Compliance 360: CBSA credit offsets pose challenge for importers

   At the beginning of August, the Canada Border Services Agency (CBSA) implemented the first phase of its Assessment and Revenue Management Project, fundamentally changing how Canadian importers do business with the agency.
   For businesses used to receiving a refund check from CBSA for overpayment of duties and fees, the change to credit offsets for future debts could have a major impact on cash flow.
   Refunds from now on will be processed as a credit that offsets any debt owed to the government at the end of the month. This could be especially troublesome for small- and medium-size companies, but for more sophisticated firms with a compliance staff, the new system allows chief financial officers direct oversight of their account with CBSA, which takes the guesswork out of accounting.
   The Assessment and Revenue Management Project is a multi-year effort to transform how CBSA assesses, collects and reports revenue and trade information. In some ways, it’s similar to the modernization process underway in the United States with Customs and Border Protection. The new Canadian system is a response to an auditor general’s report that found Canada Customs didn’t have an integrated electronic platform where all types of financial transactions could be analyzed in one place, making it difficult for the government to determine exactly how much it was owed.
   The first step, Accounts Receivable Ledger, went into effect on Jan. 25, but CBSA delayed its mandatory use for six months to give the industry more time to prepare for the change.
   ARL is a fully integrated, centralized client-based accounting system for settling payments with importers, as opposed to collecting duties on each transaction. The concept is similar to CBP’s account-based processing supported by the Automated Commercial Environment, although the execution is totally different.
   CBSA is now using the system to offset any debts with credits accumulated by the importer. If an importer owes $100,000 in duties and fees, for example, but is due a refund of $50,000, then it only pays the net amount.
   The transition could be rocky though, as 95 percent of importers don’t have access to ARL and there is no importer portal where one can get complete visibility into one’s payment status, according to Candace Sider, vice president of Canadian regulatory affairs at customs brokerage Livingston International.
   To participate in ARL, importers must post a bond with CBSA. Once approved, they receive daily and monthly notices of all transactions that have been applied against their business identification number. Companies can also elect to have the reports sent to a customs broker.
   The problem with the current set up, according to Sider, is that the broker only has visibility to the importers account for business it does on the client’s behalf. Any debt or credit that is handled by another broker is not shown, so there is no comprehensive view of everything the importer owes the government. Further complicating matters, only one broker can be designated to receive the account reports.
   “Because there is not a portal, we’re working a bit in the dark in terms of what is actually owed,” Sider told American Shipper in a phone interview.
   On one hand, it’s good that Canada Customs is going electronic with payment processing and doing away with paper checks, but it’s hard to believe the agency can sit on a $1 million refund, for example, and simply apply it to a company’s future customs obligations until it is used up, rather than returning it promptly.
   I’d bet a lot of companies would rather use that money to maintain free cash flow, for a capital expenditure, or to earn interest in a bank account. Even more galling to importers is the fact that CBSA isn’t providing interest on the money it holds.
   Sider said the Canadian government has consistently consulted with industry groups, but that the implementation timeframes remained too tight after some late technical changes were made to the process. Companies still need some more time to adapt to the new system, and it will take another four or five months before it will be possible to get a good handle on how the new process is working for the trade community at large, she said.
   CBSA is expected to soon tender a contract for developing the next phase of the assessment revenue management system, which is expected to streamline data collection and cargo release, including through a simplified entry process similar to the one being tested in the U.S.
   However, Sider said it will be at least a year before an importer portal is developed as part of the new revenue project.
   “We don’t have the visibility to be sure that there is not additional debt against the importer that would cause them to be in arrears,” she said.
   Meanwhile, Canadian freight forwarders are gearing up for the November start of electronic manifest submission through the Advanced Commercial Information system. Forwarders will be required to file cargo data supplementing the house bill of lading filed by the carrier. The rule could lead to monetary penalties if data is inaccurate or not supplied in time, so forwarders are feeling the pressure to comply.