DHS Inspector General Issues Report Critical of CBP's Duty Collection Processes

An audit of CBP's revenue collection processes during fiscal years 2014-2016 found some big insufficiencies in how the agency pursues and tracks debt collection, the Department of Homeland Security Office of Inspector General said in a newly released report. The DHS IG said that "CBP does not fully enforce Customs laws over its revenue collection process" and "did not exhaust all administrative efforts in its collection duties." CBP objected to several of the IG's findings, but ultimately concurred with the recommended next steps.

The IG recommends that CBP move to "implement the risk-based bonding methodology for use on high risk revenue imports," as previously recommended. CBP should also put in place a policy to make sure the viability analysis worksheets required to determine an importer's ability to pay is completed. Also recommended are requiring the work sheets to be completed before contracting private collection agencies and using an improved procedure to track and monitor referrals for legal action.

The DHS IG audit looked at 16 of the 280 referrals sent from CBP’s Debt Management Division, known as Revenue, to the CBP Office of Chief Counsel (OCC) for legal action during FYs 2014-2016. Revenue uses several methods to collect on customs duties, including through dunning letters to the importers, through the sureties and eventually with a referral to the OCC. There are different types of referrals used to describe whether the attempted collection focused on the importer, the surety or both. A "write-off" referral is "used to obtain concurrence to terminate and write off a debt based on Revenue’s determination that it is no longer collectible," it said.

During that time, "CBP failed to ensure the timely collection, write-off, and processing of delinquent debt from importers," and instead "settled for collecting funds from importer surety bonds, which yielded less than 1 percent," the IG said. Among other failings, CBP did not complete some required research, such as viability analysis worksheets "to determine the importer’s ability to pay the debt, and the availability of assets to ensure the timely collection or termination of a debt," it said. Fifteen of the 16 referrals were surety-type referrals and one was a write-off referral, resulting in collection of $247,000 from surety bonds, the IG said. "Approximately $189 million in delinquent debt remained uncollected or written-off" it said. The agency was even unable to collect the full surety amount, which was about $1.5 million, the IG said.

Instead, "Revenue settled for collecting only against the surety, and did not always complete research needed to timely pursue collection against importers or terminate debts," the IG said. "Due to the lack of completed viability analysis worksheets, Revenue forewent OCC’s assistance to further pursue collection against importers. As a result, Revenue also relinquished the possible use of DOJ’s litigation assistance to further pursue the debts." One referral from 2014 that did include the viability analysis along "with support for debt termination or write-off totaling more than $84 million" was still unprocessed as of September this year, it said.

According to the IG, "Revenue officials believed their cursory reviews -- that is, accessing CBP’s Automated Commercial System to determine whether an importer has an active bond and is still actively importing merchandise into the United States -- were sufficient to determine the importers’ collectibility. Therefore, they skipped the process of completing the research needed for the viability analysis worksheets and compiling supporting documentation."

As of FY 2017, CBP had more than $4.3 billion in uncollectible duties, taxes and fees, it said. "Revenue has resorted to using private collection agencies in attempt to collect or terminate these debts" and has "assigned $266 million in delinquent debts for collection action" since the beginning of 2018, it said. "If Revenue had completed viability analysis worksheets for the more than $189 million when the delinquent debt was recognized, CBP may have been able to timely collect the debt directly from the importer," it said.

In response to the report, CBP disagreed with "broader conclusions regarding its administrative efforts in revenue collection," noted the IG. CBP complained that the report lacked context, such as the challenges of AD/CVD collections, discussion of CBP's successful efforts and "the limited potential for additional collection actions to increase collections substantially." The DHS IG disagreed with CBP's assessment. "Our report conclusion that CBP did not maximize revenue collection is accurate and is fully supported by the evidence we obtained and reviewed. Because CBP claims that most of the AD/CVD importers are now non-existent, we believe CBP did not maximize collection of additional revenue resulting from the liquidation of those entries."