Revenue Canada, Customs, & Taxation are in the process of targeting importers for audits. The process is known as "Periodic Verification (PV)". While all importers may be audited, initial focus will be on those companies, which import goods valued in the area of 1 million dollars Canadian.
The Periodic Verification Audit involves a post audit of corporate activities associated with the importation of products into Canada. Revenue Canada will evaluate whether the importer's accounting systems and related controls can produce accurate, reliable and complete information. The Department will also assess the importer's compliance with the Customs Act, the Customs Tariff, the Special Import Measures Act, and NAFTA.
The audit team consists of officers with knowledge of the various programs administered by the Trade Administration Branch of Revenue Canada. The Periodic Verification Audit begins with a letter from Revenue Canada: The importer is informed that an audit will commence within ninety days. The letter also documents the information that the importer is obliged to supply to the audit team. The Department typically requests the following:
Following the receipt of this letter, you can arrange a preliminary meeting with the Revenue Canada audit team. During this meeting, Revenue Canada will advise corporate representatives of the scope of the audit.
The Main Stumbling Block
The audit team will target the following areas: Receiving; Accounts Payable; Procurement; Material Distribution; and a Customs Department if the importer handle it own import services.
Importers' Systems do not always possess the linkages required by Revenue Canada. "Revenue Canada auditors like to see an audit trail to link the actual import to the receipt of the goods to the account payable system." It is imperative that variances in the actual receipt of goods be reported to Canada Customs by way of adjusting entries.
It is important that employees responsible for the customs functions within a company are also aware of the receiving of goods and the accounts payable function, thus ensuring that any discrepancies can be found and reported through the Customs Broker. The audit team will give you a list of sample transactions: the importer is obliged to provide proof of import. This is sometimes a difficults process if the aforementioned linkages are not in place.