Page 1 GAO-04-340R Oil Spill Liability Trust Fund Disbursements

United States General Accounting Office

Washington, D.C. 20548

A

January 13, 2004

The Honorable Lane Evans

Ranking Democratic Member

Committee on Veterans Affairs

House of Representatives

The Honorable Bob Filner

Ranking Democratic Member

Subcommittee on Coast Guard

and Maritime Transportation

Committee on Transportation and 

Infrastructure

House of Representatives

The Honorable Corrine Brown

House of Representatives

Subject: U.S. Coast Guard National Pollution Funds Center: 

Improvements Are Needed in Internal Control Over Disbursements

The Oil Spill Liability Trust Fund (Fund) is a $1 billion fund that has two 

major components: the Emergency Fund and the Principal Fund. The 

Emergency Fund is used for paying for federal removal actions and the 

initiation of natural resource damage assessments by designated federal, 

state, or Indian tribe officials, resulting from oil spills or the substantial 

threat of oil spills to the waters or shorelines of the United States. The 

Principal Fund is used for paying certain claims for uncompensated 

removal costs and damages resulting from oil spills or the substantial 

threat of oil spills to the waters or shorelines of the United States. The 

Fund is administered by the National Pollution Funds Center (NPFC) of the 

U.S. Coast Guard (USCG). 

In May 2002, at your request, we issued a legal opinion related to the uses 

and limitations of the Fund and concluded that the Fund is not available to 

pay employee salaries and other operating expenses.1

 The USCG reported 

that from fiscal years 1998 through 2002, $32.8 million from the Fund was 

used to pay costs associated with processing claims, including salaries and 

other operating expenses. In April 2003, the USCG returned the $32.8 

1

These costs are to be paid out of an annual operating expense appropriation.
Page 2 GAO-04-340R Oil Spill Liability Trust Fund Disbursements

million to the Fund. In light of our conclusion regarding the appropriate 

use of these funds, you asked that we review the control over 

disbursements from the Fund and assess the propriety of these 

disbursements.

On September 17, 2003, we briefed your offices on the results of our review 

of internal control over claim payments made from the Fund.2 We provided 

a second briefing on December 3, 2003, related to our review of internal 

control over disbursements for operating expenses paid from the Principal 

Fund and removal costs paid from the Emergency Fund. This report 

summarizes the information provided during that second briefing. The 

enclosed briefing slides highlight the results of our work and the 

information provided. 

We reviewed disbursements for operating expenses and removal costs to 

determine whether (1) the design of existing internal control provided 

reasonable assurance that improper payments would not occur or would 

be detected in the normal course of business, (2) they were made in 

accordance with established USCG and NPFC policies and procedures, and 

(3) they were made in accordance with the uses specified in the Oil 

Pollution Act of 1990 (OPA) and other federal laws and regulations, and 

represented a proper use of government funds. Also at your request, we 

are providing information about NPFC’s payroll expenses and claim 

activity fluctuations for fiscal years 1998 through 2003. This information is 

included in appendix I of the attached slides.

Results in Brief The USCG and NPFC have established a system of internal control over 

operating expenses and Emergency Fund disbursement processes. 

However, we found some weaknesses in the design and operation of 

internal control over operating expenses and disbursements from the Fund 

that increase the risk of improper payments. Weaknesses in the design of 

control included a lack of documented reconciliations of the amounts 

included in removal cost reports with those recorded in USCG’s accounting 

system. We found additional internal control weaknesses in that 

2

U.S. General Accounting Office, U.S. Coast Guard National Pollution Funds Center: 

Claims Payment Process Was Functioning Effectively, but Additional Controls Are 

Needed to Reduce the Risk of Improper Payments, GAO-04-114R (Washington, D.C.: Oct. 3, 

2003).
Page 3 GAO-04-340R Oil Spill Liability Trust Fund Disbursements

USCG/NPFC did not always follow established policies and procedures 

that are intended to help ensure the validity of disbursements. 

Of the nonstatistical selection of 467 disbursements obtained through data 

mining3

 for fiscal years 1998 through 2002, we found that 33, or 7 percent of 

these disbursements, totaling $43,425, lacked adequate supporting 

documentation. Of the 33 disbursements, 9 transactions lacked purchase 

receipts such as invoices, 10 additional transactions lacked purchase 

request forms, and 14 lacked both purchase receipts and purchase request 

forms. We also found that 25, or 5 percent of the 467 disbursements, 

totaling $26,182, lacked proper approvals. Specifically, 3 transactions 

lacked proof of approval from supervisors, 18 additional transactions 

lacked proof of approval from fund certifying officers before purchases 

were made, and 4 lacked proof of approval from supervisors and fund 

certifying officers. Another 39 transactions totaling $155,994 for payments 

to contractors and other government agencies, and reimbursements to 

employees and others lacked documentation of supervisory review and 

approval before payments were made. In addition, equipment purchases 

totaling $62,700 were not recorded in the property tracking system. 

