Internal Audit of Customs Investigations

(Supplement to the Canada Revenue Agency's Report on Internal Audit of Investigations Directorate, April 2004)

Corporate Audit and Evaluation Branch
December 2004

• Executive Summary
• Introduction
• Focus of the Audit
• Findings, Recommendations and Action Plans
  • Ministerial Directive between the RCMP and Customs
  • Information and Intelligence Exchange
  • Human Resources Strategy
• Conclusion
• Audit Team

This audit was started, with the fieldwork and review completed, before the announcement of the division of the Canada Customs and Revenue Agency into the Canada Revenue Agency (CRA) and the Canada Border Services Agency (CBSA). CRA agreed to complete the audit and prepare the report for clearance by the CBSA.

EXECUTIVE SUMMARY

Customs Investigations plays an important role in preserving public safety and national security and ensuring a level playing field for international trade. In carrying out its role, it is highly dependent on leads and referrals from various areas.

At the time of the audit, Customs Investigations was part of the Investigations Directorate of the Compliance Programs Branch, Canada Customs and Revenue Agency (CCRA). Investigations is now part of the Customs Contraband, Intelligence and Investigations Program in the Canada Border Services Agency (CBSA). Due to this organizational change, the findings from the original audit were divided into those that were specific to Customs Investigations and those that applied to the Investigations Directorate of the Canada Revenue Agency. This report deals with Customs Investigations only.

Objective. The modified objectives of the internal audit relevant to the CBSA were to:

• determine the impact of the various organizational changes that Investigations has undergone over the past few years; and
• explain the underlying factors that may be affecting the number and quality of referrals received by Investigations.

The examination phase was carried out from February 2002 to April 2003.

Conclusion. There is a need to clarify the responsibility shared between CBSA and the Royal Canadian Mounted Police (RCMP) for conducting investigations under the Customs Act. Management should ensure that investigators have appropriate access to intelligence information. In addition, the human resources strategy, particularly training, within Investigations should reflect the need for improved skills to deal with the growing complexity of customs investigations.

Action Plans. Management agrees that the division of responsibilities between CBSA and the RCMP needs to be clarified and that a new ministerial directive clarifying these roles will be necessary. A working group from Headquarters has been convened to address issues relating to the ministerial directive. Intelligence has provided a small number of investigators with appropriate access to the Intelligence Management System. A new National Training Plan designed to improve investigators' ability to combat customs fraud has been approved. The existing Investigator Training Course and Senior Investigator Workshop will be updated, and efforts will be made to access other courses created for Compliance Verification Officers. Individual, regional and national training requirements will be monitored, and business and accounting instruction will be encouraged and tracked through an annual evaluation. Efforts are underway to convert all CBSA positions to the new standard approved by Treasury Board, and, if necessary, Headquarters will draft a two-tiered work description to better reflect the nature of the investigator's work.

INTRODUCTION

Customs Investigations plays an important role in ensuring that Canadians are protected from the importation of prohibited, restricted or hazardous goods. It also ensures a level playing field for international trade by enforcing sanctions under the Customs Act when appropriate. An adequate enforcement response reinforces the confidence of both the Canadian public and Canada's international partners in Customs' ability to deter crime and honour international obligations.

Customs Investigations is highly dependent on leads and referrals from various areas within Customs. Leads can originate from customs ports as part of the regular processing of travellers and commercial traffic; from the Compliance Verification Divisions as part of their post-release verification function; and from Intelligence, as part of its information-gathering and risk-analysis functions.

In the Canada Customs and Revenue Agency (CCRA), Customs Investigations was part of the Investigations Directorate, Compliance Programs Branch. In the Canada Border Services Agency (CBSA), Investigations has become part of the Customs Contraband, Intelligence and Investigations Program at CBSA.

An internal audit of the Investigations Directorate in the Compliance Programs Branch of the CCRA was conducted. The audit included the examination of the relationship between Investigations and those areas that provided leads and referrals, including the former Contraband and Intelligence Services Directorate in the Customs Branch at Headquarters.

Since Customs Investigations is now part of the CBSA, the audit findings that were specific to Customs Investigations are being reported separately in this supplemental report to the April 2004 Internal Audit of Investigations Directorate report produced by the Canada Revenue Agency.

FOCUS OF THE AUDIT

The internal audit had two objectives relevant to Customs Investigations:

• to determine the impact of the various organizational changes that Investigations has undergone over the past few years; and
• to explain the underlying factors that may be affecting the number and quality of referrals received by Investigations.

The examination phase was carried out from February 2002 to April 2003.

FINDINGS, RECOMMENDATIONS AND ACTION PLANS

Ministerial Directive between the RCMP and Customs

The 1991 Ministerial Directive (MD) outlining enforcement roles and responsibilities of the Royal Canadian Mounted Police (RCMP) and Canada Customs had caused concern within CCRA regarding the division of responsibilities between the RCMP and Customs Investigations. The Contraband and Intelligence Services Directorate (CISD) was responsible for administering the MD and, as a result, was responsible for assigning referrals to either the RCMP or Customs Investigations. The situation had caused some disparity between Investigations and CISD on the appropriate assignment of referrals.

Recommendation

The responsibility shared between Customs Investigations and the RCMP for investigations under the Customs Act needs to be clarified.

