What the audit actually asks for

Nineteen months later

Relief is granted on trust and checked afterwards. Marnesa's customs release the goods at the border in hours and examine the file later. That is the modern arrangement almost everywhere, and it means the moment that decides whether your relief was real is not the day of import. It is a morning about two years afterwards.

19 October, nineteen months after the cloth for TR-7715 landed, Marnesa customs write to Halvern Apparel. They are opening a post-clearance audit of its inward-processing authorisation. Post-clearance simply means after the goods were released. Marnesa requires records to be kept for an illustrative five years from the date an entry is accepted. This audit reaches back three.

The letter asks for a reconciliation of all imports under the authorisation against all discharges, and lists what will be examined.

The six things it asks for

Underneath the six, the auditor is asking three questions, and only three:

1. What came in under this authorisation?
2. What went out under it?
3. Where is the difference?

Everything else is evidence for one of those. A factory that can answer the third question without hesitating is almost never in trouble, because the third question is the one that fails.

The break: two correct documents

The reconciliation Halvern produced for TR-7715 is the one from lesson 3, and it ties perfectly:

38,438.40 into garments + 1,650.00 of waste + 1,623.60 in stock = 41,712.00 imported.

The auditor then asked for the goods-receipt record from the factory gate. It says 41,860.20 metres.

Nothing is wrong with either number.

• The customs entry was made against Nurbek Textile's invoice, which says 41,712.00 metres. That is the quantity ordered and the quantity invoiced.
• The gate measured the rolls as they came off the truck and booked what it measured: 41,860.20 metres. That is an overage of 148.20 metres, or 0.355%. Mills ship woven cloth to a length tolerance, and the overage is normal, unbilled and in Halvern's favour.

So the customs account for this authorisation says the store holds 1,623.60 metres, and the store holds 1,771.80. Both records are accurate about the thing they were recording. They are recording different things, and nobody ever compared them.

Across the three years under audit and eleven imports, the same gap opened every time and never closed. The unexplained balance came to 4,930 metres.

What the audit really cost

USD 6,780.28 is a manageable number. It is not what the audit cost.

• Halvern's own staff spent 31 working days across seven weeks pulling entries, lay sheets and gate records out of three years of files, at a loaded USD 96 a day: USD 2,976.00
• The trade consultant Serhan Adiye spent 9 days rebuilding the stock account and drafting the response, at USD 640 a day: USD 5,760.00

That is USD 8,736.00 of time against USD 6,780.28 of tax. And the authorisation went onto a watch footing for the following year, which meant every discharge was checked rather than sampled.

An audit is priced in days, not in duty. Budget it that way, and the case for spending an hour a week on the stock account makes itself.

The three ways a file fails

Across the audits Adiye has sat through, the same three breaks account for nearly all of it, and none of them is fraud:

1. The quantity break. Two accurate records of the same goods, kept in different units or at different moments: invoiced against measured, metres against kilograms, rolls against linear metres.
2. The identity break. Exports that cannot be tied back to the imports they discharge, because the export entry does not carry the authorisation reference and the shipment cannot be traced to a lot.
3. The version break. A ratio re-approved mid-season while discharges continue against the old one, or a marker revised without the compliance file hearing about it.

All three are reconciliation failures, and all three are found by comparing two of your own documents. Which means you can find all three first, cheaply, at a desk.

Act as a post-clearance audit specialist and rehearse an audit of my duty relief authorisation. Be adversarial and specific. My authorisation covers [INPUTS] for [PRODUCT] under [REGIME AS I UNDERSTAND IT], granted [DATE], approved consumption ratio [FIGURE]. For the period [DATES] I can give you: total quantity imported under the authorisation [FIGURE] and the number of import entries [NUMBER]; total exported [FIGURE] and the number of export entries [NUMBER]; quantity recorded as received at my factory gate [FIGURE]; quantity issued to production [FIGURE]; waste recorded [FIGURE]; the balance my stock account shows today [FIGURE]. Here is my reconciliation as it stands: [PASTE IT]. Do this. First, ask me the three questions an auditor asks, in order, and show me exactly where my figures fail to answer the third. Second, hunt for the quantity break: compare every pair of my numbers that counts the same material, tell me which pairs disagree, including invoiced against measured quantity, and tell me how large the gap becomes over the whole period rather than on one entry. Third, hunt for the identity break: tell me what would have to be true for each export to be traceable to the imports it discharges, and what I should check on a sample of entries to prove it. Fourth, hunt for the version break: ask me whether the ratio, the marker or the authorisation changed during the period, and what was declared before and after. Fifth, price the exposure using my own duty rate, tax rate and any surcharge and interest my authority applies, and separately estimate the staff days a rebuild would take. Sixth, give me the fix for each break as a change to a routine, not as a one-off correction. If any of my numbers are missing, tell me which record in my own building would hold it.

What to take away

1. Relief is checked after release, not at the border. Write your file for a stranger reading it in two years.
2. The audit asks three questions: what came in, what went out, where is the difference. The third is where files fail.
3. Two correct documents counting the same cloth differently is the commonest break of all, and it grows silently with every import.
4. The assessment was USD 6,780.28. The time was USD 8,736.00. Budget the days.
5. Every one of the three standard failures can be found by comparing two of your own records, before anyone asks.