PART II LECTURE FOR CM7 (CUSTOMS POST CLEARANCE AUDIT AND FRAUD)

History of Post Clearance Audit

The Post Entry Audit system introduced in 2002 in our country to facilitate trade and ensure the proper
application of the World Trade Organization Valuation Agreement. The following year was the creation
of the Post Entry Audit Group of the Bureau of Customs tasked to implement the PEA system and had
engaged in several PEA operations.

Objectives of the PEA

1. Customs control to enable cargo clearance processes easier;

2. Evaluation of the accuracy of the consignee’s entered value and classification to ensure the
proper of import duties taxes and determine the compliance of other government regulations
(permits and clearances) and additional government revenue for non-compliance.

The calculation and computation of Customs duty and taxes is based on Customs value pursuant to
WTOVA (quantity of goods) and rate of duty in line with AHTN. The Philippines BOC used Sec. 201 of the
TCCP in accordance with General Agreement on Tariff and Trade and now WTOVA.

Principle of the WTOVA

“The basis for valuation of goods for BOC purposes should be to the greatest extent possible, and be the
transaction value of the goods being value and “the Customs value should be based on simple and
equitable criteria (reasonable, fair and non-discriminatory) consistent with commercial practices” (as
much as possible the BOC should assess the dutiable value, customs duty and tax based on the price
actually paid or payable not on notional approach or method (published or established value). Under
the WTOVA, importers are allowed to self-assessment system (fair and honest declaration), the
consignees or declarants shall be directly responsible for the complete and precise declarations (value,
volume and tariff heading) in the SAD). Aside from this requirement, importers are also obliged to
disclose information (incoterms, freight, insurance, relationship of the buyer and seller, discounts,) for
proper determination of the customs value and dutiable value and how the importer arrived on the
value.

The BOC has the mandate and authority to verify or evaluate the SAD or goods declaration through post
entry audit system. In its mandate, the Bureau has the power to visit the consignee’s warehouse
(inspection and inventory of goods in the warehouse) and office, examine and inspect relevant
(importation docs. commercial invoice, bill of lading, AWB, proof of payment, contract of sale, purchase
orders, proforma invoices) records and accounts and endorse remedial actions such as imposition of
additional duties, taxes and penalties under the CMTA.

In the application of the PEA, the Philippine government has issued regulations relevant to the PEA such
as the voluntary disclosure program (VDP) and other measures to make the PEA system more effective.

The advocacy of the Bureau’s PEA system is to encourage all stakeholders covered by Sec. 1000-1006 of
the RA 10863 and its IRR the faithful compliance (complete and accurate) of the provisions on audit
(keeping of record, accurate declarations). The advocacy is also to inform them of their rights (appeal
the decision of the PCAG, Commissioner) and responsibilities.
RA 9135

The enactment of RA 9135 in 2001 amended certain provisions particularly Sec. 201 (Basis of Dutiable
Value) the PD No. 1464 otherwise known as the Tariff and Customs Code of the Philippines. RA 9135
provided the six (6) valuation methods (Method 1-6, Transaction Value, TV for Identical Goods, TV for
Similar Goods, Deductive, Computed and Fallback) to be used by the Bureau in assessing the dutiable
value of imported goods and the application in sequential order with the exception of Method 4 and 5.
The 6 methods of valuation is pursuant to the Philippines’ commitment to the World Trade Organization
Valuation Agreement (replacing the notional or theoretical valuation method to actual valuation
method).

As part of our WTOVA commitment, the post entry audit was introduced into our customs
administration for 2 objectives: 1 trade facilitation (sets of measure to simplify the technical and legal
procedures for the entry of goods to one state and exit of goods from one state to be trade
internationally, in short simplification of the customs process as to assessment and determination of the
value and taxes due). 2 revenue collection (increase the lawful amount of import duties and taxes by
accurately applying the 67 methods).

Issuance of Customs Administrative Order No. 4-2004 amended the first 2 IRRs (CAO5-2001) and CMO
(implementation of WTOVA also known as the Transaction Value) of the RA 9135 and established the
Record Keeping and Post Entry Audit System as part of the BOC official administration practices.

In the year 2003, former President Gloria Macapagal Arroyo issued EO 160 which created the Post Entry
Audit Group under the Bureau of Customs and mandated the implementation of the PEA provisions and
its IRRs pursuant to the Tariff and Customs Code of the Philippines (amended by EO 46 and CMTA
provisions). To enhance the effectivity of the PEA, Voluntary Disclosure Program, CAO5-2007 and
CMO18-2007 (amended by CMO32-2017 and CAO1-2019).

In line with the PEA system, the Bureau is authorized to conduct compliance audit (AEIVI) of the import,
export, international buying and selling of consignees and exporters including Customs Brokers
rendering professional brokerage services. The stakeholders on the other hand were required to
observe the keeping of records (Sec. 1003 of the CMTA, 3 years from date final payment or lodg0ment
of SAD) and they were also mandated to give full and free access to the PEAG, now PCAG.
1. What is Post Entry Audit (PCA) and its objective?
Refers to the measure adopted by the Bureau designed to test the accuracy of the Single
Administrative Document or Goods Declaration (whether filed by the importer or filed through a
Customs Broker) in order to identify disparities with customs laws and tariff laws including its
IRRs. PEA is also a system that determines the truthfulness of the information declared in the
SAD or GD as to the value of the goods, volume, tariff heading, rate of duty and the amount of
import duty and tax paid to the BOC. This measure or system require importers or consignees to
be vigilant (observance of the due care) in their declarations and to be compliant to the CMTA.
“Post” means after released of goods from customs territory or zone.

2. Post Entry Audit Group, now Post Clearance Audit Group

Both were created under the BOC and the sole office or group for the implementation of PEA
laws before the repeal of the TCCP and now the CMTA and IRRs. PEAG and PCAG exclusive task
is to conduct the post audit (random selection, AEIVI of records and checking of the keeping of
records). Through Audit Notification Letter, PEAG or PCAG is the only administrative unit
allowed to communicate with consignees for the PEA. Officers from the PEAG or PCAG are
required to identify themselves official (mission orders, IDs) prior exercising their authority.
Under the TCCP, the head of the PEAG is a Deputy Commissioner. Under the PCAG the head is
an Assistant Commissioner.
3. Composition of the PEAG
a. Trade Information and Risk Analysis Office
Its function is the gathering of importers information, analysis of the performance of the
consignee and selection who will be audited.
b. Compliance Audit Office
The role of CAO is to conduct the field audit (visiting the consignee’s place of business) of
the selected importers. The audit is to be made after transmittal of the name of the
importers by the TIRAO and issuance of the ANL.

4. Organization Set-Up of the PEAG

Please see page 3 of your notes

5. Stages of the PEA

Please see page 4 of your notes