1. June 17, 2006 CAUBO/ACPAU Conference 2006 Customs Requirements and the Reality of a University Environment: Assessing Risk Susan McDonald Trade & Customs KPMG, Edmonton (780) 429-6544

2. © 2006 KPMG LLP, the Canadian member firm of KPMG International, a Swiss cooperative. All rights reserved. 2 Issues Addressed Regulatory & Administrative Environment Customs Audit Initiatives University as Importer: Books to Bacteria University Operational Challenges Assessing Your Risk Process Improvements

3. © 2006 KPMG LLP, the Canadian member firm of KPMG International, a Swiss cooperative. All rights reserved. 3 Regulatory & Administrative Environment Canadian Customs Legislative Developments Modification of the Customs and Tariff Acts to accommodate:  Administrative Monetary Penalty System (“AMPS”)  Preferential Trade Agreements Other Regulatory changes  ACI/CSA

4. © 2006 KPMG LLP, the Canadian member firm of KPMG International, a Swiss cooperative. All rights reserved. 4 Regulatory & Administrative Environment Administrative Monetary Penalty System (“AMPS”) 250 Penalties under AMPS – 50% applied against Importers most frequently applied to Importers are  Penalty for failing to pay duties on goods accounted for.  Penalty for providing incorrect or incomplete information.  Penalty for failing to provide certificates, permits prior to release.

5. © 2006 KPMG LLP, the Canadian member firm of KPMG International, a Swiss cooperative. All rights reserved. 5 Regulatory & Administrative Environment Administrative Monetary Penalty System (“AMPS”) Most “expensive” penalties for Importers / Exporters are:  Penalty for failing to account for imported goods.  Penalty for failing to report goods subject to export controls.  Penalty for failing to re-pay duties within 90 days (diversions/ corrections)

6. © 2006 KPMG LLP, the Canadian member firm of KPMG International, a Swiss cooperative. All rights reserved. 6 Regulatory & Administrative Environment Canadian Customs Legislative Developments Trade Agreement Developments  Canada - Costa Rica Free Trade Agreement  Canada - Chile Free Trade Agreement  Canada – Israel Free Trade Agreement Other Regulatory changes  ACI  CSA

7. © 2006 KPMG LLP, the Canadian member firm of KPMG International, a Swiss cooperative. All rights reserved. 7 Regulatory & Administrative Environment ACI/CSA Trade Programs Advance Commercial Information – (ACI) to be fully implemented by Spring of 2007 ACI is a new risk management program through which CBSA will collect cargo, conveyance and importer information before the goods arrive in Canada. Impact on University Operations Potential increased costs associated with slower delivery time frames Potential increased freight, brokerage costs associated with additional demurrage/storage of goods prior to customs release Financial penalties for reporting errors by University or broker

8. © 2006 KPMG LLP, the Canadian member firm of KPMG International, a Swiss cooperative. All rights reserved. 8 Regulatory & Administrative Environment CSA Program CSA accompanying program to ACI; provides importers with an option to streamline the reporting of their goods and take more of the process in- house CSA importers are eligible for FAST program Has three part application & implementation process Requires detailed assessment of level of current compliance and ability to comply going forward Significantly reduces risk of errors in reporting of trade information as information is reported several days (weeks even) after the importation has occurred

9. © 2006 KPMG LLP, the Canadian member firm of KPMG International, a Swiss cooperative. All rights reserved. 9 Customs Administrative Policy Changes to Administrative policies to promote customs release initiatives. May 17, 2004, the CBSA ceased collecting permits for certain programs administered on behalf of Health Canada.  Controlled Drugs  Pest Control Products  Human Pathogens. Be advised, the import requirements for these programs have not changed, even though Canada Customs no longer verifies whether the appropriate permits or certifications have been obtained.

10. © 2006 KPMG LLP, the Canadian member firm of KPMG International, a Swiss cooperative. All rights reserved. 10 Customs Audit Initiatives Audit (Verification) Selection Strategies Based on our review of the CBSA Verification Program targets selected on basis of perceived risk:  Tariff Classification  Valuation  Origin – Tariff Treatment National Initiatives Priority commodities, industries, or issues. - Anti-dumping, controlled goods, application of end-use and duty relief programs.