We also used the nonstatistical selection of disbursements obtained 

through data mining to determine whether these disbursements complied 

with certain federal laws and regulations and represented a proper use of 

government funds. We found that (1) NPFC did not properly document 

their justification for using federal funds to reimburse $14,481 in travel 

expenses for 11 nonfederal potential claimants to attend natural resource 

damage (NRD) seminars, (2) the USCG Finance Center (FINCEN) incurred 

a total $24,5464

 in late payment fees and lost discounts, and (3) the validity 

of 175 disbursements tested totaling $6,589 was questionable because 

adequate supporting documentation was missing. The weaknesses we 

3

Data mining applies a search process to a dataset, analyzing for trends, relationships, and 

interesting associations. For instance, it can be used to efficiently query transaction data for 

characteristics that may indicate potentially improper activity.

4

Of the 467 disbursement transactions, the USCG FINCEN incurred a total of $8,868 in late 

payment fees and lost discounts. We extended our test beyond the 467 disbursements to 

include all late payment fees and lost discounts incurred during fiscal years 1998 through 

2002. As a result, we found that NPFC incurred an additional $15,678 for a total of $24,546.

5

As discussed earlier, 23 disbursements lacked adequate supporting documentation. Of the 

23 disbursements, 17 were missing purchase receipts or invoices and were therefore 

questionable. Another 6 had partial supporting documentation and were not considered 

questionable.
Page 4 GAO-04-340R Oil Spill Liability Trust Fund Disbursements

identified in the design and operation of internal control over the 

disbursement processes, if left uncorrected, increase the Fund’s 

vulnerability to future improper payments. 

In addition, during fiscal year 2003, NPFC continued to improperly use the 

Fund to pay about $645,000 in operating expenses and obligated another 

$151,000 against the Fund. NPFC officials told us that they are in the 

process of transferring these transactions from the Fund into a newly 

established account created for recording NPFC operating expenses. As 

with the $32.8 million previously returned, this transfer will not 

compensate the Fund for lost interest. NPFC’s continued improper use of 

the Fund to pay for operating expenses is a violation of federal law. Not 

only does this practice expose the Fund to misuse, but we estimate that the 

Fund may have lost as much as $1.6 million in interest6

 as a result.

Recommendations for 

Executive Action

To improve the design of internal control over disbursements from the 

Fund, we recommend that the Commandant of the U.S. Coast Guard direct 

the Director of the National Pollution Funds Center to establish policies 

and procedures to require that 

• case officers document the reconciliation of removal costs reports to 

amounts paid in the accounting system, and 

• case officers’ supervisors document their review of these 

reconciliations.

To establish better compliance with U.S. Coast Guard/National Pollution 

Funds Center policies and procedures, we recommend that the 

Commandant of the U.S. Coast Guard direct the Director of the National 

Pollution Funds Center to

• reinforce documentation and approval requirements by instituting 

training for all relevant employees,

• institute monitoring techniques such as periodic spot checks to help 

ensure that such requirements are consistently followed, and

6

To calculate interest, we multiplied the average 6-month rate for U.S. Treasury bills (the 

rate at which the Fund earns interest) times the average operating expense balance for each 

fiscal year.
Page 5 GAO-04-340R Oil Spill Liability Trust Fund Disbursements

• establish a mechanism to ensure that accountable assets are properly 

recorded in USCG’s fixed assets system.

To enforce compliance with the Oil Pollution Act of 1990 and other federal 

laws and regulations and reduce the risk of improper payments, we 

recommend that the Commandant of the U.S. Coast Guard direct the 

Director of the National Pollution Funds Center to

• expedite actions needed to cease using the Fund to pay operating 

expenses as advised in our May 2002 legal opinion,

• record obligations against USCG’s annual operating expense 

appropriation in order to ensure that adequate funds are available to 

reimburse the Fund for any unreimbursed or future use of the Fund to 

pay operating expenses,

• complete the transfer of all operating expenses that were improperly 

paid from the Fund in fiscal year 2003 to the new operating expense 

account,

• ensure proper justification exists for nonfederal travelers to be 

reimbursed to attend NRD seminars in advance of any such travel, and

• follow up on transactions that were missing purchase invoices to 

determine what was purchased and whether the items were for 

legitimate government needs.

We also recommend that the Commandant of the U.S. Coast Guard direct 

the Chief Financial Officer of the U.S. Coast Guard to

• reinforce documentation and approval requirements for disbursements 

from the Fund by instituting training for all relevant employees, and

• institute a monitoring system such as periodic spot checks to help 

ensure that such requirements are consistently followed.

Agency Comments We obtained oral comments on a draft of our briefing slides from the 

Director of the U.S. Coast Guard National Pollution Funds Center and other 

officials. They agreed with our recommendations. The officials 

emphasized that at the time they initially began using the Fund to pay 

operating expenses, they had an opinion from the USCG Chief Counsel that 
Page 6 GAO-04-340R Oil Spill Liability Trust Fund Disbursements

this was a proper use of the Fund. As noted earlier, we concluded in May 

2002 that the Fund is not available to pay NPFC operating expenses. The 

officials also emphasized that they now have electronic approvals that they 

believe provide better supervisory review and oversight. They provided 

technical and clarifying comments, which we incorporated as appropriate. 

