin, see instructions under block 15). If both code numbers will be required for one line number, place the country of origin code directly below the line number and place the port o lading code directly under the country of origin code. If merchandise is transported by a mode of transportation other than vessel, leave blank.

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25. LOCATION OF GOODS/G.O. NUMBER Where the entry summary serves as entry/entry summary record the pier or site where the goods are available for examination. For air shipments, record the flight number. Where FIRMS codes are available, they may be used in lieu of pier/site. In the case of merchandise placed in general order, record the number assigned by Customs in the following format: G.O. NNNNNNNNNNNN In the case of goods placed in a bonded warehouse, record the name of the bonded warehouse where the goods will be delivered (or record the Customs assigned number for the bonded warehouse in this block when available). In the case where the entry summary serves as a warehouse entry/entry summary, record the pier or site where the goods are available for examination followed by the name of the bonded warehouse where the goods will be delivered (or the Customs assigned number). The use of the Facilities Information and Resources Management System (FIRMS) code in lieu of the pier/site/name of location is acceptable. 26. U.S. PORT OF UNLADING TOC 2 For merchandise imported by vessel or air, record the four digit numeric Schedule D code which identifies the U.S. port at which the merchandise was unladen from the importing vessel or aircraft (NOTE: A list of the Schedule D port codes is included in the HTS as Annex A). Do not show the name of the port of unlading instead of the numeric code. For merchandise arriving in the U.S. by means of transportation other than vessel or air, leave blank. For merchandise arriving in the U.S. Customs territory from a U.S. Foreign Trade Zone, leave blank. 27. IMPORT DATE For merchandise arriving in the U.S. by vessel, record the month, day, year (MMDDYY) on which the importing vessel transporting the merchandise from the foreign country arrived within the limits of the U.S. port with the intent to unlade. For merchandise arriving in the U.S. other than by vessel, record the month, day, and year (MMDDYY) in which the merchandise arrived within the limits of the U.S. For merchandise moving from a Foreign Trade Zone to a bonded warehouse in the U.S. Customs territory, report the date of importation. For merchandise entering the U.S. Customs territory for consumption from a Foreign Trade Zone, leave blank. Copyright CM Key 2018

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28. LINE NUMBER Record the appropriate line number, in sequence, beginning with the number 001. A "line number" refers to a commodity from one country, covered by a line which includes a net quantity, entered value, HTS number, charges, and rate of duty and tax. However, some line numbers may actually include more than one HTS number and value. For example, many items found in Chapter 98, of the HTS require a dual HTS number. Articles assembled abroad with American components require the HTS number 9802.00.80 along with the appropriate reporting number of the provision in chapters 1 through 97. Also, many items in chapter 91 of the HTS require as many as four HTS numbers. Watches classifiable under subheading 9101.11.40, for example, require that the appropriate reporting number and duty rate be shown separately forthe movement, case, strap, band or bracelet and thebattery. A separate line number is required for each commodity which is the subject of a Customs binding ruling. For formatting, see the instructions in item#30A of this directive. TOC 2 For multiple elements in blocks 13, 14, 15, and 24, see specific instructions for those items. 29. DESCRIPTION OF MERCHANDISE (important check) A description of the articles in sufficient detail to permit the classification thereof under the proper statistical reporting number in the HTS should be reported across the top of block 30 to 32. The standard definitions from HTS tape extracts from the Customs HTS data base are acceptable for this requirement. 30. A. HTS NUMBER Record the appropriate HTS 10-digit duty/statistical reporting number along with the check digit if one is used (check digits are required on all 10-digit numbers; 8digit numbers, such as those in Chapter 99 of the HTS, do not require check digits). This number should be left justified. Decimals are to be used in the 10digit duty/statistical reporting number exactly as they appear in the HTS. The check digit is not to be separated by a dash or decimal. An example of the correct presentation of the duty/statistical reporting number would be as follows: 4012.10.20002 If more than one HTS number is required, follow the reporting instructions in the statistical headnote in the appropriate HTS section or chapter. Where a reporting number is preceded by an alpha character designating a special program (i.e., GSP="A", CBI="E", Copyright CM Key 2018

