Beyond Audit Ready: Why Importers Need to Be “Customs Ready” Now
Most trade compliance teams focus on being ready for a CBP audit. But according to former CBP auditor Kathleen August, that’s no longer enough. In a recent episode of Simply Trade, hosts Lalo Solorzano and Andy Shiles sat down with Kathleen. She brings 33+ years of experience on the CBP side of the desk. Her message: importers need to move from “audit ready” to “Customs Ready.”
Beyond the Audit
A full audit is just one risk. CF28s, entry-specific questions, and supply chain scrutiny are far more common. Waiting for an audit notice means already being behind. Kathleen draws a line between a compliance manual and a real compliance program. What matters isn’t a binder on a shelf. It’s “executable documents” — checklists, CF28 logs, classification databases, and broker instructions employees actually use, built around how the company operates.
Know Your Own Data, Know Your Supply Chain
CBP has real analytical capability to spot patterns across entries. Kathleen calls it a chess opponent that’s already “two steps ahead.” Importers should review their own ACE data with that same lens. They should also understand where their products and components actually come from. And compliance needs to stay cross-functional, since sales, purchasing, and sourcing all make decisions with customs consequences.
Ready to Go Deeper?
If this conversation highlighted gaps in your own compliance program, GTC’s Developing a Trade Compliance Program course and new Due Diligence course are built to help teams move from documentation to execution.
Transcript
Andy Shiles (00:05)
How ready are you if customs came knocking on your door?
and said, Hi, we’re here from the government. We wanna check your books and your import records and all that kind of stuff and you gonna give the deer in the headlight or what? I mean Lalo, that’s that’s that’s about as scary as the IRS sending you a notice and you’re being audited. except that it’s on a bigger scale, I would think.
Lalo (00:35)
It is, yeah. And not only that, but a lot of times a lot of companies or individuals feel or think that they are doing what they need to do and they may not be aware that something’s not right. And a a lot of that is because of the current phase or the current mode in which CBP might be on right now, which is in enforcement mode. You know, they’re they’re they’re they’re acquiring
Andy Shiles (01:01)
yeah. Yeah.
Lalo (01:03)
a lot of
technology, they can detect or find things that you may not even know. You know, it’s it’s it’s crazy. They know sometimes they say that they know more the about your product than you do. And and and it’s probably true in the sense that they may find
A bad actor that unbeknownst to you somewhere along your supply chain. And just because you’re doing business with that company, you kind of get tagged and and they may come knocking at your door. And then not necessarily, you know, flat out, let’s do a fallout audit. You know, we’ll find out a little bit more from our guests, but you know, how how that might happen and what what may happen with that, especially because
our for our guest is a former CBP auditor herself. And she was in
the business. She was on the other side of the desk, let’s call it, for thirty-three, over thirty-three years. and and she worked for CBP as an auditor. And she her name is Kathleen August. And I if you all are on LinkedIn, you definitely have seen her. She’s very active on LinkedIn and she posts quite a bit and and that’s how I got to to meet her and I decided to give her a call.
She
currently does her own consulting business and she recently retired, I would say less than two years ago. So right around what when she retired, she started her own business. And so you know, still ready to help folks. And so again, now at the other side of the desk,
Andy Shiles (02:33)
and and you go by Kathy. So welcome Kathy
Lalo (02:35)
Right.
Andy Shiles (02:36)
to
kathy august (02:37)
Thank you.
Andy Shiles (02:37)
Simply Trade. Thank you for coming on on board here. This is I’m looking forward to the discussion, quite frankly. So well let me ask you this.
kathy august (02:46)
Thank you. Thank you for having me. I know you’ve been wanting
me to come come on the show for a while, and I’m so happy to be here. And yes, I did retire from CBP
Andy Shiles (02:55)
Great.
kathy august (02:56)
last year, and I took maybe a month or two off and then started my own consulting practice. And I have a couple people who work for me, and we’re in the middle of launching a website and a new email address, so that’s coming. So for now, people can find me on LinkedIn. And
Having been an auditor for so many years, right? I help companies get ready for audits, but now I’m telling my clients, it’s not enough to be audit ready. You need to be customs ready because like you said, we are in a different environment now. We are in enforcement mode, right? you saw the trade publications that have been coming out left and right, enforcement is a top priority. So I’m not just getting companies ready for audits.
