Cross-Border Currency Reporting Program
Internal Audit Report

March 2006

Table of Contents

• Executive Summary
• Introduction
• Focus of the Audit
• Background
• Findings, Recommendations and Action Plans
  • Legislation, Policies, Practices and procedures
    • Recognition of Monetary Instruments
    • Communication of Recourse Decisions
    • Inconsistencies in following established policies, practices and procedures
    • Seized currency and monetary instruments not handled in a timely manner
    • Transfer of seized currency not effectively controlled
    • Control over interdepartmental settlement needs improvement
    • Return of seized currency and/or monetary instruments to client/owner is not adequately documented
  • Reliability and Integrity of Data
    • Reconciliation procedures need strengthening
• Conclusion
• Audit Team

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Executive Summary

Background

The Canada Border Services Agency (CBSA) is specifically responsible for the administration and enforcement of Part 2 of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act, sections 12 to 39, which relates to the physical movement of currency and monetary instruments across the border. Internally, the Cross-Border Currency Reporting Program (CBCRP) is administered, controlled and delivered at CBSA Headquarters by the Contraband Programs Section, Borders Enforcement Division of the Enforcement Branch. In the regions, operational staff deliver this program. External stakeholders include Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) and Public Works and Government Services Canada (PWGSC). 

Since the CBCRP began on January 6, 2003, over 83,000 import or export cross-border reports were received by the CBSA. The Agency’s enforcement of the Act from inception to March 31, 2005, has resulted in over 3,100 seizures involving $88 million.

The audit took place from June 2005 to February 2006 and consisted of a review of seized and detained currency and/or monetary instruments for the period January 2003 to August 2005.

Objective

The audit objective was to provide assurance as to the adequacy of the internal controls for seized and detained currency, including accurate and timely entry of revenue, appropriate recording for intelligence and accurate reporting for decision-making purposes.

Findings and conclusion

Overall, the CBSA is generally in compliance with relevant policies and procedures related to seized and detained currency. Also, key systems, processes and internal controls are in place. Nonetheless, the audit found some weaknesses and made recommendations in order to further strengthen controls and management practices.

Based on the audit procedures carried out, a number of findings have been found concerning adequacy of the internal controls for seized and detained currency, including accurate and timely entry of revenue, appropriate recording for intelligence and accurate reporting for decision-making purposes. Highlights of the audit findings include the following:

• Inconsistencies were noted in the following of established policies, practices and procedures;
• Seized currency and monetary instruments are not deposited or forwarded to PWGSC in a timely manner;
• Transfer of seized currency and monetary instruments to police agencies is not being effectively controlled;
• Interdepartmental settlements of penalties and forfeitures from the CBSA to PWGSC are not being done in a timely manner;
• Procedures need to be developed and implemented to ensure proper documentary evidence is obtained from the client/owner to support the return of currency or monetary instruments; and
• Reconciliation procedures need to be established to ensure data integrity between the CBSA and PWGSC seizure data.

Action plans

The Borders Service Division of the Enforcement Branch initiated action plans to address the findings and recommendations contained in this report. These should improve the effectiveness and efficiency of the management control framework associated with the management of the CBCRP while, at the same time, bring the CBSA in line with the policies and principles of the Act.

Introduction

Operationally, the Cross-Border Currency Reporting Program (CBCRP) came into being on January 6, 2003, with the requirement that currency and monetary instruments be reported to a border services officer. Over 83,000 import or export cross-border reports were received by the Canada Border Services Agency (CBSA) from May 2003 to May 2005. Those reports are forwarded through the Enforcement Branch at CBSA Headquarters and then entered into an automated system and transmitted to the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC). Seizures are entered into the Integrated Customs Enforcement System (ICES). Documentation is maintained on site and is available to authorized CBSA staff.

The CBSA’s enforcement of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act from inception to March 31, 2005, has resulted in over 3,100 seizures involving $88 million. Undeclared currency and monetary instruments can be seized and in certain situations are, or can become, forfeit to the Crown. Over $29 million has been forfeit and nearly $1.3 million has been collected as penalties. 