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Folklore="F", etc.), that indicator is to be placed in column 28, directly below the line number. The special program indicator (SPI) should be right justified immediately preceding, and on the same line as the HTS number to which it applies. If more than one HTS number is required for that line item, the special program indicator is to be placed on the same line as the HTS number upon which the rate of duty is based. If more than one special program indicator is used, the primary indicator, that is, the one establishing the rate of duty, will be shown first, followed by a period and the secondary special programs indicator immediately following: (e.g., CA.F). If "MULTI" was recorded in block 13, 14 and/or 15, the appropriate exporting country, export date and/or country of origin data is to be shown in column 28 below the special program indicator. TOC 2 For each item covered by a binding tariff classification ruling, report the ruling number (provided in the applicable ruling letter) directly below the HTS number of the appropriate line item. Precede the binding tariff classification ruling number with the abbreviation "RLNG". For an item(s) classified under the same tariff classification number, but not specifically covered by the binding tariff classification ruling, provide a separate line item breakout for those item(s). For an item(s) covered by a tariff classification pre-approval authorization (obtained via participation in the Pre-Importation Review Program), report the pre-approval indicator (provided in the pre-approval letter) in column 30 directly below the HTS number of the appropriate line item. The pre-approval indicator should be left justified in column 30 and, if necessary, may extend into column 31. Precede the pre-approval indicator with the abbreviation "INDCTR". For multi-line entry summaries, where the pre-approval indicator applies to all line items on the CF 7501, report the pre-approval indicator on the first line only. For those line items that require the reporting of more than one data element (i.e. category number and/or manufacturer identification number) in this same area, the hierarchy should be as follows: Category Number Manufacturer Identification Number Binding Tariff Classification Ruling Number or Ruling Number The correct format for reporting a binding tariff classification ruling number or pre-approval indicator are listed below, respectively:

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RLNG 654321 INDCTR 356780 For sets which are classifiable in accordance with General Rules of Interpretation (GRI) 3(b) or 3(c) of the Harmonized Tariff Schedule, report in column 30 the HTS number from which the rate of duty for the set is derived. Precede this number with an SPI of "X". Report with that part of the shipment so classified, the total value, quantity and charges associated with the shipment as well as all applicable duties, taxes, and fees in the appropriate columns of the CF 7501. In addition, each article in the set (including the article designated with a prefix of "X") should be reported on a separate line as if it were separately classified. Precede these HTS numbers with an SPI of "V". Report the quantity and value attributed to each article associated with the "V" SPI. Also, all other reporting requirements including, but not limited to, quota, visa, licensing, and other government agency requirements, should be reported along with the appropriate HTS number preceded with an SPI of "V". Both the "X" and "V" should be right justified in column 28, immediately preceding, and on the same line as the HTS number to which it applies. Attached are two CF 7501 samples indicating the correct format to be used for entry summaries of sets classifiable in accordance with GRI 3(b) or 3(c). B. ANTIDUMPING/COUNTERVAILING DUTY CASE NUMBER Record, directly below the HTS number, the appropriate antidumping/countervailing duty case number(s) as assigned by the Department of Commerce, International Trade Administration. The following format shall be used: TOC 2 A000-000-000 -or- A-000-000-000 (AD) C000-000-000 -or- C-000-000-000 (CVD) When bonding is permitted and used, record the phrase "Surety Code" and the surety number [e.g., (SURETY #)]. If cash or government securities are deposited in lieu of surety, record "Surety #998". Do not record the column 30 heading letters "A" (TSUSA No.) or "B" (CVD/ADD Case No.) before the HTS number or antidumping/countervailing duty case number. C. CATEGORY NUMBER Record, in block 30 directly below the HTS number, the textile category for each separate line as indicated in the HTS for which a textile category number is shown in the following format: "C NNN" -or- "CAT NNN" 31. A. GROSS WEIGHT

