Internal Audit to Meet New AEO Regulations

China Customs Authorized Economic Operator (AEO) is a concept under the World Customs Organization (WCO) SAFE Framework of Standards to Secure and Facilitate Global Trade (SAFE Framework). It represents a Customs-to-Business partnership to enhance international supply chain security and facilitate movement of legitimate goods.

In November 2018, China Customs published no. 177 and no.178 in order to update related requirements on AEO application. In March 2019, China Customs identified the financial index requirements. Therefore, enterprise needs meet some new or changed requirements to keep AEO certificate.

Customs new focus items for Advanced AEO enterprise contain:

1. Enhance requirements on  process execution effective.

2. Add Customs Operator and Trade Security Leader as responsible personnel.

3. Add CIQ requirements (enterprise internal and business partner).

4. More training and internal assessments.

5. Official annual financial report.

6. Deny cash deposit or bank guarantee letter.

7. Set up more compliance requirements

8. Enhance requirements on IT system including ability of analysis and alerts.

 

Customs new focus items for General AEO enterprise contain:

1. Enhance requirements on process execution effectiveness.

2. Add Customs Operator and Trade Security Leader as responsible personnel.

3. Add CIQ requirements (enterprise internal)

4. More training and internal assessments.

5. Official annual financial report.

6. Deny cash deposit or bank guarantee letter

7. Set up more compliance requirements.

8. IT system for trade compliance management.

Generally, Customs internal audit can be proposed with internal audit on import & Export and AEO compliance review.

• Internal audit on import and export activities including classification, valuation, special program, agent management and clearance processes.

Customs internal review aims to identify potential compliance risks which require in-depth review as well as substantial data and document sampling. Internal audit on import and export activities will be required to include classification, valuation, special program, agent management and clearance processes. According to the expected focus area of Customs Audit in 2019 and high-risk areas in daily customs operation, the review of the below categories will be set forth.

• Customs valuation: focus on 3 key price elements – Authenticity, Rationality and Completeness.
• Classification: focus on the accuracy of HS Code classification for key products – with large volume, high price and import/export frequency;
• Agency management: focus on the efficiency and effectiveness of Agency Select Procedure and Work Review Procedure;
• Clearance processes: focus on the connection between different departments during customs clearance via walk-through testing.
• Special program and others: focus on the special programs and other pain points in customs daily operations.

 AEO compliance review with basis of AEO new regulations.

Based on the new AEO standards effective as of Jan. 2019, AEO enterprises should pass both General Standards and Special Standards set according to different business types. Therefore, our review for Advanced AEO will be designed around 31+14 items while the one for General AEO will be designed around 29+11 items in Decree No.177 & 178 (2018) of GACC.

The AEO General Criteria for consignee and consignor of import/export activities is shown in below table. Import/export activities and security training are specific for Advanced AEO. A point deduction system is implemented, starting with 100 points. Passing certification should maintain three conditions: 1). No criteria is no compliance, 2). No more than three conditions in either Internal Control nor Trade Security, 3) The total score is no less than 95.

Internal Control	Compliance	Trade Security	Financial Status
Customs training	Staff compliance	Physical security	Accounting information
Internal structure	Corporate compliance	Access security	Overall financial status
Documentation	Registrating information	Personnel security
Document keeping	Import/export record	Business partner security
Import/export activities	Declaration specification	Cargo security
Internal audit system	Transmission specification	Container security
Quality control	Tax payment	Transportation security
Rectification system	Management requirements	Crisis management
Information system	External credit	Security training
Data management
Information security

An AEO certificate will support Enterprise to improve credit and image and win more opportunities during business.

Contributor: Tina Chen 

About Allyn International

Allyn International is dedicated to providing high quality, customer centric services and solutions for the global marketplace. Allyn's core products include transportation management, logistics sourcing, freight forwarding, supply chain consulting, tax management and global trade compliance. Allyn clients range from small local businesses to Fortune 500 firms. Allyn conducts business in more than 20 languages and has extensive experience in both developed and emerging markets. Highly trained experts are positioned throughout North and South America, Europe and Asia. Allyn’s regional headquarters are strategically located in Fort Myers, Florida, U.S.A., Shanghai, P.R. China and Prague, Czech Republic. For more information, visit www.allynintl.com.