The CBCRP was allocated $2.4 million for the 2004—2005 fiscal year. The regions were provided with additional salary resources in order to administer and enforce the currency-reporting regime. Based on risk, regional directors general distributed roughly half of the almost 50 full-time equivalents available for distribution for general administrative and enforcement purposes and officers (e.g. asking the currency questions, assisting in completing forms). The other half were distributed to enforcement-oriented pilot projects (i.e. currency teams at Montréal-Pierre Elliott Trudeau, Pearson and Vancouver international airports and currency dog teams at Pearson airport and Pacific Highway, Windsor and Niagara Falls/Fort Erie locations).

Since the CBCRP is relatively new, communication of the purpose and scope of the Act has been a priority. The following are examples of training and awareness initiatives that have been implemented:

• There is a comprehensive Web-based training product available for all officers;
• Instructor-led training sessions have been delivered at all high-risk sites. Over 3,800 officers have been trained;
• Part of the CBSA’s client services initiative is to deliver information sessions to Canadian and American travellers, international travellers, importers, exporters and tourism and business associations, and to participate in trade shows and undertake client visits with travellers and traders;
• A communications strategy and products have been distributed that included a new currency pamphlet, signage at border offices and amendments to existing brochures and forms; and
• Information regarding the CBCRP is available to the public on the Agency’s Web site, along with downloadable currency reporting forms.

The audit was conducted in accordance with the Government of Canada’s Policy on Internal Audit, as well as auditing standards prescribed by the Institute of Internal Auditors.

Focus of the Audit

Objective

The objective of the audit was to provide assurance as to the adequacy of the internal controls for seized and detained currency, including accurate and timely entry of revenue, appropriate recording for intelligence and accurate reporting for decision-making purposes.

Scope

The scope of the audit of the CBCRP included a review of seized and detained currency and/or monetary instruments for the period January 2003 to August 2005. The on-site examination of controls included headquarters and the following five regions: Niagara/Fort Erie, Greater Toronto Area, Quebec, Pacific and Northern Ontario.

The potential lines of inquiry identified in the audit engagement plan, accomplishment of established goals and objectives, and employees’ ethics, values and conduct were not addressed as Agency-wide reviews with the same themes were in progress at the time of the audit.

Methodology

The methodology used in carrying out this audit included the following:

• Assessing the seizure cases via a representative sample as to compliance with instructions and methodology. This included assessing the accuracy and the timeliness of data entry into information systems. This was complemented by a comparison of the documented workflows (logic charts) at the policy and procedural level to detailed on-site compliance testing of actual seizure cases;
• Visiting CBSA offices in selected regions to observe the CBCRP process and performing both detailed walk-throughs and pre-designed tests;
• Assessing statistical samples of documentation selected from non-automated systems (paper records) to confirm the revenue recorded;
• Documenting the import/export workflows in all modes (land, air, rail, marine) in both the traveller and commercial streams to ensure the appropriate control points have been identified;
• Testing on a sample basis the action taken to determine compliance with policies and procedures, as well as the effectiveness of monitoring controls;
• Liaising with external partners involved in the CBCRP process and conducting third-party confirmations (RCMP, police, Canada Post, Public Works and Government Services Canada [PWGSC] and FINTRAC); and
• Interviewing a cross-section of headquarter and regional staff on the CBCRP.

Background

Legislation

The CBSA is specifically responsible for the administration and enforcement of Part 2 of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act, sections 12 to 39, which relates to the physical movement of currency and monetary instruments across the border. Subsection 12(1) of the Act requires all persons or entities to report currency and monetary instruments. Subsection 14(1) provides the authority to retain currency pending full report. Under subsection 18(1), an officer may seize as forfeit the currency or monetary instruments if he or she believes on reasonable grounds that subsection 12(1) has been contravened. Subsection 18(2) states that the officer shall, on payment of a penalty in the prescribed amount, return the seized currency or monetary instruments to the individual from whom they were seized or to the lawful owner, unless the officer has reasonable grounds to suspect that the currency or monetary instruments are proceeds of crime within the meaning of subsection 462.3(1) of the Criminal Code or funds for use in the financing of terrorist activities.