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Record the gross shipping weight in kilograms for articles imported by ALL modes of transportation. Reporting of the gross shipping weight for articles imported by all modes of transportation was required as of July 1, 1989, as a direct result of an agreement reached between the United States and Canada to exchange import data. The gross weight must be reported on the same line with the entered value. In cases where more than one value is shown on a line item, record the gross weight on the same line as the first tariff number for the line item. Supply separate gross weight information for each line number. If the gross weight is not available for each number, the approximate shipping weight for each item shall be estimated and reported. The total of these estimated weights should equal the actual gross shipping weight. For multi-line summaries, the grand total gross weight need not be shown. In the case of containerized cargo carried in lift vans, cargo vans, or similar substantial outer containers, the weight of such container should not be included in the gross weight of the merchandise covered by each line item. B. MANIFEST QUANTITY When the CF 7501 is used in lieu of a CF 3461, insert the manifest quantity covered by the informal entry by Bill of Lading/AWB number, using the smallest exterior package unit. Insert the total quantities being entered without regard to package type. For example, if the entry covers 10 cartons and 10 bales on 1 bill of lading, insert the number "20" in column 31. If there are multiple bills, insert the quantity adjacent to the B/L or AWB number across the top of column 30 to 32 or on a separate attachment. TOC 2 Do not record the letter "A" or "B" shown in block 31 before the gross shipping weight or manifest quantity 32. NET QUANTITY IN HTS UNITS (stat errors rejections associated with class) When a unit of quantity is specified in the HTS for the item number, report the net quantity in the specified unit, and show the unit after the net quantity figure. Record quantities in whole numbers for statistical purposes unless fractions of units are required for other Customs purposes. When expressing fractions, decimals only shall be used. If no unit of quantity is specified in the HTS for the item number, leave blank. If two units of quantity are shown for the item number in the HTS, report the net quantity for both with the unit of quantity indicated in each case. Insert the quantity in terms of the unit marked in the HTS with a superior "v" on the line with the entered value. Show the quantity in terms of any other unit below the first quantity. Example: Shipment consists of 50 dozen all white T-Shirts, weighing 1 kilo per dozen and valued at $10 per dozen. Report as follows: **************************************************** BLOCK 30 BLOCK 32 BLOCK 33 **************************************************** 6205.20.20654 50 doz. 500 Copyright CM Key 2018

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50 kgs. **************************************************** 33. A. ENTERED VALUE Record the U.S. dollar value in accordance with the definition in Section 402, Tariff Act of 1930, as amended (19 U.S.C. 1401a) for all merchandise. This value shall be shown for each HTS item number on the same line with the item number where a value is required. If the value required for assessment of antidumping or countervailing duties is different from the Entered Value, record in parentheses the amount in this column, on the same line as the antidumping or countervailing duty case number and rate. Report the value in whole dollars rounded off to the nearest whole dollar (if the total entered value for a line item is less than $.50, report as "0"). Dollar signs shall be omitted. Effective November 1, 1990, report the total entered value for all line items at the bottom of the first page of the CF 7501 in column #33. This information is required to be reported on all entry summaries, Non-ABI as well as ABI. A CF 7501 sample format showing the proper placement of the entered value is attached. B. CHARGES (CHGS) TOC 2 In accordance with HTS General Statistical Note 1 (a)(XIV), record the aggregate cost (not including U.S. import duty, if any) in U.S. dollars of freight, insurance and all other costs, charges and expenses incurred in bringing the merchandise from alongside the carrier at the foreign port of exportation in the country of exportation and placing it alongside the carrier at the first U.S. Port of entry. Effective July 1, 1989, record charges for shipments arriving in the U.S. by ALL modes of transportation. For overland shipments from Canada or Mexico, foreign inland freight will be reported as charges. This value shall be shown in whole numbers for each HTS item number beneath the entered value and identified with the letter "C" (e.g. C550). Dollar signs should be omitted. Charges are required for each line item valued over $1250, and in certain special cases for each line item valued over $250. The HTS provisions which require charges be shown for each line item valued over $250 are included in this issuance as Appendix G. Charges are not required to be reported for merchandise entered by mode of transportation #60 (passenger, hand carried). C. RELATIONSHIP Copyright CM Key 2018

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Record whether the transaction was between related parties as defined in Section 402(g)(1) of the Tariff Act of 1930, as amended, by placing a "Y" in the column for related and an "N" for not related (the words "related" and "not related" may be used in lieu of "Y" or "N"). "Y" or "N" may be recorded once, at the top of column 33, when applicable to the entire transaction or may be recorded with each line item below entered value and charges. "Y" or "N" must be recorded with each line item when the relationship differs for line items.