But we’re getting ready for customs. And what do I mean by that? So when you look at the data, there’s about 450,000 importers of record IORs. Do you think customs can do that many audits of all of those importers? Probably not, right? They’re they don’t have the resources. So
they target, but
Has there been an increase in CF28s? Right? So you need to be customs ready, is what I’m telling clients, because you may or may not get audited. But if you’re a big importer, you’re probably going to get a CF28 in an environment we are working in, right? Customs is asking questions. They want to know about your supply chain. where previously we would get CF28s where it would be for one line. Now customs is asking about an entire entry, all the lines on your entry.
or ten of the lines. So it’s important to be audit ready, but you want to be customs ready is what I like to say now in this environment. And so the foundation to be audit ready to be customs ready are internal control procedures, right? Trade compliance. That’s number one. You companies need to have a system in place. They need to have internal controls and as
Long as I have worked with companies, I have not met a company who did not have internal controls. They all have internal controls. The caveat is they may not be documented. Okay. You have internal controls, but they may not be written down in writing for customs and how they like to see controls. Customs likes trade manuals, they like controls, they like processes in writing. And that’s a starting point.
And it helps companies if they have something written, if somebody leaves the company, somebody can pick up and follow. This is the procedure we’re using, this is what we’re doing. But what I have found is as good as a trade compliance manual is, and I do develop those and provide companies with custom made manuals, it’s not enough because what happens is it goes on the shelf. It’s on the shelf.
They don’t have time to look at it, read it every
Andy Shiles (06:05)
Well y you know where where
you’re going is it it it it it’s it’s also along the lines of even like tr somebody trying to become ISO certified. It’s like you go through all this the stuff and then you have it it goes on the shelf. that’s for reference or reference only and that kind of stuff. It’s like you can’t that this is something that you have to actively be utilizing, but I
kathy august (06:32)
Yes.
Andy Shiles (06:32)
keep going. I I didn’t mean to interrupt but I
So I’m just saying,
kathy august (06:35)
No, please.
Andy Shiles (06:36)
folks, this is one of those that from a compliance perspective, you need to challenge your company. This is a takeaway right here. One, do you have your procedures and your policies documented when it comes to compliance? But second, are you using them? How often do you go through in a staff meeting, even with your peers?
challenging out, you know, that that that would be one of those where here’s a question. If customs were to knock on the door and and you know, somebody came up and said they’re with CBP, what would you do? That’d be an interesting staff meeting question and you’d hem haul around and it’s like, check out
Here it is in the in the manual and the next staff meeting we’ll talk about this and I’ll hit you with another question. I mean that would be one way to create an incentive rather than s saying giving them the answer, they have to go find it.
kathy august (07:40)
Right, I like that idea. And the other thing I have seen over the years is we would go out to a company, look at their internal control procedure manual, and I’ll tell you a true story. Go to another company, we would we saw the exact same manual. How’s that possible? So companies have been buying these manuals off the internet for a few hundred dollars, and it may not be tailored to their business, so they really need a custom
plan for their business. But I take it a step further with my clients at Global Trade Advisors is I make executable documents. What does that mean? That means checklists, Excel files, databases, things that they can actually use based on procedures. And that’s what
companies need. They need a log to track their CF28s, the dates. What is it for?
Are they seeing patterns? This customs asking the same questions across different ports of entry. they need to provide classifications to the broker, they need standard operating procedures for the broker. So it’s much more than just a trade compliance manual. They need real-world Excel documents, however you want to put it, in a database. They need things that they can use to stay in compliance and get in compliance. They need to monitor their.
supply train chain they need to do post-audit reviews which I’m really pushing because you can correct things in real time. So I’ve been doing a lot of work on the section 232 offsets and there’s mistakes being made they’re not being put on that can be corrected in real time if you’re monitoring your entries right you don’t always have to do a post-summary correction you can catch things in real time within a short window if you’re watching and paying attention.
But I tell everyone, you have to do the post-audit checks. You have to look at your entries. You have to make sure the broker is doing what you asked. Can’t just blame people. You have to monitor and look at your transactions. So there’s so many things that companies can do to develop trade compliance and be audit ready. And a lot of that also starts with looking at the ace data, right? Because customs is looking at the ace data, right?
Customs knows everything that companies are bringing into the country. And I like to equate customs.
Andy Shiles (10:08)
Right. Well, and and
let’s let’s stop there for a second. is that with with what we’re talking about here is we’re hitting in on talking about, you know, again, if you’re gonna be audited, if you’re customs, I love that. Are you audit ready? Are you customs ready? I mean, from an audit ready perspective, one of the biggest things is gonna be your archive. Can you not do you not only have records stored?
data stored and all that, can you retrieve what you need appropriately?
This is a type of show that once you listen to it, it ought to scare the living daylights out of you. I hate to say it that way, but the question is how sure are you as the owner, president, CEO of a company, that you’ve got the T’s crossed and I’s dotted within your company?
