Zambia Revenue Authority

1. Zambia Revenue Authority Post Clearance Audit (PCA) Presentation at the Symposium on Trade Facilitation for African Countries Nairobi, Kenya 13 – 16 November 2012 By: Reuben Kunda

2. OBJECTIVE To share information and experiences with other administrations on the set up of PCA in Zambia

3. Contents • Brief History of PCA in Zambia • Legal basis • Post Clearance Audit, what it is about • Objectives of Post Clearance Audit • Sources of Audits • The Compliance Model

4. Contents • Brief Audit Process • Benefits to Customs and stakeholders • Conclusion

5. BRIEF HISTORY • Chapter 6 of General Annex to the RKC - Customs Controls: • Limited to that necessary to ensure compliance • Move from transaction-based to audit-based or mixed controls • Use risk management techniques • Use trader’s commercial records • Apply compliance measurement • Use MOU’s with trade and MAA’s with other Customs

6. BRIEF HISTORY • Introduced in 2000 under Audit & Business Risk section (ABR) with 12 staff. • Now has an establishment of 30 officers

7. LEGAL BASIS • Sections 9 (general powers of an officer) - power to enter any business premises and request for documents for examination. • Section 113 - authority to enter and search of premises of licenced manufacturers and authority to seize documents.

8. LEGAL BASIS, Cont’d • Section 188 - persons carrying on business to keep proper books and avail such to officers upon request.

9. What is PCA? • A process aimed at providing assurance that businesses and individuals subject to Customs and Excise controls have complied fully with all relevant legislation and requirements through examination of internal controls, accounting systems and relevant documentation.

10. BACKGROUND OF PCAs Opportunities and challenges besetting international trade: • Flexibility in facility set up and access to market • Just In Time • Increased volume and speed of international trade.

11. BACKGROUND OF PCAs Opportunities and challenges besetting international trade cont’d: • High revenue expectations by Govt • Expectations of trade for quick and efficient customs clearance. • Trade Facilitation, a legitimate expectation

12. RESPONSE BY CUSTOMS Strategies aimed at striking a balance between control and trade facilitation. • Allow compliant businesses quick customs release. • Enhanced customs control on less/non-compliant businesses.

13. RESPONSE BY CUSTOMS • Use of risk management to customs control • Use of audit based control called PCA.

14. Objectives of PCA • Evaluate strength of client’s internal controls • Determine client’s compliance levels • Assess any revenue shortfall • Recommend improvements in clients internal controls to assure future compliance • Client education • Evaluate effectiveness of Customs controls • Recommend adjustments in Customs controls (risk targeting, procedures, legislation, etc)

15. Sources of Audits • Customs Compliance Strategy • Client Segmentation • Large • Medium • Small • Senior Management • Customs Ports • Clients etc

16. The Customs Compliance Model

17. Industry factors: • Industry definition • Region • Size, segment, participants • Profit margins • Cost structures • Industry regulation • Industry issues • Competition • Seasonal factors • Infrastructure • Labour BISEP • Business factors: • Structure – sole trader, partnership, trust, Company • Business activities (type) • -local, inter-region, • -International • Financial data • Business age • Psychological factors: • Risk • Fear • Trust • Values • Fairness/equity • Opportunity to evade • Sociological factors: • Norms • Reciprocity • Age • Gender • Education level • Ethnic background • Economic factors: • Inflation • Interest rates • Tax system • Govt policies • International influences

18. Brief Audit Process • Client Selection • Initial Risk Determination • Audit Planning • Audit Execution • Audit Finalization • Final Risk Rating • Reporting • Follow-up (Return audit)

19. EXAMPLE OFAUDIT PROCEDURES & APPROACH • Detailed audit plans are developed and subjected to peer reviews. • Each audit area is approached by outlining ‘assertions’, ‘risks’ and detailed ‘tests’ aimed at treating identified risks. • Below is an example for valuation area.

21. Audit Output • Internal Report • External Report • Agent’s Advisory Letter • Client’s risk profile and risk rating • Update of Incidence Register and ASYCUDA risk parameters • Request for investigation (fraud cases)

22. POST AUDIT PROCEDURES • Client education • Client self-assessment

23. Benefits • Trade facilitation • Efficient use of resources • Deterrent to non-compliance • Long term and comprehensive compliance management focus • Client education • Opportunity to understand client’s business

24. Benefits cont’d • Effective implementation of the WTO Valuation Agreement • Promotes the self assessment strategy (voluntary compliance). • Provides feedback to customs ports to assist them in their risk profiling.

25. Conclusion cont’d Customs is facing the following challenges: • Increasing trade volumes • Limited resource base • Increasing government and public expectations • Declining duty rates • Increasing exemptions

26. Conclusion • Effective and efficient utilisation of WCO best practice instruments such as risk and audit based controls among others, is the only panacea to handling the ever increasing and complex business environment.

27. Thank You