Opening Statement to the Standing Committee on Public Accounts

Canada Customs and Revenue Agency—Managing the risks of Non-Compliance for Commercial Shipments Entering Canada
(Chapter 8 - December 2001 Report of the Auditor General)

Mr. Chairman, thank you for this opportunity to discuss our report on how the Canada Customs and Revenue Agency manages the risks of non-compliance for commercial shipments entering Canada. Joining me at the table is Jamie Hood and Lilian Goh, the Principal and Director responsible for the audit.

Our audit work for this report was completed before the tragic events of September 11, 2001. The weaknesses we found take on heightened importance in the current environment. We realize that the government has committed additional funds to improve border security and facilitation, but we have not looked at the plans for this additional spending to see how they would address the concerns raised in our audit. We plan to follow up on how those funds are being used.

For commercial shipments entering Canada, the Agency has three main customs-related activities:

• preventing inadmissible people or illegal or restricted goods—such as contaminated food, weapons, or illegal drugs—from entering Canada;
• making it easy for importers to bring legitimate goods into Canada; and
• ensuring that importers follow Canada's trade laws and regulations for the goods they import.

Mr. Chairman, we found that the Agency needs to improve its enforcement activities for commercial shipments at border crossings to protect Canadians' health, safety, and security. While the Agency has worked hard over the past decade to improve its enforcement activities, it still faces several challenges.

The Agency is using a risk management approach to help it focus its efforts on high-risk shipments, and we believe such an approach is appropriate. However, in order to be successful, they must have good information. We found that employees that identify or target high-risk shipments lack important information. We also found that the Agency does not regularly check that importers are accurately describing the goods they are bringing into Canada at the time of importation. The effective use of targets relies heavily on the assumption that importers are providing accurate descriptions.

We were concerned that the Agency was not collecting the information it needs so that it can state with assurance that its risk management strategy is working. In particular, Mr. Chairman, it does not have information to show whether its targeting activities are actually identifying high-risk shipments, whether its resources are being used to examine high-risk shipments, and whether it is doing an optimum number of examinations at each port of entry based on the risks at the port.

Canada's economy depends heavily on trade. In 2000, Canadian imports totalled $357 billion and exports totalled $412 billion. In the past eight years, the volume of commercial shipments entering Canada has increased dramatically, from 7 million a year to over 10 million today. An efficient process at the border is important in today's economy, because of the high volume of shipments and because many importers no longer maintain large inventories. A delay in receiving goods can shut down an assembly line.

We found that over the past decade, the Agency has made it easier for importers to bring legitimate goods into Canada. Many commercial shipments now clear the border in less than five minutes under normal circumstances. Most delays at the border now occur because importers do not have their documentation ready when the shipment arrives or because traffic is congested due largely to overcrowded roads, bridges, and airports.

Mr. Chairman, importers have to follow Canadian trade laws and regulations. For example, there are laws that determine whether goods are exempt from duties and laws that limit the quantity of certain imported goods, such as textiles. We found that the Agency has spent six years and a lot of effort trying to implement a new approach to its work in this area, but has made little headway in assessing how well importers are following the rules.

In 1995 the Agency introduced its new approach to compliance verification. In 1998, it assessed the 53 verifications completed since 1995 and reported high error rates in classifying goods, in valuing goods, and in reporting the correct country of origin. It has not done any further analysis since 1998 and cannot show whether compliance has improved or deteriorated since then.

Compliance verification officers told us they encountered many problems trying to implement the new approach to compliance verification. These problems included insufficient training and guidance, and a high turnover of managers. At the time of our audit, the Agency had made promising revisions to its approach, but these had yet to be proved. Furthermore, there was no action plan to implement the new approach and show how the Agency would address the problems identified by its officers.

As part of the risk-based processes for importers, the Agency has recently introduced Customs Self-Assessment. This represents a dramatic shift in the way the Agency does business at highway border crossings. We noted in our audit that a well-functioning compliance verification regime is critical in this new environment. We were concerned that the Agency was going ahead with Customs Self-Assessment before solidly establishing its compliance verification regime.

Mr. Chairman, we made 12 recommendations aimed at improving the Agency's enforcement and compliance verification activities. We have attached a list of these recommendations as an appendix to this statement. While the Agency has responded positively to our observations and recommendations, it did not provide us with an action plan at the close of our audit. The Committee may wish to discuss with the Agency the specific steps it is taking to deal with the issues we raised, and obtain from it a plan that details how and when it will put these measures into action. The Committee may also want to be kept informed about the status of their implementation.

Mr. Chairman, that concludes my opening statement and we would be pleased to answer your Committee's questions.

Canada Customs and Revenue Agency

Managing the Risks of Non-Compliance for Commercial Shipments Entering Canada

8.43 Recommendation. The Agency should do the following:

• improve the efficiency of the targeting process by ensuring that targeters have easy access to all relevant information;
• improve the effectiveness of the targeting process by more systematically monitoring release documents to ensure that they properly describe the goods being imported into Canada;
• conduct random inspections more faithfully and analyze their results more carefully; and
• collect the information needed to assess the effectiveness of its risk management approach, including information to show whether targeting activities are identifying high-risk shipments, resources are being used to examine high-risk shipments, and resources are being allocated to achieve an optimum examination rate.

8.63 Recommendation. The Agency should do the following:

• collect the information needed to assess the effectiveness of all compliance verification activities and set goals for future activities that will provide assurance that importers are following the rules;
• analyze the results of completed periodic verifications and determine whether compliance has improved or deteriorated since 1998;
• analyze the results of completed single-program reviews to identify highrisk areas of non-compliance;
• ensure that the training provided to compliance verification officers, particularly in the areas of accounting and auditing, is appropriate, timely, and evaluated for its effectiveness;
• develop a national computer system to capture the results of all postrelease verification activities; and
• develop an action plan to implement the new two-part approach to verifying importers' compliance, including methodology development, training, and ongoing officer support.

8.72 Recommendation. The Agency should systematically review the compliance records of importers that receive special release privileges, including machine release.

8.81 Recommendation. The Agency should develop the detailed performance measures needed to show that it is achieving its objectives in the Customs program. It should set expectations for each of the measures and collect appropriate information to evaluate actual performance against expectations.