So Kathy, I hope that’s setting this up appropriately, but you left off with you need to know you and look at your ACE data.
kathy august (11:10)
Absolutely. And I equate customs, I like to play chess. I’m a chess player. And I equate customs to
Andy Shiles (11:18)
Mm-hmm.
kathy august (11:18)
being a very worthy opponent, right? The thing is though, is customs is two steps ahead of everybody. Okay? They really are. It doesn’t matter how sophisticated a company is, how well they know their product, how successful they are, customs is watching. They know everything that’s coming into the country.
And a lot of times when they issue a CF 28, they already know the answers. A real example I’ll give you real quick is somebody engaged with me and gave me CF28 and said, Kathy, what do you think customs wants to know? Why are they asking us these questions? I said, Okay, give me the records, let me look at it. Let me look at the ACE data, let me look at your records. I looked at it, and within 30 seconds, I knew exactly.
Why customs was asking. Their value had gone, let’s say from $100 an entry, down to 60. Okay, 40% decrease. Same country of export, same product, same classification. Everything was the same, except there was a huge drop in value, and it coincided with some tariff changes, right?
So that’s why. So
Andy Shiles (12:31)
Mm-hmm.
kathy august (12:32)
the company ended up filing a disclosure. they had made some adjustments to value and you know they were trying to save money on tariffs, but they were going about it the wrong way. So they filed a disclosure. I worked with them on that and I gave them some new strategies and new options for how they could save money and be compliant and within the realms of the law because that’s what I look at and that’s what I’m focused on.
But customs is a a worthy chess player. They’re two steps ahead.
Andy Shiles (13:05)
Yeah, let me jump in again, cause Lalo, you you mentioned something in the very beginning that customs has become much more sophisticated in their systems and and and whatnot. It used to be, and we’ve had this in other episodes on the show the comments, it used to be that customs may be pretty far behind the industry.
But in the last I would have to even say really the five last five years, even though it’s been worked on for for many years, but but customs has leapfrogged the industry.
in the use of AI technology and the use of data analysis and things of that nature.
kathy august (13:51)
Right. And you said that customs has leapfrogged, but I’m going to take it a step further. I’m going to tell you from what I’m seeing from my perspective on this side of the table now, they haven’t just leapfrogged, the whole mindset has changed with the administration. And they’re hunting. They’re looking for misstatements. There’s about 40 fields on an entry. They’re looking for misstatements on the entries. They’re looking for a country of origin that’s incorrect.
They’re checking for forced labor. They are looking for problems. There’s no doubt about that. Okay. I’m seeing so much activity and questions coming out of customs that I’ve never even seen before. So customs is looking for bad actors, let’s say. They’re looking for misstatements. And there are some bad actors out there. But Lalo like you said at the beginning, most companies.
Are making mistakes because they just don’t know. And I find that to be very true. Most of the companies that I deal with, they’re not intentionally doing something wrong, but they may not understand everything because customs is such a unique area. And historically, the customs department, if a company had a customs department, it was somewhere under the tax department, right?
Tax was always the priority. Gotta pay the IRS, gotta get the taxes right. So companies historically have large tax departments and they may try to outsource customs to a broker somewhere else. They may not have a customs department. They may have Steve in the back room trying to do everything. But we’re talking about large, multinational and some smaller companies too that don’t really have customs departments or that knowledge. So I do a lot of
disclosure work. So I work on perfecting disclosures, calculating what the loss of revenue is, and sometimes hand in hand with that is doing a risk assessment and finding out what the problems are. And sometimes you may think we’re disclosing on one area and then I come in and I say what about your tooling assists? What about this? And the company may or may not be familiar with that.
They may or may not understand and it’s not intentional. They just may not know, or they don’t have the procedures.
Andy Shiles (16:14)
Right.
kathy august (16:15)
Let’s get back to the procedures, right? They don’t have the procedures in place for all the statutory additions to value, or they don’t have classification databases. You know, it all stims back to the internal control procedures, being audit ready, being customs ready, and part of that also is the knowledge.
having the knowledge to understand what does that mean? What are the regulations? If you’re claiming a free trade agreement, if you’re claiming USMCA, you need a record keeping system. You need to keep up on your bills and material.
Andy Shiles (16:47)
Right.
kathy august (16:47)
You have to have maintain the records. And, you know, go ahead.
Andy Shiles (16:51)
Well let me let me
jump in again. So again, some of the actions. I I we’re we’re hitting so much that I want
kathy august (16:58)
Yeah.
