Top 5 Things Every FFL Needs to Know About ATF Inspections

ATF Inspection

Top 5 Things Every FFL Needs to Know About ATF Inspections

Year-after-year we spend time with Federal Firearms Licensees (FFLs) assisting them with various ATF inspection matters. Most of the time this involves planning for an inspection, becoming inspection ready, participating in an ATF inspection and sometimes, remediating violations received during the inspection.

The totality of this experience allows us to share meaningful information about the inspection process from the perspective of an FFL holder, a compliance professional or regulatory expert.

In this article, we will answer five key questions about ATF Inspections:

  1. What is an ATF Inspection (otherwise known as an FFL Compliance Inspection)?
  2. What Happens During an ATF Dealer Inspection or ATF Manufacturer Inspection?
  3. What are the Top ATF Compliance Inspection Violations?
  4. What Happens After an ATF Inspection?
  5. How Do I Prepare for and Pass an ATF Inspection?

The information presented below is not intended to be a complete view of every ATF inspection activity. For additional information, please contact the ATF directly.

1. What is an ATF Inspection (otherwise known as an FFL Compliance Inspection)?

An ATF Inspection applies to all Federal Firearms License (FFL) types including firearm manufacturers, firearm importers, firearm distributors and firearm dealers (otherwise known as firearm retailers).

The ATF’s Public Affairs Division issued a fact sheet titled “FFL Compliance Inspections.” That fact sheet read, in summary:

  • “The Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF), pursuant to the Gun Control Act (GCA) and the Federal firearms regulations, is responsible for licensing persons engaging in a firearms business.”
  • “With certain exceptions, the GCA allows ATF to conduct one warrantless, annual compliance inspection of a federal firearms licensee (FFL).”
  • “The purpose of the inspection program is to educate the licensee about regulatory responsibilities and to evaluate the level of compliance.”
  • “Compliance inspections also serve to protect the public in that they promote voluntary internal controls to prevent and detect diversion of firearms from lawful commerce to the illegal market.”

ATF Inspections

2. What Happens During an ATF Dealer Inspection or ATF Manufacturer Inspection?

“During inspections, ATF industry operations investigators (IOIs) review records, inventory, and the licensee’s conduct of business. To assist in meeting and maintaining compliance, investigators also provide instructional and educational materials about the requirements of the law and regulations and best business practices.” (“FFL Compliance Inspections”, 2018)

A major part of the ATF inspection is what is called a Book to Physical or “Bi-Directional Serial Number Inventory.” During this audit step, the ATF performs a reconciliation of serialized firearms found at your facility to the Book of Acquisition and Disposition (A&D Record or Bound Book). Likewise, the test is performed in the reverse direction – Serial Numbers found in the Bound Book are matched back to the firearm itself. In Addition to serial number verification, ATF will also review these additional regulated fields in your Bond Book to ensure they match the physical markings on the firearms themselves:  Manufacturer, Importer (if any), Model and Caliber/Gauge.  These steps are performed to ensure that the records properly match the serialized firearms under the control of the company which reflects directly on your company’s ability to promptly and accurate respond to ATF firearm trace requests.

The next major part of the inspection is a record review.  These records must not only be maintained in a manner prescribed in the federal regulations, the must also be completed in a compliant manner.  ATF will review your records for accuracy, completeness and will also compare these records against each other and your Bound Book to ensure the regulated information provided matches exactly.  Below are few examples of records ATF will review while conducting an inspection:

  • ATF Form 4473
  • ATF Form 3310.4
  • ATF Form 3310.12 (in states that share a border with Mexico)
  • ATF Form 3310.11
  • NFA Forms 1,2,3,4,5 and 9
  • ATF Form 6 and 6A (Importers)

3. What are the Top ATF Compliance Inspection Violations?

Compliance failures, which constitute violations of law and regulation, are commonly disclosed at the conclusion of the on-site inspection process in what is commonly referred to as the “closing conference”.  This closing is held between ATF and the Responsible Persons listed on your FFL.

Below is a list of the most common errors found by ATF when conducting on-site compliance inspections.

