Pre, Post, & Perilous: An Audit and Verification Odyssey

Pre, Post, & Perilous: An Audit and Verification Odyssey

Pre- and post-verification audits are among PCB's most useful and popular services. But what is a ‘verification?’ The best way to explore that is with an example and a tale that’s all too common in the world of international trade. We’ll dive into that momentarily, but first, let's talk about terminology. For our purposes, audit and verification are essentially interchangeable terms, with ‘audit’ most often referring to a broader and more colloquial usage and ‘verification’ most typically referring to an official audit performed by Customs on a business and its import records. 

Act I - “Why would a company need an audit?” 

Our story begins with a fictional company: Canalux. Canalux is Canada’s fourth largest importer of US-made spigots, and when it comes to the US border, it has led a charmed life. They have had a Customs broker for years, and they’ve never had a single issue with an import. Their broker helps them with the processing and the release, and as a result, they have slipped into something of a regulatory complacency. 

That is until, one day, they read on the helpful and friendly PCB blog that spigots of the variety they produce have appeared on the CBSA’s Trade Verification Priority List. Suddenly, a Customs verification audit targeting Canalux has gone from being unlikely to incredibly likely in the space of just a few lines of text. Canalux calls their broker, panicked. In reviewing their records, reaching back years, it seems some of their classifications and valuations have been less than carefully considered, and verification seems like it could very well be a disastrous affair. 

The above is just one of many ways a business might discover they are very likely to be audited by Customs. Fortunately, there are steps that can be taken to bring you into compliance with Customs regulations before that happens, and the best of them is a pre-verification audit from PCB.

Intermission - What is a pre-verification audit, and what are the benefits for a company looking to have an audit of this kind done? 

A pre-verification compliance audit from PCB looks at your company’s imports holistically. Our compliance experts work to examine all your relevant Customs entries through the lens of classification, valuation, and regulation while making recommendations based on those findings. They look at your business’s import history while seeking, flagging, and resolving any potential problems that might arise should the company eventually be the target of a Customs verification. 

In the case of Canalux, discovering their product on the CBSA Trade Verification Priority List would not have been as devastating if they knew with confidence that their company was already compliant. It is also worth noting that the more often a business is found to be in regulatory compliance, the less likely it is that their company will be targeted for future targeted compliance audits. A good reputation goes a long way - which someone should have told Canalux a while ago because they have found themselves in a world of trouble. 

Act II - “What is the importance of audit verification?” 

Canalux’s Customs verification has just come in through several sternly worded letters that have pinpointed several errors and regulatory infractions. It has added up to a significant cost in overdue duties, interest on those duties, and taxes, with the potential for further penalties on the horizon. Unsure of what to do next, Canada’s fourth best spigot importer does what they should have done years ago and reaches out to an industry expert. They contact the team at PCB - if anyone can help, they can. Canalux knows it might be too late to avoid the penalties and back-dated duties, but they think they can at least prevent this kind of mishap in the future. 

For Customs, a verification ensures businesses on both sides of the border are within regulatory compliance for recent and even distant import records - reaching back up to seven years in a business’s import history. It’s not the most popular tool in the Canada Border Service Agency's (CBSA) and Customs and Border Protection's (CBP) toolbox, but it’s among the most important. 

However, if a business is prudent, the advantages of a verification audit are tied to the fact that it will help prevent you from suffering through the worst elements of a similar event in the future - particularly if you, like Canalux, get in touch with a trade management company like PCB. After all, pre-verification audits are not the only services PCB provides to businesses in this situation. 

Act III - “A Post-Verification Exhalation”

After several friendly communications with the PCB Trade Advisory Team, Canalux’s business owner is informed of another service they offer - Post-Verification Audits.

A post-verification audit from PCB examines the findings of a Customs verification with an eye for possible avenues of appeal. It is also useful for implementing new solutions and protocols for that business to help avoid the issues discovered during verification. 

Going through the many penalties and infractions of our US-made spigot importer, PCB’s team identified several places where an appeal against the ruling could have merit. Guided through the petition process and put in touch with an expert trade lawyer, Canalux is eventually able to argue a few points at the Canadian International Trade Tribunal and ultimately gets a decision in their favor. 

But the details of that process are another odyssey for another time.

In the end, it’s a mixed outcome for Canalux; even if it landed on its feet - it had to endure a costly and avoidable error. Fortunately, the next chapter of their story seems to be on an upward trend - one of regulatory compliance and increased care when importing goods. For your own story, we recommend you avoid the drama entirely and make a call to our Trade Advisory Team today.

Disclaimer: While reading, kindly note the date of this blog. At PCB we do our due diligence to write on the most relevant topic every week and naturally content may become dated as developments in a certain program/topic occur. For this reason, we greatly appreciate your readership and hope you continue reading with the posting date in mind. For the latest information on this topic please use our website's search function, or better yet, subscribe to our "Trading Post" newsletter to receive these updates directly to your inbox.
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About the Author
Gloria Terhaar
CCS (CA/US), CTCS, CBSA Prof. Designate

Gloria Terhaar began her career in Canadian customs brokerage 2007. She currently works in our Canadian division as a Trade Compliance Supervisor and Regulatory Compliance Specialist. Gloria has extensive experience in all aspects of documentation and regulatory requirements as they relate to importing products into Canada. Gloria is often called upon to train industry with some recent talks for MNP, the Surrey Board of Trade, TFO Canada and the BC Produce Marketing Association. In 2018, Gloria also participated in the Canadian Produce Marketing Association and the Canadian Horticultural Council advocacy event "Fall Harvest" in Ottawa where she participated in advocacy efforts for the Canadian produce industry.

While we strive for accuracy in all our communications, as the Importer of Record it is incumbent upon your company to ensure that you are aware of the requirements under the new regulations so that you maintain compliance as always.