European Scrutiny Committee Contents

5 Customs and financial management



European Court of Auditors special report No. 1/2010: Are simplified customs procedures for imports effectively controlled?

Legal base
Deposited in Parliament21 June 2010
DepartmentHM Revenue and Customs
Basis of considerationEM of 2 July 2010
Previous Committee ReportNone
To be discussed in CouncilNot known
Committee's assessmentPolitically important
Committee's decisionNot cleared; further information requested


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.


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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Prepared 26 October 2010