Andy Shiles (16:58)
people to understand it this ought to be very thought provoking. But in in the midst of this, again, another takeaway here is how involved if you’re the leadership of a company, if you are the in charge of the compliance, how involved is the engineering department
with the supply chain? How involved is with the purchasing, engineering, marketing and sales and all of that going in, you’re you’re talking about, hey, I’ve got a product and with the different components of that, it’s being manufactured, where is it being manufactured? Where are the raw components coming from? All of that comes into play, especially from an engineering perspective of, you know, your your your detail, what’s this widget do and and and all that?
But again, this is one of those that as we’re looking at how involved are these different departments? And if they’re not involved, or if you have involvement from a lot, but there may be one area that’s not, from a compliance perspective, your responsibility is to reach out and pull all these people together. Your responsibility from a compliance is to advise your leadership to say, these are some things that I need support
kathy august (18:15)
Mm.
Andy Shiles (18:15)
on.
And here here’s where we need to go. Does that sound does that help in putting some of the what you’re talking about for the companies you’ve seen that have been somewhat successful in the way of handling audits and and and whatnot with the least amount of problems?
kathy august (18:33)
You’re spot on a hundred percent. I agree with you. And that’s the unique challenge of customs is that the communication with customs is multifaceted. So it starts with sales. Starts with the sales department. They make a sale, they’re you know, they won the contract, it starts with sales, then it goes to purchasing. Well, what does that purchase agreement look like? Does your purchase agreement specify that you you’re
Customer will provide a certificate of origin, or is that just going to be captured down the road? We don’t care about that. We’re focusing on the price, right? You have to think about all these things: sales, purchasing, engineering. Where are you sourcing your product from? Is it all coming from China? Is it coming from another country? What happens if there’s a shift in suppliers? Finance is heavily involved. And then trade compliance. I mean, ideally, I
Andy Shiles (19:26)
Yes.
kathy august (19:27)
would like to see the trade compliance man.
manager be a C suite position, right? We haven’t gotten there yet. But we have all these departments that need to communicate and they need to understand, if I buy this tooling, this mold, that might affect the value of the widget that I’m importing. That might be a statutory addition. And they just don’t necessarily know. So they need training.
They need the knowledge. They need a trade compliance manager who has the time. And I always say, you can’t teach someone to swim when they’re drowning. And right now, with everything that’s happening with tariffs, people are overwhelmed and overworked with what’s happening in this trade environment. So I come in, I try to educate, you know, I do some training and I got the shirt. It says terrified, right?
A client gave this to me last week and said, Thank you for making us less terrified. And that really meant something to me. And I said, you know, I’m going on this podcast, I’m gonna wear your shirt because I want companies
and importers to be less terrified,
Andy Shiles (20:31)
That’s that’s excellent.
kathy august (20:34)
right? And I understand when somebody’s notified of an audit, an investigation, and even when they get a CF28, they get nervous. Why is customs after me? I’ve heard that so many times. I’m like,
Listen, customs is not after you. They’re asking a question and you can answer the question. All right, we can do that together. Get the records, answer the question. There’s really no reason to be terrified. But I understand the perspective when big government comes in and you hear everything on the news, you know, companies think if they get a C of twenty-eight, customs is suddenly out to get them. It’s not the case. They’re just asking a question. Sometimes
Customs makes cases, right? We all see that in the news. But more often than not, it’s an import specialist who has a question. And it’s okay that they ask questions. It’s fine. Educate them. Let them know about your product. Why are you using that classification?
Andy Shiles (21:37)
Well, let’s let me jump in again with what you’re talking about is it maybe also that customs I I think may have been off camera, but it’s Lalo again made a great statement. What was it, Lilo? You were talking about where
in your supply chain there may be an element in the supply chain that customs is there may be some nefarious party on further up the chain in your supply chain.
that customs is looking and maybe doing an investigation of and it you’re just you just happen to be a pawn in this, but they’re needing
kathy august (22:17)
Yes.
Andy Shiles (22:17)
additional information or something to to that. So
kathy august (22:19)
A hundred percent.
Andy Shiles (22:21)
the best thing you can do is cooperate because if you s if you start dragging your feet and hem haw around or or being too vague, then you’re gonna be looking at, well, maybe they’re part of this whole nefarious situation, right?
kathy august (22:37)
You you’re spot on. That’s absolutely right. You never know what’s really going on sometimes. I always say you don’t know what you don’t know. And they could be asking questions that have really nothing to do with what you think it pertains to. It may have something to do with something else, something larger. But you brought up the supply chain chain and it is critical, especially in this environment that we’re in now, it is critical that companies understand their supply chain.