For the purposes of subsection 18(1) of the Act, the prescribed penalty amounts are as follows:

• Level 1: $250
• Level 2: $2,500
• Level 3: $5,000
• Level 4: forfeit

Seized funds are not released and penalty amounts are transferred to PWGSC.

Penalties and forfeitures (resulting from seizure action) are subject to appeal to the Minister via the Recourse Directorate of the CBSA and ultimately to the Federal Court of Canada. However, an appeal can only be made on the contravention of subsection 12(1). In other words, the Minister can only be asked to decide whether or not a report was made. This right to appeal does not apply to forfeiture referred to in subsection 14(5), when the currency or monetary instruments are retained at the border pending the completion of the subsection 12(1) report.

Policies, practices and procedures

Internally, the CBCRP is administered, controlled and delivered at CBSA Headquarters by the Contraband Programs Section, Borders Enforcement Division of the Enforcement Branch. In the regions, operational staff deliver this program. External stakeholders include FINTRAC and PWGSC.

The national currency coordinator reports to the Manager of Contraband Programs. The coordinator’s responsibilities include the following:

• Forwarding the paper currency and monetary instruments reports to FINTRAC;
• Notifying FINTRAC and PWGSC of all currency and monetary instruments seizures;
• Serving as the intermediary between PWGSC and the CBSA Comptrollership Branch to ensure forfeited currency, monetary instruments and penalties go to PWGSC; and
• Overseeing the administration of the CBCRP (e.g. briefing notes, standard operating procedures).

The program includes enforcement-oriented projects such as the currency teams at Montréal-Pierre-Elliott Trudeau, Pearson and Vancouver international airports and currency dog teams at Pearson airport and Pacific Highway, Windsor and Niagara Falls/Fort Erie locations. The headquarters administration of the CBCRP consists of one senior program advisor, one program officer and three database-entry positions.

Regional intelligence officers within Integrated Proceeds of Crime units of the Enforcement Branch are responsible for facilitating the exchange of timely information or intelligence concerning individuals and organizations suspected of involvement in money laundering or terrorist financing activities with external stakeholders such as the RCMP and local police agencies. At ports of entry, importers and exporters must declare to an officer the import and export of currency and monetary instruments and must complete, sign and submit the following required forms:

1. Form E677, Cross-Border Currency or Monetary Instruments Report — Individual, is used to report situations where currency or monetary instruments are physically carried by a person arriving in or departing from Canada, or where the currency or monetary instruments form part of the person’s baggage and that person and his or her baggage are being carried on board the same conveyance across the border.
2. Form E667, Cross-Border Currency or Monetary Instruments Report — General, is used to report all other situations, including mailing, shipping by courier or transporting currency or monetary instruments on someone else’s behalf. In the case of mail, the exporter who is sending the currency or monetary instruments to Canada has to affix Form CN23, Customs Declaration Form, to the outside of the mail item and include a completed Form E667 inside.
3. Form E668, Cross-Border Currency or Monetary Instruments Report Made by Person in Charge of Conveyance, is used to consolidate all currency and monetary instruments transported by the person in charge of a conveyance, including couriers. The importer or exporter must also complete Form E667.

Officers accept and verify currency and monetary instruments reports, date stamp and sign them, and, if applicable, note on the form the CBSA reference number, such as the courier import number, the cargo control number or the Canada Post tracking number.

If a declaration indicates the cross-border movement of currency or monetary instruments, but the required form is either missing or incomplete, then the currency or monetary instruments can be retained pending full report or until the importer declares that he or she no longer wishes to import or export the currency. The client is notified of the retention by Form K24 (Non-Monetary General Receipt) or by receiving a Postal Import Control System letter. Retained currency or monetary instruments can become forfeit to the Crown following the expiration of the notification period, which is 30 days for courier or mail and 7 days for all other modes.

Officers, who believe on reasonable grounds that subsection 12(1) of the Act (reporting requirements)has been violated, may seize currency or monetary instruments. There are four seizure levels as previously outlined on page 7. Terms of release are offered for currency or monetary instruments seized under levels 1, 2 or 3. Officers who suspect on reasonable grounds that non-reported currency or monetary instruments are proceeds of crime or terrorist financing, may seize currency and monetary instruments at level 4, with no terms of release. When currency or monetary instruments are reported, they cannot be seized under the Act even if there are reasonable grounds to suspect that they are proceeds of crime or terrorist financing. Only the undeclared portion is subject to seizure. Persons who fail to properly report currency or monetary instruments will not be arrested for violations of the Act,regardless of whether or not the seized currency or monetary instruments are suspected proceeds of crime.

