When Auditing Yourself Really Counts

Say the word “audit” to some people, and they tend to get uneasy and nervous.  For some, panic sets in and their fear of the results of an audit causes a debilitating effect on their business.

However, cast your fears and anxieties aside, for approaching an audit process from the proper perspective can strengthen your business and create a productive environment.  Specifically, for those engaged in trade compliance associated with importing and exporting, a post entry audit program can significantly improve your operations.  Such a program is one in which you audit your own importing and exporting transactions after the fact to ensure the accuracy of your program and then publish the results internally.

If your business is involved in international trade, here are five valuable reasons why you should maintain a post entry audit program:

1.     It helps achieve favorable Customs and other government agency reviews.  Importing and exporting is an activity that is closely scrutinized by government agencies.  In particular, U.S. Customs and Border Protection (CBP) conducts regular reviews of importers through a process called a Focused Assessment Program.  During these reviews, one of the components CBP will check is to determine if your compliance program contains a solid post entry audit program.  If so, they will likely conclude that you are undertaking the appropriate due diligence of your business and have a more favorable view of your operations.

2.     It enables disclosure of discrepancies.  No importer or exporter will be 100% accurate with all of their import and export transactions 100% of the time.  However, a post entry audit program will enable you to identify discrepancies and submit appropriate disclosures to the government that will reconcile any variances and maintain your accuracy as closely to 100% as possible.  One of the hallmarks of CBP’s expectations is that businesses are to police their own actions and institute the proper remedies.  Proactively disclosing any transaction discrepancies helps avoid CBP discovering them first and taking penalty action.

3.     It fosters better internal controls.  The mere act of auditing your transactions adds discipline and formality to improve internal controls over financial activity.  This in turn reflects favorably on the ability of your international business to uphold the expected performance standards.  Furthermore, improving the internal controls in one area of company tends to influence other areas to increase their standards as well.

4.     It sets the stage for advancing to ISA.  The Importer Self Assessment (ISA) program through CBP allows an importer to forgo the Focused Assessment Program by conducting their own reviews and assessments and periodically reporting the results to CBP.  Many importers favor this approach because it avoids the on-site CBP reviews, but an importer must be validated by CBP before being admitting into the ISA program.  Demonstrating that you have a quality post entry audit program in place is prime requisite of ISA.

5.     It builds accountability and ownership.  Any quality program that centers on auditing will reinforce the accountability and the ownership of the employees to ensure they are conducting their business accurately and ethically.  A post entry audit program to review international transactions creates an environment where the employees and the company as a whole will value the importance of adhering to the rules and regulations of importing and exporting.  Not only does it result in verifying the accuracy of your financial transactions, but it can create opportunities to implement beneficial changes in your operations to become more compliant.

While reviewing your international business through a post entry audit program may sound daunting to some, it truly is the cornerstone of an effective trade compliance department in a company.  Executed properly, it will pay measurable dividends.

The Importance of Urgency

I’ve always been one to feel that a sense of urgency equates to business success and that pushing yourself to exceed expectations is a prime key to achieving productive results.  But just how important should a sense of urgency be to help foster success in your business? 

This concept of urgency struck a chord with me as I read Katherine Bell’s recent Harvard Business Review online blog, “Frontline Leadership” about how John Meyer, CEO of Acxiom, has been affected by his earlier career.  You see, before Acxiom, Meyer was in the Air Force and worked in an underground bunker where he controlled the potential missile launching of 150 nuclear warheads.  Faced with such extreme pressure, especially in a time sensitive environment, Meyer developed a deep appreciation for the urgency of his business.

Now my business life has been a far cry from the responsibility of having the firing of nuclear missiles at my fingertips, but I can understand the sense of urgency in such a setting.  For me, the bulk of my professional career has been in the specialty retail industry, where accountability and urgency were engrained in me at an early stage.  It grew to become the core of my commitment to providing the best customer service at all times.

I recall one of my favorite stories of urgency in my retail life centering on something as benign as a feather.  One day, I received a phone call from a selling associate in one of our stores in Houston saying that an expensive special order gown just received for her customer was defective.  Bear in mind that the gown was not defective, but rather, an exotic feather artfully sewn into the material was damaged.  Our only option was to obtain a replacement gown from the designer, but this was not a simple task, for the gown had to be imported from France.

Being in logistics, my role was to successfully import the replacement gown in time for the customer’s social function on Saturday night.  But the challenge was that it was now Wednesday, with a mere three days and counting to achieve our goal to import an item that normally takes seven days from start to finish.  The communications with France were hastily executed and the gown was promptly shipped.  Upon arrival in the U.S., we coordinated with the proper government agencies to clear the gown for delivery to our facility in Dallas.  Once in our hands, we dispatched an associate to hand carry the gown on a plane to Houston Saturday morning for inspection by the selling associate who then drove the cherished item to the customer’s house in time for her evening event.

In an odd way, maybe I had my fingertips close to the “retail nuclear missile buttons” for that task, but it reinforced in me how displaying a true sense of urgency can create a success.  That incident propelled me forward to understand the importance of urgency and to keep it at the forefront of my business philosophy.          

Why Ethics Should Be First

As I watched the mid-term election returns on Tuesday night, I was struck by a discussion regarding a poll conducted by Fox News in September.  In that poll, voters ranked the economy as their top issue followed by trustworthiness of candidates as their second issue. 

Now I definitely agree with the importance of targeting our efforts on improving the economy, but to me, seeing a candidate’s integrity viewed as a secondary issue was unexpected, yet probably quite predictable.  Clearly, it can be debated that just because trustworthiness is ranked as a number two issue does not mean it is unimportant.  

But what happens when we view the voter poll in the context of a corporate environment?  Should the financial and operational performance of a company be placed ahead of its employees conducting themselves in a trustworthy fashion?  My answer to that is, “No”, because in a corporate world, I see trustworthiness as a cornerstone of integrity which leads directly to upholding proper ethics.  And without proper ethics, the performance of a company is likely doomed, evidenced by the perils of WorldCom and Enron.

For many years, I oversaw the corporate trade compliance functions of a major U.S. retailer, where maintaining an ethical approach to solving importing and exporting compliance issues was essential.  Indeed, I was tested at times, especially on those rare occasions when imported merchandise arrived in our possession without being subject to the proper government clearances.  

In one instance, we received a shipment of handbags from a supplier in Italy for which we learned upon opening that each bag contained a small patch of decorative python skin.  This may sound harmless, but python is an endangered species and requires documentary submission to the U.S. Fish and Wildlife Service before entering into the United States.  Complicating the matter was that the shipment had not been declared with the U.S. Fish and Wildlife Service.

We certainly could have remained silent because the shipment was in our possession, but we did not.  We chose the ethical approach and disclosed the shipment to the U.S. Fish & Wildlife Service, and although we paid a minor penalty, we gained the respect of the government for conducting our business properly and revealing the error.  Such a matter did not have the magnitude and significance of those of WorldCom and Enron, but regardless of the company and the issues, ethics should come first. 

Should we have remained silent?  Absolutely not!  When operating a corporate trade compliance program it is mandatory that you perform with the highest levels of integrity, which means disclosing your errors, even if it may result in a small penalty.  In the case of the handbags, we purposefully delayed distributing the merchandise to our stores until the matter was resolved.  Did it result in lost sales?  Yes, it did, but in the end, we elected the right option that demonstrated we were a trustworthy company.

Just like the Fox News poll voters, I want to see solid and progressive improvement in the economy.  But I first want to know that our candidates are trustworthy, as this will hopefully lay the foundation for sound, ethical decisions that will result in a positive performance.