11. © 2006 KPMG LLP, the Canadian member firm of KPMG International, a Swiss cooperative. All rights reserved. 11 University as Importer: Mice to Microscopes Importer Status Universities typically one of largest importers, in their regions, by VFD and most diverse in terms of the spectrum of goods  Tariff classification issues  Permits and special authority issues (i.e., nuclear research projects; bio-chemical studies; animal/agricultural projects)  Universities have high volume of low value imports coming by a variety of means (i.e., Fed Ex; brokers)

12. © 2006 KPMG LLP, the Canadian member firm of KPMG International, a Swiss cooperative. All rights reserved. 12 University Operational Issues Attributes of Universities  Value of annual imports - $4.7 to $24M  Heavy reliance on broker services – 40% self-clear – 100% broker reliance  Limited internal customs manual/documented processes  Limited internal processes to complete/conduct periodic review of entries for compliance  Limited resources – (i.e., dedicated, trained customs personnel)  Inadequate processes to effectively “sign-off” on any assessment of financial risk in this area

13. © 2006 KPMG LLP, the Canadian member firm of KPMG International, a Swiss cooperative. All rights reserved. 13 University Operational Issues  Decentralized Purchasing  Supply Management  Bookstores  Research Departments/Schools (i.e., Biochemistry; Agriculture; Medicine ).  Affiliated Organizations  Every person with a P-Card!

14. © 2006 KPMG LLP, the Canadian member firm of KPMG International, a Swiss cooperative. All rights reserved. 14 University Operational Issues  Receiving  May not have access to information to verify receipt of goods against PO (on-line system information)  Usually confirms receipt to the number of boxes or packages  Ultimate confirmation of receipt is delegated to the end-user.

15. © 2006 KPMG LLP, the Canadian member firm of KPMG International, a Swiss cooperative. All rights reserved. 15 University Operational Issues Data integration between A/P, Supply Management, Purchasing & Receiving  Overages/Shortages – how are revenue generating adjustments tracked?  Returned Goods  “Free” goods  Goods shipped from foreign supplier – payment to Canadian affiliate  Currency Conversion  Preferential tariff treatment declared  End-Use provision declared – where/how is this tracked?

16. © 2006 KPMG LLP, the Canadian member firm of KPMG International, a Swiss cooperative. All rights reserved. 16 Assessing Your Risk Does the University have a post-entry review process?  How are errors in what was reported to the CBSA identified and once identified, how are they addressed? Does the University have a process for reviewing Detailed Adjustment Statements (DAS) issued by the CBSA and making sure the advice is applied?  If the advice in a DAS does not appear to have considered all the relevant facts, it must be appealed within a tight time frame Does the University acquire and retain updated NAFTA certificates from relevant foreign suppliers?  Is the information in the NAFTA reviewed?

17. © 2006 KPMG LLP, the Canadian member firm of KPMG International, a Swiss cooperative. All rights reserved. 17 Assessing Your Risk Does the University have a process for ensuring appropriate end-use codes are correctly applied?  End-use code 9988 - Apparatus, utensils, instruments and parts thereof…used directly in teaching or research…. Does the University have a process for ensuring significant deviations in value are reported to the CBSA?  Deviations in value either up or down are always a ‘revenue’ adjustment for a University;  Increased VDF – increased GST payment of which the University is generally only entitled to recover 67% - not a 100% ITC  Decreased in VDF – University has overpaid GST – of which only 67% was recovered. The difference between the 67% recoverable and what was paid can only be recovered by making an application under the ETA for tax paid in error (General Rebate Application)

18. © 2006 KPMG LLP, the Canadian member firm of KPMG International, a Swiss cooperative. All rights reserved. 18 Assessing Your Risk Can P-Card transactions be verified?  The ability to match P-Card transaction data with what’s been reported to the CBSA is paramount. The volume of P-Card transactions is very high and increasing in the University environment. Does the University have a process that ensures all goods for which they are the importer of record are reported to the CBSA?  Samples?  Gifts?

19. © 2006 KPMG LLP, the Canadian member firm of KPMG International, a Swiss cooperative. All rights reserved. 19 Process Improvements Implement a post-entry review process  Review for the key issue areas: valuation; NAFTA; end-use and make sure the adjustments happen  Take action to acquire & review NAFTA certificates  Implement an end-use code follow up program  Identify and implement a way to link P-Card data to the entries  Educate your end-users  Document your processes  Communicate frequently – in WRITING – specific requirements to your suppliers and your broker

20. © 2006 KPMG LLP, the Canadian member firm of KPMG International, a Swiss cooperative. All rights reserved. 20 Process Improvements QUESTIONS? THANK – YOU