The physical movement of collected penalties, forfeit currency or forfeit monetary instruments from the seizing office to a chartered bank or approved alternative is conducted according to district standards and to procedures provided by PWGSC. There are various methods for the movement of monies or monetary instruments to PWGSC. Most of the time the penalties collected or the forfeit currency are deposited to a Point of Entry (POE) bank account. The national currency coordinator is notified and an interdepartmental settlement is done to transfer the funds to PWGSC. In other instances, a bank draft is sent to PWGSC. The method used depends on the procedures provided by PWGSC. Once the penalties are collected or the forfeit currency is deposited to a POE bank account, the accounts clerk uses revenue line object codes 8701 (forfeit currency) and 8702 (penalties) on the K10 Customs Revenue Report.

To enforce the (CBCRP, the CBSA uses a variety of tools including scan-trailers (mobile X-rays pulled by tow vehicles), video scopes and currency detector dogs. The CBSA has also purchased a variety of equipment for this program including security safes and currency counting machines. Distribution of equipment has been primarily made to sites identified as high risk.

Policies and operational procedures are contained for the most part in the Customs Enforcement Manual, Part 2, Contraband and Intelligence Priorities, Chapter 2, Cross‑Border Currency and Monetary Instruments Reporting Policy and Procedures. In addition, operational guidelines are contained in the Currency Flexible Response Teams —Operational Guidelines and Cross-Border Movement of Currency and Monetary Instruments Reporting Requirements — Customs Reference Manual.

Computer systems used by the program include the Integrated Customs Enforcement System (ICES) for seizures, the Postal Import Control System (PICS) for postal retentions and the Travellers Entry Processing System (TEPS) for penalty collections. Revenue deposited to a CBSA bank account is keyed into the G11 system using line object codes 8701 (forfeit currency) and 8702 (penalties) on the K10 report. The CBSA also has data-entry clerks who key the data from the cross-border currency reports that are transmitted to the FINTRAC system by VIASAFE software. In addition to the national database for seizures, the program area maintains in-house databases (Excel spreadsheets) for currency disposition and appeal information.

Findings, Recommendations and Action Plans

1.0  Legislation, Policies, Practices and procedures

1.1  Recognition of Monetary Instruments

The Cross-Border Movement of Currency and Monetary Instruments Reporting Requirements — Customs Reference Manual defines “monetary instruments” to include negotiable instruments, stocks, bank drafts, traveller’s cheques, debentures, treasury bills and other bearer instruments such as money orders, personal and cashier cheques and securities. In addition, the CBCRP Master Handbook and the Customs Enforcement Manual (Part 2, Chapter 2) list the currency coordinator’s e-mail address as a point of contact for all point of entry officers to send queries to.

As part of the Internal Audit Directorate’s assessment of compliance with laws, regulations, policies, plans and procedures, it queried a representative number of chiefs, superintendents and currency teams in the four regions included in the scope of the audit. A significant number of those interviewed expressed concern that they and/or their staff experienced difficulty in the recognition of monetary instruments and in resolving that difficulty. The majority of those interviewed also indicated that training in this area would be beneficial. It would appear the issue is not what constitutes a monetary instrument but what constitutes a reportable monetary instrument. Also, all staff may not be aware that they can send their queries to the e-mail point of contact.

1.2  Communication of Recourse Decisions

The owner/client of seized currency has 90 days from the date of the seizure (Form K19C) to file an appeal. An assigned adjudicator will communicate in writing to the client outlining the reasons why the enforcement action was taken. The Minister must make a decision after 120 days. If the client is not satisfied with the adjudicator’s decision, it can be appealed within 90 days to the Federal Court.