Action Plan

Management agrees that the division of responsibilities between the CBSA and the RCMP needs to be clarified, especially in light of a number of changes within Customs since the 1991 MD. This issue was the subject of a lengthy review by CBSA managers and has already been the subject of extensive discussions with the RCMP within the National Headquarters Consultative Committee. Accordingly, a new ministerial directive clarifying CBSA and RCMP roles will be necessary. A working group consisting of managers and directors from Headquarters and the field has been convened to explore issues relating to the Ministerial Directive regarding the Division of Responsibilities between Customs Investigations and the RCMP.

Following meetings held (May 2003) between representatives of Headquarters Investigations, Contraband and Intelligence Services Directorate, the following memoranda addressing issues of contention were drafted:

• Enforcement Bulletin to provide clarification on the points of contact and making referrals;
• Division of Responsibilities to clarify the division of responsibilities between the RCMP and Customs Investigations; and
• Enhanced Communication Memo to encourage regular meetings between managers in the field to discuss the division of responsibilities and the flow of referrals.

Investigations and Intelligence will commit to follow-up meetings on this issue.

Information and Intelligence Exchange

The information managed by the Contraband and Intelligence Services Directorate (CISD) was being maintained in the Intelligence Management System (IMS). The information collected by CISD related to a wide variety of contraband and criminality files under development or supporting joint investigative efforts with Customs Investigations, the RCMP, foreign agencies and various law enforcement bodies in Canada. System features included graduated access and subsystems, which permitted varying degrees of access to the information maintained on IMS.

While CISD recognized that IMS contained customs information falling within the Customs Investigations mandate and was prepared to provide access to relevant files, CISD was concerned about maintaining confidentiality. Delays in providing Investigations with access to IMS were compounded by restrictions imposed by software licensing agreements. Providing investigators with access to IMS would allow them to access relevant information more quickly.

Recommendation

CISD should determine the level of access that can be provided to investigators and how information can be exchanged faster.

Action Plan

Intelligence has granted a small number of investigators access to the Occurrence Reporting System (ORS) component of IMS. Investigators are now awaiting the technical aspect (IT set-up) and system training. Intelligence has committed to adding "referral to Investigations" as a referral type in ORS to the January 2005 release.

Human Resources Strategy

In the past, customs programs placed emphasis on front-end examination involving transactional reviews and pre-release verification. The sources of referrals were businesses, informants, internal operations and other external sources. The majority of offences involved smuggling, under-valuation and misleading description of goods, as well as infractions relating to the enforcement of other acts.

Customs programs designed to expedite the release of goods are now placing more emphasis on post-entry verification. Compounding the impact of the changes to the Customs processes is the globalization of trade, the growing number of free trade agreements, and technological changes. In addition to smuggling offences, there may be more instances of fraud involving country of origin, quota and export violations. As the types of fraud cases investigated by Investigations become more complex, the need for improved investigative skills and training will increase.

Recommendation

Investigations needs to develop a human resources strategy, which would include training, to increase the skills of their investigators to effectively handle ever more complicated fraudulent schemes referred from various customs programs.

Action Plan

Enhanced Customs Fraud Training:

• A new National Training Plan has been approved by the Director of Investigations. The plan outlines changes that will be made to existing Investigations training courses, including those designed to improve investigators' ability to combat increasingly complex customs fraud.
• The existing Investigator Training Course and Senior Investigator Workshop will be updated to include lessons on "Transhipment Fraud", and efforts will be made to get access to existing "Introduction to Accounting and Financial Statements", "Valuation", and "Origin of Goods" courses created for Compliance Verification Officers.
• Individual, regional and national training requirements will be monitored through the creation of a National Training Template listing all mandatory, recommended and optional instruction for Investigators. Business and accounting instruction will be encouraged and tracked through an annual evaluation of training needs and accomplishments.

Staffing and Compensation

• Efforts will continue to have investigators classified at the compensation levels necessary to attract applicants with greater educational requirements.
• Efforts are underway to convert all CBSA positions, including investigators, under the new Frontière/Border (FB) standard approved by Treasury Board for the Agency. Following that process, if necessary, HQ will draft a two-tiered investigations work description to reflect the complexities of investigations.

CONCLUSION

Over the past few years, Customs Investigations has undergone a number of organizational changes. Some of these changes have been unsettling to the program. Reintegrating Investigations with the other customs programs will alleviate many of the difficulties it experienced in recent years. Management should remain attentive to the issues faced by this program. Its enforcement role in addressing criminal non-compliance is critical to CBSA's credibility, both within Canada and in the international trading community.

Communication is key to a successful transition as Customs Investigations reintegrates with other customs programs within CBSA. To ensure that its role of conducting investigations under the Customs Act is clearly understood, there should be internal communication clarifying the shared responsibility between Customs Investigations and the RCMP.

Intelligence is the custodian of very sensitive information and it is responsible for disseminating that information on an as-needed basis. In balancing its control over the distribution of information and the need to share that information, Intelligence should ensure that it is not overly restrictive.

Customs processes have evolved considerably, requiring an emphasis on investigative skills that were not employed as much in the past. Investigations' human resources strategy should reflect the evolution in customs processes.

AUDIT TEAM

Jake Glover, Account Manager
Harold Gaudet, Project Leader
Donna Lee-Ying, Internal Auditor - HQ
Russell O'Brien, Internal Auditor - HQ
Brenda Ludwig, Internal Auditor - HQ
Mary Wong, Internal Auditor - Southern Ontario Region