Imports and Exports: A Risky Business

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Imports and Exports A Risky Business An Issue
for Executive Management
Presentation for CAUBO Conference June 2007
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Presenters

• Phyllis Clark
• Vice-President (Finance Administration) Chief
  Financial Officer
• University of Alberta
• Barry Travers
• Tax Partner
• KPMG Edmonton
• Jody Brookwell
• Associate Director, Supply Management Services
• University of Alberta

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Overview

• Non-financial risks to our Institutions
• U of A management of these risks
• External perspective on the assessment of risk
• U of A action plan to address risk as it relates
  to imports and exports.

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Business of Risk
Internal Control
Other Risks
Financial Statements Risk
ERM
Faculty / Unit Business Risk
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Risk Management

• Other Non-Financial risks
• Embedded in Us businesses
• Risks to
• Reputation
• Research projects
• Programmes

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Risk Management

• Environmental influencers of other Risk

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Sponsored Research Funding( Millions)
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Legislation

• Insurance Act
• International Trade Investment Agreements
  Implementation Act
• Labour Relations Code
• Land Titles Act
• Legal Profession Act
• Libraries Act
• Livestock Livestock Products Act
• Medical Profession Act
• Mental Health Act
• Mines Minerals Act
• Motor Vehicle Accident Claims Act
• Occupational Health and Safety Act
• Occupational Therapy Profession Act
• Peace Officer Act
• Pension Fund Act
• Personal Information Protection Act
• Pharmaceutical Profession Act
• Police Act
• Post Secondary Learning Act

• Access to the Future Act
• Administration of Estates Act
• Agricultural and Recreational Land Ownership Act
• Alberta Bill of Rights
• Alberta Capital Finance Authority Act
• Alberta Corporate Tax Act
• Alberta Energy Utilities Board Act
• Alberta Health Care Insurance Act
• Alberta Heritage Foundation for Medical Research
  Act
• Alberta Heritage Foundation for Science
  Engineering Act
• Alberta Heritage Scholarship Act
• Alberta Science Research Authority Act
• Animal Keepers Act
• Animal Protection Act
• Cancer Programs Act
• Charitable Fundraising Act
• Constitution Act
• Dangerous Goods Transportation Handling Act
• Employment Standards Code

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(No Transcript)
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Why the Import Review?

• Pre-emptive
• Business/ process risk/ medium level risk
• Import/Export
• Biggest Surprises

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VP Level Challenges

• Recognizing the risk
• Selling the risk
• - Getting organization onside
• People and processes
• - Shortage of talent
• Keep it going

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Assessment of Risk External Perspective

• The Sarbanes Oxley Act of 2002
• Management required to make representations on
  the effectiveness of internal controls over
  financial reporting
• Audit Committees now bear the overall
  responsibility of monitoring the completeness and
  accuracy of disclosures.

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Assessment of Risk External Perspective

• Attestation requirement shifts more
  responsibility and
• liability to management and the Audit Committee.
• External auditors have some limited involvement
  to discharge their obligations under GAAP.

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Changed Environment

• External Auditors are NOT required to perform
  ANY
• procedures to assess the accuracy,
  reliability or completeness of non-financial
  information.
• so how does Management gather the information
  required in order to make the representations on
  the effectiveness of internal controls as these
  relate to indirect tax commitments of a PSB.

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Tax/Indirect Tax Attestation

• Tax particularly Indirect Tax is embedded in
  many aspects of the organizations financial data.
• In the C-SOx environment, Management is
  accountable for
• Documentation of specific tax risks inherent in
  the organization
• Significant classes of transactions
• Account balances
• Financial statement disclosures and
• Significant non-routine and non-systematic
  transactions.
• Management is responsible for identification of
  tax risk that could be a significant factor
  influencing managements estimates.

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Where do the Issues of Risk Reside ?

• The areas of risk generally can be found in the
  following
• categories
• Technical or factual inaccuracies in terms of
  application of tax
• Miscoding of expenditures, or Incorrect
  recognition of tax liability in regard to classes
  of transactions
• Late submission of returns, elections, or payment
  of taxes
• Communication received by/with Finance
• Board of Directors or Management involvement with
  significant tax strategies.

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Imports/Exports Areas of Risk

• The following are the key specific risk areas
  related to
• Customs Compliance

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Overview of Findings

• The findings of the import/export review of a
  University
• tends to uncover the following
• Heavy reliance on broker with perception that
  everything must be OK!
• Decentralized environment causes widespread risk
  potential.
• Fundamental lack of internal processes to
  complete a self-review of key documents.

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Overview of Findings

• Documentary deficiencies in most risk areas which
  would produce penalties and duty.
• Significant reputational risk for certain funding
  programs under OGD requirements.
• Risk of slower movement of goods across the
  border.
• Need for training to increase knowledge level of
  requirements to staff asked to administer
  processes.

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U of A Experience

• Engaged KPMG to complete a Customs Verification
  Audit
• of import transactions.
• Objective

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U of A Experience

• Audit Findings
• Errors in all four risk categories
• Non-compliance to OGD requirements

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U of A Experience

• Final Report recommendations
• Correct errors pay duties/taxes owing
• Review internal processes
• Improve communication training

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Other Government Departments

• OGD permits or certifications are required for
  certain
• imported goods

• Canadian Food Agency (CFIA)
• Health Canada
• Industry Canada
• Transportation Canada
• Department of Justice Canada
• Atomic Energy Control Board
• International Trade Canada

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U of A Example

• Import transaction Human Pathogen
• Declared Value - 598.68 Canadian
• Cost to Import - 60.00
• Risk to Institution Priceless

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U of A Action Plan

• Structure a Customs Division and develop
  expertise in-house.
• Build on relationship with Customs Broker.
• Update internal Import and Export procedures.

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U of A Action Plan

• Involve procurement - review distributed
  purchasing systems
• Develop a Communication and Training Strategy.
• Develop plan for ongoing internal compliance
  reviews.

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Next Steps

• Review of Export transactions
• Ongoing compliance reviews Imports and Exports
• Take advantage of future CBSA programs
• Communication and Training Keep it Going!

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Summary

• Big reputational risks many external Departments
• Sleeper
• Pre-emptive short term pain for long term gain

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Your Questions?