For the period April 2003 to June 2005, 457 appeals were filed as follows:

• 298 appeals under level 4
• 59 appeals under level 2
• 97 appeals under level 1

Of the 457 appeals, the adjudicator amended 80 penalty amounts or the currency forfeited. In addition, 21 seizures were cancelled and the penalties and currency seized were returned to the appellant.

An inventory of appeal decisions is maintained on a database system called the Action Data Management System. The seizing office is notified of individual appeals and decisions, but data on all recourse decisions are not, as a matter of routine, widely distributed or made available to currency teams in the field.

Part of Internal Audit’s approach and methodology included interviewing a representative number of chiefs, superintendents and currency teams in the four regions included in the scope of the audit. The purpose of these interviews was to assess compliance with policies and procedures, as well as guidance and direction received in delivering the CBCRP.

A significant number of interviewees indicated that they were either not aware of recourse decisions unless they were directly implicated or unaware that the decisions could be made available. Most of those interviewed felt it would be beneficial if they had access to all decisions as a learning tool, which could reduce the number of adverse recourse decisions in the future.

1.3  Inconsistencies in following established policies, practices and procedures

Part of Internal Audit’s approach was assessing established procedures and practices for safe and secure handling, transfer, storage, documentation and file closure. This was carried out through interviews with a representative number of chiefs, superintendents and currency teams in the four regions included in the scope of the audit. In addition, a sample testing of 362 seizure files and physical on-site observations to ensure that CBSA established procedures and practices for safe and secure handling, transfer, storage, documentation and file closure were followed.

The following observations were noted during the audit:

1. A significant number of interviewees stated that they had problems with currency machines in terms of accuracy, reliability and malfunctioning. This resulted in considerable time being spent counting by hand.
2. In the case of 10 seizures, the monies had been declared. This is contrary to the Act: only undeclared currency or monetary instrument can be seized.
3. It could not be determined in 97 seizure files reviewed, based on documentation contained in the seizure file (e.g. narrative), that the superintendent was notified as required by subsection 120(b) of Part 2, Chapter 2 of the Customs Enforcement Manual (CEM).
4. It could not be determined in 105 seizure files reviewed, based on documentation contained in the seizure file (e.g. narrative), that the regional intelligence officer was notified as required by section 13.4 of the Currency Flexible Response Teams — Operational Guidelines.
5. A review of 167 seizures under level 4 revealed 84 instances where there was either no indication or no documentation on file denoting that the monies were transferred to the superintendent as required by subsections 13.6(5) and 13.7(5) of the Operational Guidelines.
6. It could not be determined in 71 seizure files reviewed, based on documentation contained in the seizure file (e.g. narrative), that the seized monies were counted in the presence of another border services officer as required by section 150 of Part 2, Chapter 2 of the CEM.
7. It was noted in 76 of 167 level 4 seizure files reviewed that the electronic notification of the seizure to the national currency coordinator was not on file as required by section 190 of Part 2, Chapter 2 of the CEM.
8. Of the 26 seizure files where Internal Audit could determine that the monies were sent to PWGSC by courier, 15 (60%) of these seizure files did not have supporting paperwork on file to substantiate the courier shipment to PWGSC as required by section 188 of Part 2, Chapter 2 of the CEM.
9. In 58 seizure files neither the K10 file nor the original bank deposit slips were on file. In most offices visited, it was noted that they didn’t place accounting information on file as a matter of routine. Consequently, auditors were obliged to search the K10 files to locate important accounting documentation. The Financial Administration Manual recommends that a hard copy of bank deposit slips be kept on file.

For findings c, d, e and f noted above, the auditors were informed that the information missing from the seizure files would likely be found in officer notebooks. Since notebooks were not part of the documentation contained in the seizure files examined, Internal Audit cannot comment on the contention that the missing information may be in the notebooks.

1.4  Seized currency and monetary instruments not handled in a timely manner

The CBSA’s enforcement of the Act from inception to March 31, 2005, has resulted in over 3,100 seizures involving $88 million. Undeclared currency and monetary instruments can be seized and in certain situations are, or can become, forfeit to the Crown. Over $29 million has been forfeit and nearly $1.3 million has been collected as penalties.

