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:

  • Information on corporate systems associated with the importation of goods;
  • Corporate organizational charts, which depict structure, ownership, affiliates and key personnel;
  • The most recent annual report;
  • A computer-generated print-out of all shipments with a foreign origin and a Canadian destination during the audit period;
  • Source documents for the above;
  • Copies of Licensed Royalty agreements;
  • Financial Records: chart of accounts, trial balance, general ledger, and accounts payable.

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.

Audit Suggestions

  • it is of paramount importance that you are prepared for the customs audit: Do not wait until they come
  • you should assign a full time internal co-ordinator for the duration of the audit team's visit
  • secure the co-operation of other internal departments:
  • the internal Customs Department will have to rely on other departments, such as Accounting, Information Services and Receiving: involve your Customs Broker in the audit
  • ensure that internal technical expertise is available, especially concerning product classification and evaluation
  • make sure that you have established excellent process controls in the customs area
  • develop a quality program with your Customs Broker to measure their ability to comply with your needs and Revenue Canada 's, requirements
  • make sure that you know your products: end use and origins
  • develop an accurate tariff base
  • establish an internal audit trail of your foreign imports in terms of the following: Procurement; Receiving; Accounts Payable; and, Customs
  • endeavour to be open and candid with the audit team concerning all issues:
  • work in partnership with Revenue Canada to ensure that the audit is successful