1. Zambia Revenue Authority
Post Clearance Audit (PCA)
Presentation at the Symposium on Trade Facilitation for African Countries
Nairobi, Kenya
13 – 16 November 2012
By: Reuben Kunda

2. OBJECTIVE
To share information and experiences with other administrations on the set up of PCA in Zambia

3. Contents Brief History of PCA in Zambia Legal basis
Post Clearance Audit, what it is about
Objectives of Post Clearance Audit
Sources of Audits
The Compliance Model

4. Contents Brief Audit Process Benefits to Customs and stakeholders
Conclusion

5. BRIEF HISTORY
Chapter 6 of General Annex to the RKC - Customs Controls:
Limited to that necessary to ensure compliance
Move from transaction-based to audit-based or mixed controls
Use risk management techniques
Use trader’s commercial records
Apply compliance measurement
Use MOU’s with trade and MAA’s with other Customs

6. BRIEF HISTORY
Introduced in 2000 under Audit & Business Risk section (ABR) with 12 staff.
Now has an establishment of 30 officers

7. LEGAL BASIS
Sections 9 (general powers of an officer) - power to enter any business premises and request for documents for examination.
Section authority to enter and search of premises of licenced manufacturers and authority to seize documents.

8. LEGAL BASIS, Cont’d
Section persons carrying on business to keep proper books and avail such to officers upon request.

9. What is PCA?
A process aimed at providing assurance that businesses and individuals subject to Customs and Excise controls have complied fully with all relevant legislation and requirements through examination of internal controls, accounting systems and relevant documentation.

10. BACKGROUND OF PCAs
Opportunities and challenges besetting international trade:
Flexibility in facility set up and access to market
Just In Time
Increased volume and speed of international trade.

11. BACKGROUND OF PCAs
Opportunities and challenges besetting international trade cont’d:
High revenue expectations by Govt
Expectations of trade for quick and efficient customs clearance.
Trade Facilitation, a legitimate expectation

12. RESPONSE BY CUSTOMS
Strategies aimed at striking a balance between control and trade facilitation.
Allow compliant businesses quick customs release.
Enhanced customs control on less/non-compliant businesses.

13. RESPONSE BY CUSTOMS Use of risk management to customs control
Use of audit based control called PCA.

14. Objectives of PCA Evaluate strength of client’s internal controls
Determine client’s compliance levels
Assess any revenue shortfall
Recommend improvements in clients internal controls to assure future compliance
Client education
Evaluate effectiveness of Customs controls
Recommend adjustments in Customs controls (risk targeting, procedures, legislation, etc)

15. Sources of Audits Customs Compliance Strategy Senior Management
Client Segmentation
Large
Medium
Small
Senior Management
Customs Ports
Clients etc

16. The Customs Compliance Model
Introduce the Compliance Model. The left part is about understanding taxpayer behaviors and we haven’t got time to cover today.
The right part is a model that shows us how to manage compliance. The majority of clients are at the bottom and are willing to comply, we just have to assist them by making it easy (our processes and systems) and telling them what we expect. We can’t expect people to comply with requirements we don’t tell them about.
The left side shows the client’s attitude to compliance. As we move up the model we get increasing resistance, and we can see on the right hand side, as resistance increases, so does our compliance strategy, or treatment of the client.
The comments I’ve heard for the limited number of people I’ve shown the model to since I arrived is – in Zambia it is upside down. The fat end is at the top and the pointy end is at the bottom!!! If that is the case, why? And what have we done to make it that way?

17. BISEP Industry factors: Industry definition Region
Size, segment, participants
Profit margins
Cost structures
Industry regulation
Industry issues
Competition
Seasonal factors
Infrastructure
Labour
Business factors:
Structure – sole trader, partnership, trust, Company
Business activities (type)
-local, inter-region,
-International
Financial data
Business age
Psychological factors:
Risk
Fear
Trust
Values
Fairness/equity
Opportunity to evade
Sociological factors:
Norms
Reciprocity
Age
Gender
Education level
Ethnic background
A closer look at the left hand side of the model.
Economic factors:
Inflation
Interest rates
Tax system
Govt policies
International influences

18. Brief Audit Process Client Selection Initial Risk Determination
Audit Planning
Audit Execution
Audit Finalization
Final Risk Rating
Reporting
Follow-up (Return audit)

19. EXAMPLE OFAUDIT PROCEDURES & APPROACH
Detailed audit plans are developed and subjected to peer reviews.
Each audit area is approached by outlining ‘assertions’, ‘risks’ and detailed ‘tests’ aimed at treating identified risks.
Below is an example for valuation area.

21. Audit Output Internal Report External Report Agent’s Advisory Letter
Client’s risk profile and risk rating
Update of Incidence Register and ASYCUDA risk parameters
Request for investigation (fraud cases)

22. POST AUDIT PROCEDURES
Client education
Client self-assessment

23. Benefits Trade facilitation Efficient use of resources
Deterrent to non-compliance
Long term and comprehensive compliance management focus
Client education
Opportunity to understand client’s business

24. Benefits cont’d
Effective implementation of the WTO Valuation Agreement
Promotes the self assessment strategy (voluntary compliance).
Provides feedback to customs ports to assist them in their risk profiling.

25. Conclusion cont’d Customs is facing the following challenges:
Increasing trade volumes
Limited resource base
Increasing government and public expectations
Declining duty rates
Increasing exemptions

26. Conclusion
Effective and efficient utilisation of WCO best practice instruments such as risk and audit based controls among others, is the only panacea to handling the ever increasing and complex business environment.

27. Thank You