Susan McDonald Trade & Customs KPMG, Edmonton (780) 429-6544

1. CAUBO/ACPAU Conference 2006Customs Requirements and the Reality of a University Environment: Assessing Risk Susan McDonald Trade & Customs KPMG, Edmonton (780) 429-6544

2. Issues Addressed • Regulatory & Administrative Environment • Customs Audit Initiatives • University as Importer: Books to Bacteria • University Operational Challenges • Assessing Your Risk • Process Improvements

3. Regulatory & Administrative Environment • Canadian Customs Legislative Developments • Modification of the Customs and Tariff Acts to accommodate: • Administrative Monetary Penalty System (“AMPS”) • Preferential Trade Agreements • Other Regulatory changes • ACI/CSA

4. Regulatory & Administrative Environment • Administrative Monetary Penalty System (“AMPS”) • 250 Penalties under AMPS – 50% applied against Importers • most frequently applied to Importers are • Penalty for failing to pay duties on goods accounted for. • Penalty for providing incorrect or incomplete information. • Penalty for failing to provide certificates, permits prior to release.

5. Regulatory & Administrative Environment • Administrative Monetary Penalty System (“AMPS”) • Most “expensive” penalties for Importers / Exporters are: • Penalty for failing to account for imported goods. • Penalty for failing to report goods subject to export controls. • Penalty for failing to re-pay duties within 90 days (diversions/ corrections)

6. Regulatory & Administrative Environment • Canadian Customs Legislative Developments • Trade Agreement Developments • Canada - Costa Rica Free Trade Agreement • Canada - Chile Free Trade Agreement • Canada – Israel Free Trade Agreement • Other Regulatory changes • ACI • CSA

7. Regulatory & Administrative Environment • ACI/CSA Trade Programs • Advance Commercial Information – (ACI) to be fully implemented by Spring of 2007 • ACI is a new risk management program through which CBSA will collect cargo, conveyance and importer information before the goods arrive in Canada. • Impact on University Operations • Potential increased costs associated with slower delivery time frames • Potential increased freight, brokerage costs associated with additional demurrage/storage of goods prior to customs release • Financial penalties for reporting errors by University or broker

8. Regulatory & Administrative Environment • CSA Program • CSA accompanying program to ACI; provides importers with an option to streamline the reporting of their goods and take more of the process in-house • CSA importers are eligible for FAST program • Has three part application & implementation process • Requires detailed assessment of level of current compliance and ability to comply going forward • Significantly reduces risk of errors in reporting of trade information as information is reported several days (weeks even) after the importation has occurred

9. Customs Administrative Policy • Changes to Administrative policies to promote customs release initiatives. • May 17, 2004, the CBSA ceased collecting permits for certain programs administered on behalf of Health Canada. • Controlled Drugs • Pest Control Products • Human Pathogens. • Be advised, the import requirements for these programs have not changed, even though Canada Customs no longer verifies whether the appropriate permits or certifications have been obtained.

10. Customs Audit Initiatives • Audit (Verification) Selection Strategies • Based on our review of the CBSA Verification Program targets selected on basis of perceived risk: • Tariff Classification • Valuation • Origin – Tariff Treatment • National Initiatives • Priority commodities, industries, or issues. - Anti-dumping, controlled goods, application of end-use and duty relief programs.

11. University as Importer: Mice to Microscopes • Importer Status • Universities typically one of largest importers, in their regions, by VFD and most diverse in terms of the spectrum of goods • Tariff classification issues • Permits and special authority issues (i.e., nuclear research projects; bio-chemical studies; animal/agricultural projects) • Universities have high volume of low value imports coming by a variety of means (i.e., Fed Ex; brokers)

12. University Operational Issues • Attributes of Universities • Value of annual imports - $4.7 to $24M • Heavy reliance on broker services – 40% self-clear – 100% broker reliance • Limited internal customs manual/documented processes • Limited internal processes to complete/conduct periodic review of entries for compliance • Limited resources – (i.e., dedicated, trained customs personnel) • Inadequate processes to effectively “sign-off” on any assessment of financial risk in this area

13. University Operational Issues • Decentralized Purchasing • Supply Management • Bookstores • Research Departments/Schools (i.e., Biochemistry; Agriculture; Medicine). • Affiliated Organizations • Every person with a P-Card!

14. University Operational Issues • Receiving • May not have access to information to verify receipt of goods against PO (on-line system information) • Usually confirms receipt to the number of boxes or packages • Ultimate confirmation of receipt is delegated to the end-user.

15. University Operational Issues • Data integration between A/P, Supply Management, Purchasing & Receiving • Overages/Shortages – how are revenue generating adjustments tracked? • Returned Goods • “Free” goods • Goods shipped from foreign supplier – payment to Canadian affiliate • Currency Conversion • Preferential tariff treatment declared • End-Use provision declared – where/how is this tracked?

16. Assessing Your Risk • Does the University have a post-entry review process? • How are errors in what was reported to the CBSA identified and once identified, how are they addressed? • Does the University have a process for reviewing Detailed Adjustment Statements (DAS) issued by the CBSA and making sure the advice is applied? • If the advice in a DAS does not appear to have considered all the relevant facts, it must be appealed within a tight time frame • Does the University acquire and retain updated NAFTA certificates from relevant foreign suppliers? • Is the information in the NAFTA reviewed?

17. Assessing Your Risk • Does the University have a process for ensuring appropriate end-use codes are correctly applied? • End-use code 9988 - Apparatus, utensils, instruments and parts thereof…used directly in teaching or research…. • Does the University have a process for ensuring significant deviations in value are reported to the CBSA? • Deviations in value either up or down are always a ‘revenue’ adjustment for a University; • Increased VDF – increased GST payment of which the University is generally only entitled to recover 67% - not a 100% ITC • Decreased in VDF – University has overpaid GST – of which only 67% was recovered. The difference between the 67% recoverable and what was paid can only be recovered by making an application under the ETA for tax paid in error (General Rebate Application)

18. Assessing Your Risk • Can P-Card transactions be verified? • The ability to match P-Card transaction data with what’s been reported to the CBSA is paramount. The volume of P-Card transactions is very high and increasing in the University environment. Does the University have a process that ensures all goods for which they are the importer of record are reported to the CBSA? • Samples? • Gifts?

19. Process Improvements • Implement a post-entry review process • Review for the key issue areas: valuation; NAFTA; end-use and make sure the adjustments happen • Take action to acquire & review NAFTA certificates • Implement an end-use code follow up program • Identify and implement a way to link P-Card data to the entries • Educate your end-users • Document your processes • Communicate frequently – in WRITING – specific requirements to your suppliers and your broker

20. Process Improvements • QUESTIONS? THANK – YOU