5 Customs and financial management
| (31717)
11198/10
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| European Court of Auditors special report No. 1/2010: Are simplified customs procedures for imports effectively controlled?
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| Legal base | —
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| Deposited in Parliament | 21 June 2010
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| Department | HM Revenue and Customs
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| Basis of consideration | EM of 2 July 2010
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| Previous Committee Report | None
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| To be discussed in Council | Not known
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| Committee's assessment | Politically important
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| Committee's decision | Not cleared; further information requested
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Background
5.1 In addition to its annual report on the EU and European Development
Fund Budgets the European Court of Auditors publishes each year
a number of special audit reports.
5.2 Traders who are authorised to use simplified
customs procedures for imports benefit from an accelerated customs
clearance process. Customs authorities place reliance on the correctness
of their import declarations and carry out fewer controls before
release. Compliance is assured through pre-authorisation and post-clearance
audits. The procedures are long-standing and widely used in the
EU — in 2008, more than two thirds of all EU customs declarations
for imports were made using simplified procedures.
The document
5.3 This document reports an audit of the effectiveness
of controls applied to simplified import procedures conducted
in 2008 and 2009 by the European Court of Auditors. The audit
questions were:
- has the Commission developed
a sound approach for controls on simplified procedures, taking
into account international best practices, and did it monitor
the correct application of simplified procedures and the controls
thereon; and
- do Member States use a sound and standardised
approach for controls on simplified procedures and are these controls
effective?
5.4 The Commission was notified of the preliminary
findings in January 2010 and the report includes its replies.
5.5 The Court found that:
- the Commission has taken into
account international standards and put in place an appropriate
regulatory framework for simplified procedures, but not before
the end of 2008;
- the Commission has developed an EU-wide automated
risk management system — while the system allows for an
automated exchange of Risk Information Forms, it does not yet
include risk profiles covering customs duty and VAT or the common
trade policy;
- the obligation to apply automated risk analysis
in the framework of simplified procedures will only apply from
1 January 2011;
- the Commission carried out specific inspections
on simplified procedures for imports for the first time in 2008
and enhanced its monitoring activities in 2009; and
- a standardised approach for post-clearance audits
on simplified procedures is not yet applied throughout the EU
because the activities of the Commission to achieve it have not
yet been completed.
5.6 The Court found that Member States use their
own, sometimes deficient, approaches to the control of simplified
procedures, resulting in:
- generally poor or poorly documented
pre-authorisation audits before authorising a trader to use simplified
procedures;
- little use of automated data processing techniques
for carrying out checks during the processing of simplified procedures;
- excessive use of simplification practices which
prevent risk-based checks before goods come onto the EU market;
- post-clearance audits of the trader's commercial
documents and accounts were of poor quality, insufficiently frequent
or not adequately targeting transactions; and
- a high error rate in traders' customs declarations
due to their inability to produce required supporting documents.
5.7 The Court's conclusion is that overall the results
of its audit show that simplified procedures are not yet effectively
controlled in the majority of the audited Member States. So there
is no reasonable assurance of the correct collection of revenue
due or that traders comply with the obligations deriving from
the common trade policy.
The Government's view
5.8 The Economic Secretary to the Treasury (Justine
Greening) tells us that the Government generally accepts the audit
findings but disagrees with one recommendation — this relates
to the need to provide an automated reconciliation function for
simplified and supplementary declarations. The Minister says that:
- the Court considers this is
the best way to ensure that the trader makes a complete, accurate
and timely supplementary fiscal and statistical declaration for
all imports initially declared under each simplified declaration;
- this is not a requirement under EU legislation
and would require a costly IT change; and
- HM Revenue and Customs has previously considered
this but it has been judged to be impractical — whilst Revenue
and Customs recognises the risks it considers that it has sufficient
manual safeguards in place to address this issue during audits.
5.9 The Minister then details the remaining findings
of the Court and the implications for the UK:
Generally poor or poorly documented pre-authorisation
audits before authorising a trader to use simplified procedures
- the Court expressed concerns
about the lack of evidence of pre-authorisation audits taking
place and the action taken by UK customs. Revenue and Customs
has already made improvements to guidance for audit officers and
included an aide-memoire detailing the checks to be made. It will
ensure that all action taken is fully documented, a risk profile
is drawn up and recommendations are made for future assurance
activity;
Excessive use of simplification practices
- the Court criticised the UK
for not carrying out any risk-based or random physical checks
before release of the goods at traders' inland premises under
the Local Clearance Procedure. It considers that these checks
would enable Revenue and Customs to ensure that the correct amount
of customs duty and VAT is being collected and the trader is complying
with EU trade policy measures. As a result Revenue and Customs
has now introduced a programme to carry out both risk-based and
random physical examinations;
Post-clearance audits of the trader's commercial
documents and accounts of poor quality, insufficiently frequent
or not adequately targeting transactions
- the Court was concerned about
the frequency and standards of audit activity. Revenue and Customs
has recently concluded assurance projects to conduct audits on
all Customs Freight Simplified Procedures traders. It has now
introduced a rolling programme to ensure that audits will continue
on a regular ongoing basis. It has also provided guidance to staff
on the key risks within Customs Freight Simplified Procedures
to be addressed during audits; and
High error rate within traders' supplementary
declarations randomly selected for verification
- at the time of its audit, the
Court found a high error rate as some traders did not produce
the necessary documents to support their entitlement to import
goods subject to trade policy measures or to benefit from the
application of a reduced rate of duty. The UK experienced difficulty
in obtaining all the documents from the traders in time for the
audit. In most cases these have now been produced and accepted
by the auditors. Of the 120 declarations inspected by the Court,
only six were eventually found to be in error. As a result the
total customs duty debt identified was less than £100. Revenue
and Customs has already amended the customs declaration processing
system to address the identified weakness in relation to goods
requiring import licences.
5.10 The Minister concludes that as a result of the
audit findings the Government expects to have to pay less than
£100 extra of traditional own resources — this amount
has still to be confirmed.
Conclusion
5.11 We note that the Government has acted to
remedy, as far as the UK is concerned, the faults found by the
European Court of Auditors. But we are concerned that the Court's
general conclusion is that there is no reasonable assurance of
the correct collection of revenue due or that traders comply with
the obligations deriving from the common trade policy. Before
we consider this document further we should like to hear what
encouragement the Government is giving to the Commission and other
Member States to ensure better implementation of the simplified
customs procedures for imports. Meanwhile the document remains
under scrutiny.
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