Do not record the letter "A", "B", or "C" shown in block 33 before the entered value, charges, or relationship. 34. A. HTS RATE Record the rate(s) of duty for the classified item as designated in the HTS: free, ad valorem, specific, or compound. B. ANTIDUMPING/COUNTERVAILING DUTY RATE Record the antidumping and/or countervailing duty rate(s) as designated by the Department of Commerce, International Trade Administration, directly opposite the respective AD/CVD case number(s) shown in column 30. When bonding is permitted and used, follow the instructions shown in item #30(B) of this directive. C. I.R.C. RATE TOC 2 Record the tax rate(s) for the classified item as designated in the HTS, or record the Customs approved metric conversion tax rate. If I.R. tax is deferred, precede I.R.C. rate with "DEF". Show the amount in column 35 and in block 38 but do not include in the "Total" in block 40. Deferred I.R. tax under 26 U.S.C. 5232(a) should be identified as "IRS DEF, 5232(a)", at the bottom of columns 33 and 34 on the first page of the CF 7501. The deferred IR tax amount should not be shown in column 35, block 38, or block 40. D. VISA NUMBER Record the letter "V" followed by the visa number for each line of merchandise as it appears on the document with the visa if the products are exported from a country with a textile visa system as noted in the Customs Service "Status Reported on Current Import Quotas (Restraint Levels)." Certain countries, as Copyright CM Key 2018

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designated in the "Visa Footnotes" section of the report, use standardized visa numbers. The standardized number consists of nine alpha/numeric characters in the following format: NXXNNNNNN. The first character is the last digit of the year of exportation of the merchandise from the country of origin. The second and third characters are the two letter ISO code of the country of origin (Appendix C). The last six characters are the six digit visa number as shown on the visa document. For example, for merchandise exported from the Peoples Republic of China (the PRC or, as shown in Appendix C, China (Mainland)), exported in 1991 from the PRC, with visa number 123456, the standardized visa number would be 1CN123456. In this example, the standardized visa number would begin with "1" even though the merchandise was subsequently shipped through Hong Kong but not exported from Hong Kong until 1992. Only one Visa number may apply to a single line. If a line has merchandise covered by more than one visa, then separate lines must be provided for each Visa number. When textile merchandise is subject to quota, the date of exportation from the origin country must be reported in addition to the date of exportation from the country of exportation (in accordance with the textile regulations, 19 C.F.R.12.130-1). It will be reported in column 34, under the visa number, if applicable, for each line number affected. Date of exportation from the exporting country will continue to be reported in block 14.

E. OTHER FEES TOC 2 In the event there is any other fee, charge or exaction not enumerated above, record the rate in this column and identify each fee, charge or exaction across columns 30, 31, and 32 and on the same line as such rate. Examples include the beef fee, honey fee, pork fee, cotton fee, harbor maintenance fee (HMF), sugar fee, and merchandise processing fee (MPF). All fees, with the exception of the HMF, are to be reported at the line item level. The HMF may be shown either at the line item level or once at the bottom of the summary on the same line as the total entered value. There is no de minimis collection for the MPF. A minimum of $21 and a maximum of $400 is due on each formal entry, release or withdrawal from warehouse for consumption. Report the total amount of actual MPF due in the block 39 summary. However, if this actual amount due is less than $21, report the MPF in the block 39 summary as $21. If the actual amount of MPF due is more than $400, report the MPF in the block 39 summary as $400. There is a de minimis on the HMF if this is the only payment due on the entry summary and the total amount of HMF is $3 or less. When this is the case, the grand total user fee in the block 39 summary should be reported as the total fee amount of all line items, but the amount in box 39 itself should be reported as $0.00. Pursuant to Article 403 of the United StatesCopyright CM Key 2018

