Understand Compulsory Versus Self Audit

Compulsory Audit
A compulsory audit may be triggered by a discovered violation. For instance, a voluntary disclosure by a customer of the company can reveal a violation committed by the company. A government audit can also be triggered by the type of export such as temporary export, exports involving the use of license exceptions/exemptions or by the type of controlled item and destination countries of the export. The AES filing can illustrate the types of exports, destinations, and the type of controlled items. A company’s history of repetitive violations, a lack of cooperation on previous audits or other actions, volumes, and frequency of voluntary self-disclosures, and severity of past violations can trigger additional audits.

Self-Audit
Internal audits can be used as a good tool to improve trade compliance program of a company by identifying weak points in the working procedures and processes and implement corrective measures. The strong points are also tested in the audits which provide evidence that the company’s trade compliance system is effective. The company can better prepare itself in the case of a government audit or investigation if it conducts voluntary audits on a regular basis to ensure all the necessary elements of a sound compliance program are put in place and such elements are constantly being tested. Internal audits can be conducted by in-house staffs or an outside auditor.

Prepare for An Audit
To prepare for an audit, we should first establish written export control and compliance management policies to guide export activities and prevent violations. We then select principal areas to test in the internal audit.
Access to the export regulations
This is the basic area to start with our compliance efforts. We will test if the latest version of the EAR and Federal Register notice regarding the updates or changes of the EAR are made available to staffs working at the Export Compliance Department and employees whose responsibilities need constantly reference to such information.
Training
We need to make sure all the training has been done according to our company policies. We will review the training records. Also, we will test if personnel in the Export Compliance receive sufficient training on specific parts of the regulations.
Detailed working procedures and processes
Detailed working procedures and processes to support the company’s export control and compliance policies. For instance, we have an internal clearance procedure for the release of RFQ information to a foreign supplier. We first need to make sure the technical drawings, specifications, any RFQ cover sheets have the proper marking for export control legend. The technical data shall be signed off by the Engineering Department and the Export Compliance team with indications of EAR99 or ECCN# with proper license requirements such as LR, NLR, or with a License Exception according to the CCL (15 CFR 774) and the Country Chart (15 CFR 738). Also, we need to check the restricted parties’ lists. All RFQ information will be logged into an RFQ Tracking Sheet for Export Control purposes with details such as the name of the recipient, type of information released, date of release, the person who release the information, ECCN#, and destination countries. During our audit, we will test if the steps described in the written working procedures are followed. We will also review documents and see if the appropriate signatures are put in place if all RFQ’s have been entered into the log.
Export compliance recordkeeping
We need to ensure all records are kept and stored according to company policies. We need to make sure the records are saved, stored and retrievable.
Adherence to compliance policies and procedures
We will also test key business functions and check if they adhere to the export compliance policies, working procedures, and processes.

What to expect in a government audit
The government agency possibly will test the same areas as we audit internally. Below outlines the possible actions during an audit:
(1)The government officer will ask for our export control and compliance management policies as well as working procedures and processes for export compliance.
(2)The government is to check how well our company is doing to prevent controlled items from being exported without appropriate authorizations.
(3)The government will check if we properly classify the products.
(4)The government is likely to check how we know we are complying with our own systems.
(5)The government is likely to test whether we comply with our systems and whether our system is sufficient to comply with the export regulations. For instance, they will collect information during verbal interviews, randomly select transaction documents and request us to provide. They will use the information collected to test whether we conduct business compliant with the laws and regulations. During the course of document production, they will further test whether we meet the regulatory requirements for recordkeeping.
Other effective compliance measures include the implementation of a Technology Control Plan and a Mock Audit Process, all of which will ensure the preparedness of a business in the face of a government audit.
Learn More About Export Compliance
TradeSmart USA LLC is a trade compliance consulting firm. Our experts can share more about export compliance information with you. Contact us today for more information.