Use of Sampling Methods and Offsetting of Overpayments and Over-Declarations in CBP Audit Procedures; Sampling Under Prior Disclosure: Federal Register Extracts

U.S. Customs and Border Protection

SUMMARY: This document proposes to amend the Customs and Border Protection (CBP) regulations to provide further guidance for the use of sampling methods in CBP audits and prior disclosure cases. It also provides guidance for the offsetting of overpayments and over-declarations when an audit involves a calculation of lost revenue or monetary penalties under 19 U.S.C. 1592. The proposed amendment also includes the deletion of a superfluous term from the audit procedures regulations.

DATES: Written comments must be received on or before December 21, 2009.

ADDRESSES: You may submit comments, identified by docket number, by one of the following methods:

* Federal eRulemaking Portal: http://www.regulations.gov. Follow the instructions for submitting comments via docket number USCBP-2009-0029.

* Mail: Trade and Commercial Regulations Branch, Regulations and Rulings, U.S. Customs and Border Protection, 799 9th Street, NW. (Mint Annex), Washington, DC 20229.

Instructions: All submissions received must include the agency name and docket number for this rulemaking. All comments received will be posted without change to http://www.regulations.gov, including any personal information provided. For detailed instructions on submitting comments and additional information on the rulemaking process, see the "Public Participation" heading of the SUPPLEMENTARY INFORMATION section of this document.

Docket: For access to the docket to read background documents or comments received, go to http://www.regulations.gov. Submitted comments may also be inspected during regular business days between the hours of 9 a.m. and 4:30 p.m. at the Trade and Commercial Regulations Branch, Regulations and Rulings, U.S. Customs and Border Protection, 799 9th Street, NW., 5th Floor, Washington, DC. Arrangements to inspect submitted comments should be made in advance by calling Mr. Joseph Clark at [phone].

FOR FURTHER INFORMATION CONTACT: For Legal Aspects: Alan Cohen, Penalties Branch, Regulations and Rulings, Office of International Trade [phone]; For Audit and Operational Aspects: Matthew Krimski, Regulatory Audit, Office of International Trade, [phone].

SUPPLEMENTARY INFORMATION: This proposed rule is organized as follows:

I. Public Participation

II. Background

III. Proposed Amendments Concerning Statistical Sampling

A. What is Statistical Sampling?

B. General Requirements Applicable to Statistical Sampling

C. Benefits for CBP from Statistical Sampling

D. Statistical Sampling Used by Audited Persons under CBP Supervision

E. Private Party Reviews and Use of Sampling in Prior Disclosure Cases

F. Proposed Amendments Concerning Statistical Sampling

IV. Proposed Amendments Concerning Offsetting Overpayments and Over-Declarations Identified by CBP Auditors for Purposes of Lost Revenue or Monetary Penalty Calculations under 19 U.S.C. 1592

A. The Trade Act of 2002

B. Offsetting Prior to the Trade Act of 2002

C. Offsetting after the Trade Act of 2002

D. Offsetting and Statistical Sampling

E. Proposed Amendments Concerning Offsetting

V. Amendment to Prior Disclosure Regulations

VI. Other Changes

VII. Statutory and Regulatory Reviews

A. Regulatory Flexibility Act

B. Executive Order 12866

C. Paperwork Reduction Act

D. Signing Authority

I. Public Participation

Interested persons are invited to participate in this rulemaking by submitting written data, views, or arguments on all aspects of the proposed rule. CBP also invites comments that relate to the economic, environmental, or federalism effects that might result from this proposed rule. Comments that will provide the most assistance to CBP in developing these regulations will reference a specific portion of the proposed rule, explain the reason for any recommended change, and include data, information, or authority that support such recommended change. See ADDRESSES above for information on how to submit comments.