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Canada Free Trade Agreement (CFTA), the Merchandise Processing Fee (MPF) assessment shall be reduced 20 percent per year, until it is zero, on goods originating in the territory of Canada. This reduced MPF will be available only to those goods which meet the rules of origin criteria outlined in chapter three of the CFTA. To obtain the reduced MPF, the importer must claim it on the CF 7501. If the HTS number has the symbol "CA" indicated in the special duty rate column and the importer claims "CA" as a SPI, then the reduced MPF and the special duty rate are applicable. The reduced user fee also applies to those HTS numbers for which "CA" is not shown as an SPI, provided the merchandise meets the rules or origin criteria of the CFTA. In order to obtain the reduced user fee in those instances, prefix the HTS number with the symbol "CA". If the special duty rate column contains a "B" or both a "B" and "CA" and the importer wishes to claim the benefits of the "B" and the reduced MPF, precede the HTS number with the symbol "B#". If the special duty rate column contains a "C" or both a "C" and "CA" and the importer wishes to claim the benefits of the "C" and the reduced user fee, precede the HTS number with the symbol "C#". The schedule for the reduced MPF rate to be shown in column 34 of the CF 7501 is as follows: Calender Year 1990 - .136% (80% of MPF) Calender Year 1991 - .102% (60% of MPF) Calender Year 1992 - .068% (40% of MPF) Calender Year 1993 - .034% (20% of MPF)

TOC 2

Note: The instructions in item #30A of this directive regarding the placement and formatting of SPI's apply to the above as well. Do not record the letter "A", "B", "C", or "D" shown in block 34 before the HTS rate, antidumping/countervailing duty rate, I.R.C. rate, or visa number. F. AGRICULTURE LICENSE NUMBER For merchandise subject to agriculture licensing, report the license number in column 34 directly below the tariff rate for that line item. The license number will consist of a ten space field. The two acceptable formats are as follows: (1) N-AA-NNN-N or (2) N-AB-NNN-N (1-cc-234-5) (1-c -234-5) The letters N and A represent numeric and alphabetic characters respectively. The letter B represents a blank space. For format #1, the first position is the license type. The third and fourth positions are the commodity type code. Positions six through eight represent the license serial number. The tenth position is the license year. Positions two, five and nine are hyphens. Format #2 is identical to the above except position four is blank. 35. DUTY AND I.R. TAX Record the estimated HTS duty, antidumping duty, countervailing duty, I.R. tax, and any other fees or charges calculated by applying the rate times the dutiable value or quantity. The amount Copyright CM Key 2018

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shown in this column must be directly opposite the appropriate HTS rate(s), antidumping duty rate, countervailing duty rate, I.R. rate and other fees or charges. This includes those instances where bonding is permitted for antidumping and countervailing duty. Where bonding is accomplished, enclose the CVD/ADD amounts in parentheses. Where I.R. tax is deferred under 26 U.S.C. 5232(a), leave blank. (See instructions under 34 C.) Dollar signs shall be omitted. 36. DECLARATION

Self-explanatory

Block 37 through 40 must be completed on the first page, if the entry summary consists of more than one page.

37. DUTY Record the total estimated duty paid (excluding antidumping or countervailing duty). 38. TAX Record the total estimated tax paid, including any amount deferred [except tax deferred under 26 U.S.C. 5232(a)]. 39. OTHER

TOC 2

Record the total estimated antidumping or countervailing duties or other fees, charges or exactions paid. Do not show antidumping or countervailing duty amounts that were bonded for. The amounts shown in block 39 of the summary should reflect the amounts actually being paid. For entries subject to payment of antidumping duties, countervailing duties and/or any of the various fees, each applicable fee must be indicated in the area encompassed by block 30 through 32, which will serve as the "Block 39 Summary", and the individual amount of each fee must be shown on the corresponding line in block 32. Countervailing and/or Antidumping duty amounts are to be included in the summary only when they are actually deposited. Bonded amounts should not be included. The Block 39 Summary must be on the first page if the entry summary consists of more than one page. The applicable collection code must be indicated on the same line as the fee or other charge or exaction. Report the fees in the format below: ******************************************************* BLOCK 30 through 32 *******************************************************

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Block 39 Summary Antidumping Duty. . . . . . . . . . . . . . . . . . . 012 Countervailing Duty . . . . . . . . . . . . . . . . . 013 Tea Fee . . . . . . . . . . . . . . . . . . . . . . . . . ….038 MPF Interest (Monthly Entry Summaries . . . 044 Beef Fee. . . . . . . . . . . . . . . . . . . . . . . . . ….053 Pork Fee. . . . . . . . . . . . . . . . . . . . . . . . . ….054 Honey Fee . . . . . . . . . . . . . . . . . . . . . . …. 055 Cotton Fee. . . . . . . . . . . . . . . . . . . . . . ….. 056 Sugar Fee . . . . . . . . . . . . . . . . . . . . . . …. . 079