 Most frequently cited violations (FY2017): 

  • Transferee did not properly complete Section A, F 4473 – 27 CFR 124(c)(1)
  • Failure to timely record entries in bound record (Acquisition and Disposition Book) – 27 CFR 478.125e 
  • Failure to complete forms as indicated in instructions (this violation is often cited when the licensee failed to properly complete a form, but there is not a separate regulatory citation addressing the omitted or mis-documented item) – 27 CFR 478.21 (a)-(b)
  • Licensee did not record on F 4473 the date on which NICS was contacted – 27 CFR478.124 (c)(3)(iv) 
  • Licensee did not sign and date F 4473 – 27 CFR 478.124 (c)(5)
  • Licensee failed to obtain and/or document purchaser’s Identification document – 27 CFR 478.124(c)(3) (i)
  • Licensee failed to report multiple handgun sales – 27 CFR 478.126a
  • Licensee failed to properly identify firearm on F 4473 – 27 CFR 124(c)(4)
  • Licensee failed to contact NICS and wait stipulated time prior to transfer of firearm – 27 CFR 478.102(a)
  • Licensee failed to record the type, model, caliber or gauge, and serial number of each complete firearm manufactured or otherwise acquired – 27 CFR 478.123(a)

4. What Happens After an ATF Inspection?

“When violations of the law and regulations are disclosed during an inspection, a Report of Violations is issued to the licensee that outlines the discrepancy and the requirements for corrective action. ATF also works to gain cooperation and compliance from FFLs by issuing warning letters and holding warning conferences. Despite these remedial actions, on rare occasions ATF encounters a licensee who fails to comply with the law and regulations and demonstrates a lack of commitment to improving his or her business practices. In such cases where willfulness is demonstrated, ATF’s obligation to protect public safety may require revocation of the federal firearms license.

ATF investigators assist licensees in developing corrective actions when violations are identified and encourage licensees to constructively engage in the remediation process. In this way, ATF attempts to bring licensees into compliance before it becomes necessary to take administrative action against the licensee. When an ATF inspection results in a warning conference or potential revocation, the licensee is provided an opportunity to develop a written plan that details the steps taken to correct the problems identified and measures implemented to ensure future compliance.” (“FFL Compliance Inspections”, 2018)

 

Generally speaking, there is a 5-tiered inspection result ladder:

  • Report of No Violations– the Gold Standard and one your business should be striving for in your daily operations.
  • Report of Violations(ROV)– details each violation cited by the IOI conducting the inspection and also includes actions to be taken by the FFL to minimize the risk of repeating each.
  • Warning Letter–details your violations and provides explicit reference to your future ability to comply with federal regulations being critically important to your continued operation under your FFL.
  • Warning Conference– an in-person meeting with local ATF leadership to discuss your company’s cited violations and remediation plan.
  • Revocation

Bear in mind, there is no requirement for ATF to walk up this ladder one rung at a time.  While the ATF “attempts to bring licensees into compliance before necessary to administrative action” based upon what is discovered in your business, any action above may be taken.

5. How Do I Prepare for and Pass an FFL ATF Inspection?

There are numerous ways to prepare for your first or next ATF inspection. Compliance is an everyday commitment for FFLs regardless of the size of business they operate.  Setting your business’s compliance expectations for your employees is a great first step in ensuring your next ATF inspection is “just another day in the office”.  Once you set those expectations, the next step is to inspect what you expect. Maintaining your compliance is a process of continuous improvement through reviewing, reconciling, and education.  Here are just a few suggestions of daily routines that can bring you closer to the “Gold Standard”:

  • Review your ATF required records for completeness and accuracy.
    • ATF Form 4473, as noted above, is leading cause of violations cited by ATF.Review this form for errors daily and with great scrutiny.
  • Organize your inventory and records for inspection ease.
  • Conduct “mini audits” and “ATF Type” inventories to keep your regulated records accurate.
    • Remember, it’s not just the serial number that is important; All the regulated data in your Bound Book must be accurate.
  • Train your employees on the federal and state regulations. Education is the key.

Lastly, leveraging technology to execute compliance procedures can greatly increase adherence to your newly implemented policy improvements. A gun store POS will apply process and transactional safeguards that protect employees – and your business – from procedural oversights and provide an additional assurance that compliance expectations are being met.

Whether you are just launching a new business in the firearm industry or have been in the industry for decades, it is never too early –  or too late –  to start taking your compliance seriously.  Don’t fall into the “my last inspection was perfect” trap.  Having a favorable result from a previous inspection, especially if it was several years prior, is not an endorsement of your operations nor a guarantee of success in your future ATF inspections. Establishing a culture of compliance in your business, implementing compliance-driven technology, and validating that your expectations are being met, will position your business as a leader for which others in the industry will measure themselves against.

 

Need help figuring out what that first step may be?  Contact the experts at Orchid Advisors and let the firm that is #1 in FFL Compliance Solutions get to work for you.

 


Other Articles of Interest

  • Did you know that Orchid Advisors and the Retail Technology Group have consulted FFLs on over 60 million ATF electronic Bound Book transactions?

    Visit us at SHOT Show ’19, booth # 3117, to learn more about our integrated bound book and e4473 software.

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