The Customs Enforcement Manual, Part 2, Chapter 2, paragraph 79, stipulates that the moment currency is seized, it becomes property of the Crown. By extension, the Receipt and Deposit of Public Money Regulations, 1997 would apply, particularly section 3 dealing with the deposit of public money. Section 3 stipulates that monies received or collected are to be deposited once a day and if not cost-effective, once a week.

As part of Internal Audit’s testing with respect to K19C (seizures), the dates of seizure with the K10 dates (deposit) were compared for the following airports (traffic):

• Montréal-Pierre Elliott Trudeau International
• Pearson International
• Vancouver International

In all three airports, it was noted (for 38 seizures in total) that the timeline between the date of seizure and the deposit date exceeded five business days. In several instances (22 of 38 seizures), the timeline exceeded 25 business days.

Through a review of relevant policies and procedures, it was determined that established timelines have not been formally instituted.

1.5  Transfer of seized currency not effectively controlled

When an officer suspects on reasonable grounds that the seized currency or monetary instruments are proceeds of crime within the meaning of subsection 462.3(1) of the Criminal Code, or funds for financing of terrorist activities, subsection 18.(2) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act allows the officer to seize the currency or monetary instruments as forfeit. In these circumstances, the seized currency or monetary instruments are not to be returned on payment of a penalty. Instead, they may be retained and dealt with in accordance with established procedures.

In all cases relating to a suspected proceeds of crime/terrorist financing funds seizure, the superintendent is responsible for contacting the regional intelligence officer. The regional intelligence officer is responsible for contacting the local Integrated Proceeds of Crime police unit to advise them of the occurrence.

If the seized currency or monetary instruments are to be taken by the police and the regional intelligence officer for additional evidentiary forensic analysis, the seizing officer and shift superintendent will be responsible for the following:

• Ensuring that the currency or monetary instruments are properly transferred and signed off by the person taking control of the exhibits (K129, Exhibit Control Form);
• Ensuring that any additional intelligence information is input into ICES; and
• Notifying the national currency coordinator at headquarters.

The audit included a test of K129 files to determine if they were properly completed and closed, and that the monies were ultimately transferred to PWGSC. In total, 15 sites were visited and the following was noted:

• At some sites visited, the practice was to use the K19C files to track monies transferred and no K129 logbook was maintained;
• Where K129 logbooks were maintained, there were no standards for their structure or use of sequential numbers; and
• Insufficient information contained in the K129 logbooks prevented the auditors from determining the acquittal of the file and transfer of monies to PWGSC.

1.6  Control over interdepartmental settlement needs improvement

Penalties and forfeitures collected under the CBCRP are to be interdepartmentally settled to PWGSC in accordance with the Proceeds of Crime (Money Laundering) and Terrorist Financing Act under subsections 22(1) and 22(2).

A report listing all seizures for the period of January 6, 2003, to August 7, 2005, was obtained from ICES. A comparison of this listing with a listing of interdepartmental settlements obtained from the Finance and Administration Branch of the Canada Revenue Agency (CRA) (October 2005) revealed that there are 441 of 3,132 currency seizures under levels 1, 2 and 3 not recorded as having been settled interdepartmentally with PWGSC.

In addition, a comparison made with a report obtained from PWGSC (December 21, 2005) for the same time period as the ICES report indicates that 688 currency seizures, either penalties or forfeitures, are not recorded by PWGSC as having been settled interdepartmentally from the CBSA to PWGSC. While it is understood that those charged with the responsibility to make interdepartmental settlements with PWGSC do not control the operational aspects of forfeitures and penalties, there is a shared responsibility to ensure that they are done in a complete, accurate and timely manner.

Responsibilities for the interdepartmental settlements of the CBCRP have only recently been transferred from the CRA over to the CBSA’s Revenue Accounting, Reporting and Analysis Section of the Comptrollership Branch (February 2006).

1.7  Return of seized currency and/or monetary instruments to client/owner is not adequately documented

In accordance with subsection 18(2) of the Act, the officer shall, on payment of a penalty in the prescribed amount, return the seized currency or monetary instruments to the person from whom they were seized or the lawful owner unless the officer has reasonable grounds to suspect that the currency or monetary instruments are proceeds of crime within the meaning of section 462.3(1) of the Criminal Code or funds for use in the financing of terrorist activities.

