Trade knowledge / The Compliant Organization—Part 2: The Centralized vs. Decentralized Supply Chain
Date: 2013-08-05
The Compliant Organization—Part 2: The Centralized vs. Decentralized Supply Chain
When deciding where to place a trade compliance office within a corporation, we must consider the structure of that organization. Some companies are centralized with a headquarters that manages all activities within the firm. Other companies are decentralized, consisting of a series of loosely affiliated subsidiary businesses or divisions that ultimately report to a parent corporation or headquarters.
The centralized organization lends itself well to trade compliance. Clearly the trade compliance team will be situated within the headquarters and drive policies and procedures for the company.
Decentralized organizations are a challenge for trade compliance. Each subsidiary or division is structured as a separate profit and loss center and is usually permitted to do business as it sees fit, as long as it meets its financial objectives. In the realm of trade compliance, however, a corporate import/export program is only as strong as its weakest link. If one division of a corporation is found to be lacking, it could put the importing and exporting activities of its related companies at risk.
To ensure trade compliance is evenly implemented within a decentralized corporation it is common that the corporation develop a hybrid approach. To understand this hybrid model, we must first review the tenets of trade compliance. U.S. Customs and Border Protection’s Regulatory Audit division describes five areas of internal control. Those of you familiar with financial controls will recognize these categories.
I discussed these elements at length in a previous article. Briefly restated they are:
Control Environment—The corporate culture and tone set by management.
Risk Assessment—How does the company identify and respond to compliance risks?
Control Activities—What tactical procedural controls are in place?
Information & Communication—How does the company share information internally and externally?
Monitoring—Does the company comply with its own policies and procedures?
A successful compliance model for a decentralized corporation starts by creating a centralized compliance team within the company's headquarters tasked with strategic areas of compliance. The central compliance office is augmented by assigning more tactical responsibilities to the subsidiaries. This structure helps create a consistent strong compliance environment while still permitting the field operations to address day-to-day activities. The devil is in the details and the division of responsibilities.
The centralized team should be tasked with the more strategic elements of the internal controls listed above. The centralized team might undertake some of the following:
Establishing a consistent corporate compliance policy.
Establishing minimum standards for control activities such as:
a. Record keeping,
b. Product screening,
c. Product classification,
d. Valuation, and
e. Screening parties.
Providing a structural outline for import/export compliance manuals.
Selecting and managing relationships with third party vendors such as brokers, forwarders, consultants and attorneys.
Providing corporate awareness and skills training.
Notifying divisions of changes in regulations.
Providing leadership in any communication with regulators.
Providing internal management support to compliance specialists in the divisional offices.
Monitoring and auditing the divisions for compliance against corporate compliance standards.
These activities generally fall under the internal control categories of control environment, risk assessment, information and communication and monitoring.
Each division within the greater corporation would then be required to maintain a team that manages day-to-day activities. The divisional offices would take on the tactical issues such as:
Classification
Maintaining records per corporate policies
Completing a compliance manual for the division.
Communicating needs and compliance issues to corporate.
Monitoring daily shipments and resolving issues.
Altering procedures to react to changes in the supply chain.
These activities generally fall under the control activities category listed above. However they also cross over into the elements of information and communication and risk assessment.
A dispersed compliance organization can require additional work and deliberation to be successful. Some organizations undertake the following actions to ensure robust and consistent compliance across the organization.
Holding periodic conference calls to discuss issues.
Assigning dotted line reporting between the centralized compliance office and divisional field offices.
Holding periodic on-site conferences for all compliance staff.
Requiring divisional compliance managers to audit the operations of other divisions or subsidiaries.
Some decentralized organizations face the challenge that each of the subsidiaries has a different importing and exporting profile. While some of the divisions are infrequent importers and exporters, others have larger international trade programs. The infrequent trader represents a risk to the corporation as it will likely be unable to assign effective, knowledgeable staff to manage its import/export activities. In this instance the company may wish to develop a modified version of the above structure. Some companies have taken the drastic measure of forbidding smaller divisions from importing or exporting until such time as their volumes can support the hiring of full-time compliance staff. In the interim any direct importing or exporting is performed by the corporate headquarters or assigned to one of the other divisions.
Whatever the division of responsibilities, a company should find success in developing a stronger corporate compliance program as long as it can balance the five elements of internal control. ( linda )06 Jan,2012
Previous: The Compliant Organization—Part 1: Where Does Trade Compliance Belong? Next: International Logistics: Four Critical Elements
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