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CBP at Risk of Overpaying Drawback Claims, Reports Say

Friday, December 20, 2019
Sandler, Travis & Rosenberg Trade Report

U.S. Customs and Border Protection still needs to make improvements to its handling of drawback claims to ensure it does not pay out excessive amounts, according to two recent reports.

Drawback is the remittance in whole or in part of duties, taxes, or fees previously paid by an importer, typically when the imported goods are subsequently exported or destroyed prior to entering U.S. commerce. Drawback entries and supporting documents must generally be filed within three years. CBP is tasked with verifying that drawback claims are complete, verifying drawback amounts and accounts for refunds, and paying claims, which total about $1 billion a year.

The Department of Homeland Security’s Office of Inspector General states that since 2011 CBP has been at risk for paying excessive drawback claims because it has not addressed three recurring internal control deficiencies identified by independent auditors: (1) lack of appropriate documentation retention periods to ensure that importers and claimants maintain support for drawback transactions for the full claim period, (2) failure to require drawback specialists to review importers’ prior drawback claims to determine whether excessive amounts were claimed, and (3) the Automated Commercial System’s lack of effective automated controls to prevent, or detect and correct, excessive drawback claims.

A Government Accountability Office report states that CBP has taken some steps to help ensure it does not overpay drawback funds. These include electronically verifying claims against underlying import information and requiring manual full desk reviews of a selection of claims. However, CBP cannot verify claims against underlying export information because it does not maintain detailed information about exports in the Automated Commercial Environment, and it has not targeted certain claims for full desk review since switching to the new system in February 2018. GAO states that more than 35,000 claims representing an estimated $2 billion had not been subject to such review as of Aug. 23, 2019.

CBP expects that many of these problems will be corrected as a result of provisions in the Trade Facilitation and Trade Enforcement Act that prevent over-refunding of drawback claims. These include transitioning from paper-based filing and manual claims to mandatory submissions via ACE, extending the record retention period for some claims, and broadening liability for claims.

However, the GAO notes that TFTEA has also been responsible for an increase in the workload for CBP’s drawback centers. The report attributes this increase to (a) a decline in the efficiency of CBP drawback specialists as they become familiar with ACE and the changes made by TFTEA, (b) the hold put on more than 10,000 drawback claims filed between the time TFTEA claims could be submitted and the date CBP issued final regulations allowing such claims to be processed, (c) a substantial increase in the number of claims filed due to TFTEA, which expanded eligibility for drawback, made it easier to qualify for refunds, and extended the time period to file claims, and (d) staffing shortages.

The GAO states that CBP has not adequately managed this workload increase because it did not anticipate or plan for it. For example, while TFTEA gave CBP greater visibility and flexibility to control the work flow to its drawback centers through ACE, it has not done so. As a result, CBP’s largest drawback centers estimate that their backlog of old claims will take about five years to work through, a delay that results in uncertainty for industry and could impede trade.

Finally, the report states, CBP has not produced a reliable assessment of the economic impact of the TFTEA changes due to data availability constraints, systems limitations, and other factors, nor does it plan to do so in the near future.

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