Informal Entry MPF. . . . . . . . . . . . . . . . . . 311 Dutiable Mail Fee . . . . . . . . . . . . . . . . . . .. 496 Merchandise Processing Fee. . . . . . . . . . . . 499 Manual Surcharge. . . . . . . . . . . . . . . . . . … 500 Harbor Maintenance Fee. . . . . . . . . . . . . . . 501

TOC 2

40. TOTAL Record the sum of blocks 37, 38, 39. Do not include any Internal Revenue deferred tax shown in column 35 and block 38. Do not include any antidumping or countervailing duty which has been bonded for. If no duty, tax, or other charges apply to the transaction, record "0" in this block. [37. through 40.], Warehouse Entries For warehouse entry summaries, show the extensions for all duties, taxes and fees in block 37, 38, and 39. The Harbor Maintenance Fee is required to be paid on all warehouse entry summaries. 41. SIGNATURE OF DECLARANT, TITLE, AND DATE Record the signature of the declarant, the job title of the owner, purchaser or agent who signs the declaration, and the month, day and year when the declaration is signed. When the entry summary consists of more than one page, the signature of the declarant, title, and date must be recorded on the first page. Facsimile signatures are acceptable when prior approval has been obtained in writing from Customs. SUMMARY OF ENTERED VALUE/CURRENCY CONVERSION The summary of entered value and currency conversion (if appropriate) may be shown on a worksheet attached to the entry summary or across columns 30 and 31 just above block 36. On a multi-page entry summary, show the summary of entered values on the last page following the last line item.

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If an importer/broker prepares his line items by invoice (i.e., groups line items by invoice), he may prepare his summary of values for each invoice in lieu of a grand summation at the end of the entry summary. INFORMAL ENTRY Informal entries may be made on the CF 7501. The following blocks are to be completed for informal entries where applicable: 1, 2, 5, 11, 12, 13, 15, 17, 18, 19, 21, 23, 27, 28, 29, 30A, 31A, 31B, 32, 33A, 34A, 34C, 35, 36, 37, 38, 39, 40, and 41. If an informal entry is filed on the CF 7501, the entry number must always be shown in block #1. However, when the CF 7501 is used as an informal entry, the importer number, block 12, need not be provided even though the block number is circled on the form. For ABI transmissions, the date of export, mode of transportation and U.S. port of unlading will continue to be required. When goods are released on a CF 3461 and subsequently followed up by an informal entry summary (CF 7501), the entry date (date of release) must be shown in block 4 on the CF 7501. Block 25, Location of Goods, will be filled in only if merchandise has been placed in a general order warehouse. No statistical copy of the CF 7501 will be presented when the form is used as an informal entry. DRAWBACK When filing a drawback claim on a form other than the revised CF 331, Manufacturing Drawback Entry and/or Certificate Form, or the CF 7539J, Drawback Entry Covering Same Condition Merchandise, or the CF 7539C, Drawback Entry Covering Rejected Merchandise, submit 2 copies of the CF 7501 with the following data elements completed: Block 1, Entry Number Block 2, Entry Type Code Block 3, Entry Summary Date (to be date stamped upon submission Block 5, Port Code Block 6, Bond Number (Show Surety Code only for accelerated payment Claims Block 7, Bond Type (only for accelerated payment claims) Block 10, Ultimate Claimant Number in place of Consignee Number Block 11, Ultimate Claimant Name and Address in place of Consignee Name and Address Block 12, Importer Number (show claimant's importer number) Block 13, Importer Name and Address (show claimant's) Block 29, Description of Goods Block 37, Duty (only for accelerated payment claims) Block 38, I.R. Tax (only for accelerated payment claims) Block 40, Total (only for accelerated payment claims) APPRAISEMENT ENTRY

Back to 7501

When the CF 7501 is used as an appraisement entry as defined in 19 CFR sections 143.11 through 143.16, the following declaration, requesting appraisement under Section 498(a) of the Copyright CM Key 2018

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Tariff Act of 1930, as amended, should be added to the body of the CF 7501 or stapled on top of it in the left margin as follows: I hereby request appraisement under Section 498(a), Tariff Act of 1930, as amended. I declare, to the best of my knowledge and belief, that this entry and the documents presented therewith set forth all the information in my possession, or in the possession of the owner of the merchandise described herein, as to the cost of such merchandise; that I am unable to obtain any further information as to the value of the said merchandise or to determine its value for the purpose of making formal entry thereof; that the information contained in this entry and in the accompanying documents is true and correct; and that the person(s) named above is the owner of the same merchandise.