They have to know who they’re purchasing from. They have to know who they’re importing from. They need to know where that widget start? Where is it transformed? Where is it assembled? Who’s doing what? Is there a chain a change? They need to know that. I was talking to someone the other day and the company was having the supply, the trade compliance manager sign the certificate of origin. Okay, because.
USMCA regulations say who can sign it? The producer, the exporter, or the importer. So the importers developed a procedure. They’re gonna have the trade compliance manager sign the CO. Does that trade compliance manager fully understand where that widget came from? I say put it on the producer, put it on the supplier. You tell me you sign the certificate of origin, you tell me and attest to it on that form.
where this widget is from, what country is this a product of. So these are strategic things that companies and organizations have to think about when they’re thinking about their supply chain, where a goods coming from, how do they qualify for free trade agreements? How are they going to not pay high tariffs, you know, what their sourcing options are and who’s liable because customs considers the importer of
record has the burden of proof. It’s not the broker, although they’re looking more at brokers now and penalties for brokers, but it’s the importer of record. So they have to know their supply chain and they have to test it out.
And even more than sourcing and product changes and engineering, some companies are considering moving operations or using foreign trade zones or using more bonded warehouses. There’s a lot of options, tariff engineering, you know, different movements of goods that companies are looking at and strongly considering what do they do? especially, you know, if their goods are subject to anti-dumping duties, right?
When I was at Customs, I worked I was working on some EPA cases, Enforce and Protect for anti-dumping. And those tariffs are high. They could be almost a hundred percent. In some case cases, they’re hundreds of percent. Can a company pay that? You know, so these are all things that they have to consider and think of when they’re looking at sourcing is what is the tariff? Is it subject to anti-dumping duties?
where is if they have an operation in China and then suddenly they’re working in Cambodia or Thailand or somewhere else, customs is looking at that. There’s a shift in production, there’s a shift in country of origin. Is that party related to the Chinese company? You know, these are all things, you know, red flags, I call them, and it’s all in the ACE data. So
You know, look at your ACE data if you’re listening and pay attention because I guarantee customs is paying attention to shifts and patterns and movements and where things are coming from, what the value is, how they’re classified. Customs is paying attention to all.
Lalo (26:31)
Kathleen, do you like have I guess just to wrap this up only because we’re we’re at the 30 minute mark, but I’m just wondering if to wrap up, like do you have a list of or some suggestions that an importer should start looking at or working on to become customs slash audit ready? You know, that that I mean, I know you talked a lot about.
everything right now, but I’m just saying, can you just summarize that as a takeaway just so that we can wrap this up?
kathy august (27:03)
Yes, a takeaway is internal control procedures. Get them in writing, have them custom made to your business, not to someone else’s business. Don’t buy them off the internet. To your business. Sit down with people, you know, whether it’s working with a trade attorney, a consultant, your broker, have somebody document your procedures so you have something, and then have what I call executable documents. It’s not enough to have a manual. You have to execute execution.
Right? That’s key. So develop some procedures that are going to keep you in compliance, get you ready for an audit if you’re selected. But more important, customs ready, ready for a CF 28. Ha have a record retention policy. You shouldn’t have to be scrambling for records when you’re asked a question or receive a CF 28 or notified of audit or investigation. So those are very big basic things record keeping, working with
trade experts, developing procedures, you know, being ready for anything. And not just be ready for audits and customs ready, but be ready to pivot. Okay, so Friday night when we get a new tariff or a new, you know, section 122 or something changes, you got to be ready to pivot. And sometimes, you know, that could mean cash reserves for some companies. They’ve got to be ready to pivot. They’ve got to be two steps ahead. They have to try to keep up with
mindset of where customs is coming from and be ready to go. So that’s what I try to help companies with is getting ready,
being ready and responding.
Andy Shiles (28:44)
If you are in compliance, this is one where I would highly recommend you send this to your
leadership of your company to have them listen to this podcast and and then follow up with some specific things that you say. Here I have s some concerns, but at least you’ve laid the the the foundation of the communication here of what you need to do in in getting ready because enforcement is it’s it’s too late.
if you are gonna say, Yeah, I’ll get to it, get to it and then all of a sudden customs or somebody knocks on the door and and all that folks, you don’t wanna be a pooper scooper at the end of the parade. You wanna be at the front end of this thing and and working through it. So
Kathy, thank you so much for being on the show.
kathy august (29:35)
Thank you so much for having having me today. I enjoyed it. Thank you.
Andy Shiles (29:39)
Folks have a great day.
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