Data is power: Using analytics for a Customs audit

Arlyn A. Sarmiento-Sy

Our last four Suits the C-Suite articles have emphasized the need for importers to be audit-ready in the event that the Bureau of Customs (BoC) conducts a Post Clearance Audit (PCA). The BoC has already issued 32 Audit Notification Letters (ANLs) to importers; anyone could be next on the list.

Audit readiness can be achieved by conducting a Customs Health Check or a Customs Compliance Review (CCR) to identify areas of risk and potential exposures prior to a PCA, to ensure that importation records are complete, and to enable the importer to determine the issues and amounts for a possible availment of the BoC’s Prior Disclosure Program (PDP), which is an option available to importers to voluntarily disclose errors in good declarations and pay deficiency duties, taxes, and other charges that may arise in lieu of a full audit.

Given the limited time for importers to be ready for a customs audit — which can occur at any moment — or to consider to do a prior disclosure, how can this be done?

Data analytics offers an alternative and possibly, a more efficient approach to audit readiness.


Data analytics is the application of tests on information that is electronically available, either from the company’s Enterprise Resource Planning (ERP) systems or through brokers’ database and other digital sources. The aim is to identify key focus areas which uncover risks and opportunities, while also providing basis to make strategic decisions over core processes and compliance activities. In doing so, data analytics can help allocate resources to areas of highest saving potential, or for risk mitigation.

Data analytics can be used to perform the following:

– Identify errors in order to take appropriate actions to minimize exposure;

– Discover potential tax and cash flow savings, and tax recovery opportunities;

– Detect process inefficiencies or risks, as well as consider opportunities to remove inherent risks, and;

– Provide management insight to help address the company’s key trade and value-added tax (VAT) concerns and priorities.


The insights gleaned from an importer’s electronic data could be used to identify customs and trade-related risks, issues with noncompliance, and financial exposures. The use of these data will facilitate an accurate and timely disclosure to the BoC, and even to the Bureau of Internal Revenue (BIR).

By using available digital data, importers may also avoid resource constraints such as lack of manpower, or the tedious task of manual vouching importation documents. This will also minimize risks of error and oversight that come with purely manual processes. There is also ample possibility of testing 100% of all import transactions, which is preferable to just a sampling. The process involved with data analytics will provide instantaneous multilevel perspectives, allowing an importer to make informed decisions supported by evidence.

Some examples of core tests involving trade analytics include:

– Import overview — This allows for a quick, “get a sense” of the business, as it illustrates total customs value, duties, or VAT paid, per year, month, or day. It could diagnose unusual dips or increases from the expected or average amounts, allowing the company to investigate the underlying import transactions which may have caused them.

– Duty analysis — This creates a pictorial identification of the duty rates paid by the importer, which could show potential variations in duty rates used for similar products. Duty analysis may be able to show product groups with more than one distinct Tariff Classification, which could indicate if one or more products are being incorrectly classified.

– Incoterms — The Incoterms (or the International Commercial Terms) are a series of pre-defined commercial terms published by the International Chamber of Commerce (ICC) relating to international commercial law. Trade analytics can identify suppliers using multiple Incoterms which may be contrary to those agreed or desired. Additionally, analytics may point out risks on the use of Ex-Works, that could give rise to findings of underpayment of duties and taxes since customs values should be based on Free on Board (FOB) or Free Carrier At (FCA) value. Ex-Works is an international term by which a seller makes the product available at a designated location, and the buyer incurs transport costs.

– Free Trade Agreement (FTA) usage and opportunities — This would identify where FTAs have been utilized and thus, would point out a need to provide documentation to support the lower duty rate used on specific imports. It will also help identify where FTAs are available (but not currently utilized) to help save costs.

– Related party transactions — Analytics may also identify anomalies in related party transactions against unrelated parties.

– Physical supply chain — This will identify unusual or inefficient routes, and the value or weight and method of transportation used.

Importers also have the option to perform customized tests to compute total landed cost for importations per month, quarter, and year. This will address the question on whether the landed cost per VAT returns tallies with landed cost per the BoC’s summary of importations. Tests can also be devised to compute for the correct customs duties and taxes per import entry, to determine any possible underpayment that may be considered for a voluntary disclosure.

Since a PCA covers three years of importation (potentially involving thousands of importations), but only provides a limited time of 15 days to respond to findings of noncompliance and/or assessment of underpaid duties and taxes, it is vital that importers take every available measure to be audit-ready. If applicable, they should also consider the benefit of the PDP.

A PCA may result in heavy consequences for importers, since penalties during a PCA range from 125% to 600% of the revenue loss to the Government, depending on the degree of culpability. Upfront disclosure may bring significant material savings to affected importers.

With the recent issuance of Customs Administrative Order (CAO) No. 01-2019, it is expected that the BoC will intensify PCAs and issue numerous ANLs. Thus, unprepared importers may face steep penalties, interests and surcharge on noncompliance. This is why the BoC is encouraging importers to seriously consider the PDP.

In this age of Information Technology, it will be most prudent to consider harnessing the power of data analytics to sift through and utilize all information that may just be sitting dormant in the company’s database and systems.

This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinion expressed above are those of the authors and do not necessarily represent the views of SGV & Co.

Arlyn A. Sarmiento-Sy is a Senior Director for Indirect Tax Services – Global Trade & Customs at SGV & Co.

Leading the way in business

Other SGV News and Publications