Signature Title To the District Director: The merchandise described above has been examined and the contents and values are noted above. Examiner Date Customs Officer Date DELIMITERS FOR LINE ITEMS Each line item on the CF 7501 and continuation sheet must be separated by a solid line, broken line, or a space to facilitate the processing of the entry summary. ADDITIONAL DATA ELEMENTS Back to 7501 Filers of the CF 7501 may, on their own initiative, provide additional or clarifying information on the form provided such additional information does not interfere with the reporting of those required data elements. Such additional or clarifying information may be placed in any location on the form solely at the discretion of the filer provided it does not interfere with any required data element. In this case, the Customs Service will not mandate either what additional information may be on the form or where it is to be placed. Invoices may be separately identified in the body of the CF 7501 and the continuation sheet across columns 30 to 35 followed by the line items appropriate to that invoice. Additional Requirements for Warehouse Entry Documentation 1. Designated Warehouse Copyright CM Key 2018

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For warehouse entries the name of the designated Customs bonded warehouse and the Customs assigned number shall be indicated on all copies of the CF 7501 in block 25 entitled "Location of Goods". (In addition, if a warehouse entry/entry summary is filed, this information is to be indicated in addition to the name of the site where the merchandise is available for examination.) 2. Designated Customhouse Licensed Cartman This information shall be designated on the 4 copies of the CF 7501 that shall serve as the Permit, Warehouse Proprietor, Customhouse Licensed Cartman (CHL) and Manifest copies. The designation shall be made in the upper portion of the reverse of the CF 7501. 3. Place of Examination - Customs Inspectors Signatures The signatures of Customs officers located at the place of examination shall be found on the face of the four copies (cited above) of the CF 7501 above the box entitled "U.S. Customs Use". 4. Delivery Authorization The "delivery authorization" signatures of the Customs Inspector countersigned by the receiving CHL Cartman will be indicated in the upper portion of the reverse of the four copies of the CF 7501 listed above. 5. Quantity Control Annotations All annotations related to the quantity and condition of merchandise deposited in the Customs bonded warehouse shall be indicated in the lower portion of the reverse of the CHL Cartman and Warehouse Proprietor copies of the CF 7501. This includes such signatures as "joint determinations", "seal concurrences", shortages, damaged, etc. This instruction does not replace the requirements to file a CF 5931 or other applicable document. Rewarehouse Entry Where the CF 7501 is filed as a rewarehouse entry, blocks 19, 23, 24, and 26 need not be filled in. Consolidated Entry Summary Where the CF 7501 entry summary covers more than one release, report each entry or release number separately, followed by the associated line item number and information. A CF 7501 sample format is attached. Temporary Importation Entry (TIB) Effective January 2, 1991, approved TIB Entry Summaries (type 23) can be processed in ACS. The data required to be reported on a temporary importation bond entry summary are the same as those usually reported on a regular consumption entry. Also, Customs Regulations 10.31(a)(3) identifies additional information that is required to be shown on a TIB entry summary. Attached is an example of how the TIB entry should be formatted. As a reminder, merchandise that is normally subject to quota, either on consumption entries or on withdrawals from warehouse for consumption, is also subject to quota when entered on a TIB.