Operationally, the owner of the seized currency pays the fine at the cashier location and receives a copy of payment through an ICES-produced receipt called a K21. On presentation of this receipt to the seizing officer, the seized currency is returned to the owner.

One of the audit procedures employed during the audit of seizure files assessed the adequacy of the paper documentation retained on seizure files in support of retained currency or monetary instruments returned to the client/owner. Generally, all sampled seizure files examined (level 1, 2 and 3) contained a copy of the K21 cash receipt for penalty payments. However, the K21 document does not have a signature area for the client to sign for returned monies and/or monetary instruments. The K21 document is a receipt for payment of level 1, 2 and 3 penalties only. While the audit has not disclosed any incidents of misappropriation of currency or monetary instruments intended to be returned (as demonstrated by the K21 receipt), there are concerns that the CBSA cannot demonstrate, by way of paper documentation, that the seized currency or monetary instruments were in fact returned to the client/owner.

Reliability and Integrity of Data

2.1  Reconciliation procedures need strengthening

The Integrated Customs Enforcement System (ICES) is an integral component of the CBSA’s strategy to manage risk. Prior to ICES, enforcement data was captured manually and then, at some offices, entered into stand-alone systems. This seriously limited the CBSA’s ability to analyze enforcement information. At the same time, the CBSA did not have a consistent or reliable delivery mechanism for target and lookout information to its front-line officers.

ICES was developed to provide a common repository for all CBSA enforcement data. Implemented in stages, ICES has already provided enforcement action data capture, lookout creation and dissemination, query and reporting. The next implementations will provide for an intelligence management component and an online enforcement reference library.

Several components are integrated under the ICES umbrella to provide a single interface for the capture, reporting, analysis and query of enforcement data as well as the management of intelligence information. The following provides a brief outline of the functionality of the major ICES components:

• Enforcement actions
  At the time of the action, officers are provided with an automated facility to capture enforcement data. All the information pertaining to the individual or business, the goods and the action taken are inputted. The specifics related to conveyances, commodities, methods of concealment and indicators are also captured. The system calculates penalties and, through an interface with TEPS at local area network sites, captures the K21 receipts and payment information.
  
  Officers automatically receive information on the subject involved in the action through an automated previous offender query that will indicate lookouts, previous seizures or CBSA warnings that reference the subject.
• Lookouts
  Border services and intelligence officers are able to access, enter, maintain and disseminate lookouts on a local, regional and national basis. This replaces the fragmented information systems that previously existed.

The audit included a test to determine that seizure data entered into ICES was supported by either a K21 number (for level 1, 2 or 3 penalties) or the K10 number (for level 4) and that PWGSC had a record of receiving the monies. A review of 102 files under level 4 revealed the following:

• Four instances of seizures recorded in ICES; however, PWGSC had no record of receiving monies under the seizure number recorded in ICES;
• Two instances of traveller’s cheques being transferred to police agencies but not returned to the CBSA because they were found to be counterfeit by the police agency; and
• One instance where traveller’s cheques were returned to a courier company in error and the courier company destroyed them.

While the audit team did not uncover any empirical evidence of missing currency or monetary instruments under CBSA control, this test did reveal the need to confirm, through some form of systematic reconciliation process, that CBSA ICES records and PWGSC seizure records validate conformity with section 22(2) of the Act that states the following:

An officer who seizes currency or monetary instruments or is paid a penalty under subsection 18(2) shall send the currency or monetary instruments or the penalty, as the case may be, to the Minister of Public Works and Government Services.

Internal controls need to be reassessed to ensure that they are adequate in ensuring compliance with section 22(2) of the Act.

Conclusion

Overall, the CBSA is generally in compliance with relevant policies and procedures related to seized and detained currency. Also, key systems, processes and internal controls are in place. Nonetheless, the audit found some weaknesses and made recommendations in order to further strengthen controls and management practices.

The Borders Service Division initiated action plans to address the findings and recommendations contained in this report. These should improve the effectiveness and efficiency of the management control framework associated with the management of the CBCRP while, at the same time, bring the CBSA in line with the policies and principles of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act.

Audit Team