Why You Should Conduct a Trade Compliance Self-Audit

Supply chains are complex, ever-evolving systems comprising many moving parts. One of the most complex of those parts is global trade management and compliance. Of course, in today’s environment, none of this is getting any easier. What’s changed or different today with trade compliance? Why is conducting a self-audit important? What’s involved with a self-audit and how do you get started? Those are the main questions I discussed with Gary Barraco, Senior Director, Product Marketing at E2open, during a recent episode of Talking Logistics.  

What’s Changed in Trade Compliance?

There is no question that supply chains have undergone tremendous change over the past 18 months. So, I began our discussion by asking Gary to relate that specifically to trade compliance. Gary notes that both the pandemic and the trade war with China have marked significant change, and added considerable additional work, for trade compliance. 

“Trade compliance folks are under tremendous pressure because they are the ones who have to ensure that goods are crossing the border when they get here,” Gary says. “It’s so much more difficult because of these trade disruptions, but also due to changing regulations. Countries around the world are adding more regulations, as well as conducting more enforcement audits with higher penalties, and that is increasing risk.”

Gary also points out that a lot of the compliance issues aren’t just for outbound finished goods. He says some of the most complex issues are in dealing with inbound shipments of raw materials and components.

Conducting a Self-Audit

While many people associate audits with the negative aspects of external audits from government bodies, internal audits can actually be quite helpful. “A self-audit is a preemptive measure that helps companies understand potential compliance issues,” says Gary. “Companies should regularly conduct self-audits or assessments as part of the due diligence for trade management. External auditors want to hear that these self-audits have been done.”

Gary explains that self-audits should include looking at all of the applicable trade control regulations for your import and export transactions, restricted party screening and trade agreements. He recommends you look at both soft and hard data, where soft data comes from interviews with your compliance stakeholders and suppliers to examine the procedures they use, as well as looking at your documentation, to uncover faults and correct them before they become violations. 

To help with this process, E2open has developed, together with clients and compliance experts, an 11-question online survey. It covers cross-border processes, trade agreements, sourcing decisions, and export controls.

Gary says, “It’s 11 simple ‘yes’ or ‘no’ questions that will give you high-level indicators of whether your compliance processes are going to stand up to a formal audit or not. At the end, it will tell you whether you are at a high risk, medium risk, or low risk for compliance. From there, we can help you to explore more options to improve your program.”

Where Technology Fits

Gary goes on to explain that while technology is not part of the self-check process, it can be very useful in gathering and organizing the data needed to conduct the audit. “There is just too much data today for paper audits.”

Gary notes that technology can be used to match data between multiple parties to verify correct procedures are followed, as well as look at duty programs to make sure they match up. “If you’re going to run a self-audit, the software can create a series of reports and dashboards that an auditor can use to analyze the hard data to prepare for the soft data interviews.”

Getting Started

For many companies, how to get started on a self-audit program, and what to do with the results, may be vexing questions. Gary shared a lot of insights and advice on these topics, so I recommend you watch the full episode for all the details. Then post a comment and share your own thoughts and experiences related to this topic to keep the discussion going.