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Use for Instruction to Broker and REVIEW also Internal AUDIT FROM DATA COLLECTED SELECT ENTRIES FOR REVIEW ENTRY Record Check Customs Entry Number ____________________ Are documents included in the entry file? Y

Date N

TOC

N/A initials

Entry Summary (CBP Form 7501) Bill of Lading or Air Waybill Entry/Immediate Delivery (CBP Form 3461) Free Trade Agreement (supporting docs) Commercial Invoice Importer Declaration (TSCA, Footwear, etc. other agency doc) Packing List US Goods Returned: Shipper’s Declaration Receiving Record US Goods Returned: Manufacturer’s Affidavit Antidumping / CVD Acknowledge Findings FOR Entry Summary (CBP form 7501) Was the correct HTS Classification(s) used? Were deductions/additions taken (based on terms/INCOTERM)? Are all assists declared? Are there any buying/selling commissions? Relationship between buyer & seller properly declared? Commercial Invoice Is the correct part number used? Is the description adequate and correct? Is the correct country of origin indicated? Is the correct quantity indicated? (verify against block 31 on CBP Form 7501, Entry Summary) Is the correct unit value and total value indicated? Is the currency of transaction indicated? Is the term of sale (INCOTERM) indicated? Receiving Record Do the quantities received match the Customs entry & packing list? Accounts Payable Record Is a Letter of Credit Draft included? Does the AP Record match the entered value? Is there proof of payment? (disbursement, check number, wire transfer, etc.) Approved by Date Copyright CM Key 2018

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Checklist Record Entry Audit Checklist Record 1. ENTRY NUMBER ____________________ Date__________ initials CORRECT? 2. ENTRY TYPE CODE 3. ENTRY SUMMARY DATE 4. ENTRY DATE 5. PORT CODE 6. BOND NUMBER7. BOND TYPE CODE 8. BROKER/IMPORTER FILE NO. 9. ULTIMATE CONSIGNEE NAME AND ADDRESS 10. CONSIGNEE NUMBER 11. IMPORTER OF RECORD NAME AND ADDRESS 12. IMPORTER NUMBER 13. EXPORTING COUNTRY with an "E". 14. EXPORT DATE#34D (Visa Number). 15. COUNTRY OF ORIGIN 16. MISSING DOCUMENTS 17. I.T. NUMBER 18. I.T. DATE 19. BILL OF LADING OR AIR WAYBILL NUMBER 20. MODE OF TRANSPORTATION 21. MANUFACTURER I.D. 22. REFERENCE NUMBER" 23. IMPORTING CARRIER 24. FOREIGN PORT OF LADING 25. LOCATION OF GOODS/G.O. NUMBER 26. U.S. PORT OF UNLADING 27. IMPORT DATE 28. LINE NUMBER 29. DESCRIPTION OF MERCHANDISE 30. A. HTS NUMBER 31. A. GROSS WEIGHT 32. NET QUANTITY IN HTS UNITS 33. A. ENTERED VALUE 34. A. HTS RATE 35. DUTY AND I.R. TAX 36. DECLARATION 37. DUTY 38. TAX 39. OTHER 40. TOTAL 41. SIGNATURE OF DECLARANT, TITLE, AND DATE

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Y

N


8 click on page number to return section 2 [Stay in Transaction Value. Expecting 99% compliance Valuation Classification Admissibility Security are 4 MAJOR areas (with sub-areas) related party [Under scrutiny because of transfer of profits since 1993 when Customs increased attention. Always an issue under TAA 1979. Re-emphasis 1993 - current 10 classification [Expect 95% compliance... 10 section 4 [Go to Customs Regulations 10.1 for background requirements. Importers historically have difficulty establishing support for claims. (all 98 entry use) Section 5 [Customs Regulation 10.8 If using a provision in Chapter 98 for reduced duty review the Regulations covering in Part 10. Section 6 [Customs Regulations 10.171 and General Note 4 HTSUS GSP 66% failure rate CBP audit study) IF Duty Reduction / Free under a FTA then find the requirements in Regulations and HTSUS. Section 7 [Customs Regulation 181 NAFTA – you need Determination Report (steps in determining qualification) General Note 12 11 ad/cvd [BP Priority Trade Issue. What system is in place to monitor risk in this area? 12 9 factors [At minimum you should have a compliance manual that has these points. BUILD on it. If management is not behind, it is weak. Without manual or weak means highly at RISK. Question is it effective?

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import compliance, import compliance manual, import manual, import audit, import audit training, internal import audit, ckey, import contro...

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import compliance, import compliance manual, import manual, import audit, import audit training, internal import audit, ckey, import contro...