II. Background

CBP is authorized to conduct audits under 19 U.S.C. 1509 (section 1509) (sometimes referred to in this document as CBP audits or CBP 1509 audits). The statute authorizes CBP to examine the records of (including conducting an audit of) parties subject to its authority for the following purposes: ascertaining the correctness of any entry; determining the liability of any person for duty, fees, and taxes due, or which may be due, the United States; determining liability for fines and penalties; or insuring compliance with the laws of the United States administered by CBP. Under section 1509(b), specific procedures are set forth for conducting a formal audit authorized under the statute.

In this document, CBP proposes to amend the CBP regulations (19 CFR part 163) pertaining to audit procedures. These proposed amendments concern the use of statistical sampling methods and the offsetting of overpayments of duties and fees or over-declarations of quantities or values against underpayments or under-declarations under certain prescribed circumstances. The proposed change regarding sampling methods is designed to reflect in the regulations a practice recognized in both government and industry as the most practical and expeditious way to accurately assess the voluminous number of entry transactions often encountered per audit in the modern commercial importation environment. The proposed change regarding offsetting reflects the amendment made by the Trade Act of 2002 to 19 U.S.C. 1509(b) pertaining to CBP audit procedures. The proposed amendments also include a corresponding change to 19 CFR part 162 (the prior disclosure regulations, 19 CFR 162.74) and the removal of the term "compliance assessments" from 19 CFR part 163 as the term has become superfluous as a result of CBP policy changes with respect to audits.

III. Proposed Amendments Concerning Use of Statistical Sampling

A. What Is Statistical Sampling?

Statistical sampling is a generally accepted auditing tool used in the private sector and by government auditors by which an audit, review, or examination of a voluminous universe of records is made more manageable through the selection of samples from that universe. These methods have become a dependable means of conducting audits for a variety of business purposes. Government agencies use statistical sampling methods when conducting audits authorized by applicable law.

More specifically, statistical sampling methodology requires random selection of items from a defined universe of items and statistical evaluation of sample results. Once the audit objective, sampling objective, and category of sampling have been defined, and the universe of entries/transactions has been analyzed in accordance with generally accepted statistical sampling concepts, the auditors will determine the sample size, sample selection technique, and sample review procedure. The results revealed by examination of the samples can then be applied to the entire universe of records, permitting conclusions to be drawn about the universe with a high degree of confidence. The sampling plan, and its preparation, is fully documented. The audit is conducted according to the sampling plan. After the audit has been completed, the basic sampling parameters, as well as the conclusions indicated by the sampling plan's results, are disclosed in an audit report.

The use of sampling in CBP 1509 audits has produced benefits for both CBP and the trade community. Sampling produces greater efficiency in the audit process by reducing audit related costs for the auditee with respect to time (including less audit time at the auditee's premises and less time for the auditee to pull supporting documents and records) and allowing CBP to best use its resources to conduct the audit.

B. General Requirements Applicable to Use of Statistical Sampling

CBP audits are conducted in accordance with Government Accountability Office (GAO) Government Auditing Standards, and GAO generally recognizes the validity of statistical sampling approaches when properly applied, as do auditors, accountants, and statisticians within and outside the government. Private persons conducting reviews and employing statistical sampling, whether an audited person authorized by CBP to conduct self-testing in connection with a CBP 1509 audit or a private party performing an independent review and calculation of lost revenue for prior disclosure purposes (both discussed in this document), must employ a sampling plan and sampling procedures that are consistent with generally recognized sampling approaches. The sampling procedures must be executed in accordance with the sampling plan. A number of commercial statistical sampling programs are available for guidance on sampling.

C. Benefits for CBP from Statistical Sampling

--This is a summary of a Federal Register article originally published on the page number listed below--

Notice of proposed rulemaking.

CFR Part: "19 CFR PARTS 162 and 163"

RIN Number: "RIN 1505-AC00"

Citation: "74 FR 53964"

Document Number: "USCBP-2009-0029"

Federal Register Page Number: "53964"

"Proposed Rules"