Customs audit: the seven questions that reveal the real friction points

Companies that call us after receiving an audit notice almost all ask the same thing: where do we start? The answer is counter-intuitive. You do not start by re-reading the regulation, but by establishing what you can prove.

The seven questions below are the framework we use to open an engagement. They are deliberately phrased as an inspector would put them. For each, the expected answer is not an oral explanation: it is a document you can produce.

1. Who assigned your commodity codes, and on what basis?

The most frequent answer — "they come from the ERP" or "the forwarder put them in" — is itself the finding. Tariff classification is a legal decision based on the General Interpretative Rules, section and chapter notes and, where relevant, classification opinions. That decision must be attributable and sourced.

Evidence expected: for your top twenty items by value, written reasoning stating the rule applied, the datasheet used, the author and the date.

2. Can you produce the supplier's declarations underpinning your origin proofs?

This is the question that most often causes difficulty. A company can track the origin certificates it issues perfectly while not tracking the supplier declarations that make them valid. In a post-clearance verification it is precisely the upstream evidence the administration will request.

Evidence expected: a statement of supplier declarations by item and period with their validity dates, and the archived origin calculation that uses them.

3. What financial flows exist with your suppliers outside the purchase invoice?

Royalties, licence fees, free-issue tooling, recharged development, marketing contributions, year-end transfer pricing adjustments. These are the leading source of valuation assessments, because they are managed by departments — legal, finance, R&D — with no reason to think about customs.

Evidence expected: the list of these flows, their qualification against the valuation adjustment rules, and the treatment adopted, validated in writing.

4. For a given month, can you reconcile your customs declarations with your accounts?

This is the most revealing test, and the most dreaded. It requires obtaining the complete list of declarations lodged in your name, reconciling it against your orders and entries, and explaining the variances. Many companies discover at this point that they do not hold all of their own declarations.

Evidence expected: a reconciliation table over a real period, with variances identified and commented.

5. Do your customs authorisations still match your actual operations?

A special procedure authorisation granted six years ago describes an organisation that has probably changed: new sites, new products, new information system, new representative. The gap between authorisation and reality is an irregularity in itself, independently of any other shortcoming.

Evidence expected: the list of standing authorisations, their dates, and a line-by-line comparison against operations actually performed.

6. Who checks what your customs representative declares for you?

In most organisations, nobody. Declarations are lodged from the data supplied, and the company does not review them. But it is your declaration: errors of classification, value, procedure or origin are attributable to you, including under indirect representation.

Evidence expected: a documented periodic check, even on a sample basis, with treatment of the variances found.

7. If the person handling customs leaves tomorrow, what remains?

This is an organisational question, not a regulatory one, and it usually produces the longest silence. Where customs knowledge exists only in one person's head and personal files, the company does not have a compliance framework: it has a dependency.

Evidence expected: written procedures, an accessible master file and an identified deputy.

What to do with the answers

Sort the seven points into three tiers. What exposes you now — a preference claimed without evidence, a lapsed authorisation — is handled first, including by voluntary disclosure where justified. What costs money continuously — a classification wrong in the wrong direction, an unused procedure you would qualify for — comes next. The rest is continuous improvement.

A well-handled voluntary disclosure is almost always preferable to the same gap being found by an inspector: it evidences internal control, which is precisely what the administration is trying to assess.