Scope and 

Methodology

To determine whether the design of existing internal control over operating 

expenses and Emergency Fund removal costs disbursement processes 

provide reasonable assurance that improper payments will not occur or 

will be detected in the normal course of business, we (1) reviewed 

USCG/NPFC’s policies and procedures related to operating expenses and 

Emergency Fund removal costs disbursements, (2) considered the 

Comptroller General’s Standards for Internal Control in the Federal 

Government,7

 (3) interviewed staff and officials in the USCG and the NPFC 

offices, and (4) performed walkthroughs of the operating expenses and 

Emergency Fund removal costs disbursement processes, and compared 

the results to USCG/NPFC’s policies and procedures and the Standards for 

Internal Control in the Federal Government. 

To determine whether disbursements were made in accordance with 

USCG/NPFC’s policies and procedures, we (1) performed data mining of 

operating expenses paid from the Fund during fiscal years 1998 and 2002 to 

identify unusual transactions and patterns including personal use items, 

Internet purchases, training and travel, equipment purchases, employee 

reimbursements, contract payments other than removal costs, and late 

payment fees, and (2) used a nonstatistical selection of 467 disbursements 

obtained through data mining and tested for adequate documentation, 

proper approvals, and adequate safeguarding of assets. 

We also used the nonstatistical selection of disbursements obtained 

through data mining to determine whether these disbursements were made 

in accordance with OPA and other federal laws and regulations and 

represent a proper use of government funds. Specifically, we reviewed 

OPA and federal laws and regulations to obtain an understanding of 

allowed costs, and reviewed purchase receipts or invoices to ensure that 

purchases were made for official government use and were allowed costs. 

7

U.S. General Accounting Office, Standards for Internal Control in the Federal 

Government, GAO/AIMD-00-21.3.1 (Washington, D.C.: November 1999).
Page 7 GAO-04-340R Oil Spill Liability Trust Fund Disbursements

We did not project our test results to the universe of NPFC disbursements 

in fiscal years 1998 through 2002.

To determine the fluctuations in payroll expenses and claims activity, we 

obtained data from the USCG and NPFC and identified significant 

fluctuations in payroll and claims activity for fiscal years 1998 through 

2002, and obtained USCG/NPFC’s explanations for these fluctuations. We 

did not verify the accuracy of the amounts included in NPFC’s payroll and 

claim systems.

We requested comments on a draft of the enclosed briefing slides from the 

Commandant of the U.S. Coast Guard or his designee and have included 

any comments as appropriate in the letter and enclosed slides. We 

conducted our work from November 2002 through November 2003, in 

accordance with generally accepted government auditing standards. 

This report is available at no charge on our home page at 

http://www.gao.gov. If you have any questions about this report, please 

contact me at (202) 512-9508 or Rosa R. Harris, Assistant Director, 

Financial Management and Assurance, at (202) 512-9492. You may also 

reach us by e-mail at calboml@gao.gov or harrisrr@gao.gov. Additional 

contributors to this assignment were Lisa Crye, Anh Dang, Tyshawn Davis, 

Christine Fant, Ryan D. Holden, Gabriella Kusz, Robert Preshlock, and 

Sandra S. Silzer. 

Linda M. Calbom

Director, Financial Management and Assurance

Enclosure
Page 8 GAO-04-340R Oil Spill Liability Trust Fund Disbursements

Enclosure

1

___________________________________________________________________________________________________________________________________________________________________________

U.S. Coast Guard

National Pollution Funds Center

__________________________________________

Improvements Are Needed in Internal Control

Over Disbursements

Briefing to the Staff of the Committees on Veterans Affairs and 

Transportation and Infrastructure, House of Representatives

December 3, 2003
Enclosure

Page 9 GAO-04-340R Oil Spill Liability Trust Fund Disbursements

2

Table of Contents

• Introduction and Objectives

• Results in Brief

• Background

• Overview of Effective Internal Control

• Internal Control Design

• Compliance with Policies and Procedures

• Propriety of Disbursements

• Conclusions

• Recommendations

• Agency Comments

• Scope and Methodology

• Appendix I: Payroll Expense and Claim Activity Fluctuations
Enclosure

Page 10 GAO-04-340R Oil Spill Liability Trust Fund Disbursements

3

Introduction and Objectives

• The Oil Spill Liability Trust Fund (Fund) is a $1 billion fund which has

two major components: the Emergency Fund and the Principal Fund.

• The Emergency Fund is used for paying for federal removal actions 

and the initiation of natural resource damage assessments (NRDA)

by designated federal, state, or Indian tribe officials, resulting from

oil spills or the substantial threat of oil spills to the waters or

shorelines of the United States.

• The Principal Fund is used for paying certain claims for

uncompensated removal costs and damages resulting from oil spills 

or the substantial threat of oil spills to the waters or shorelines of the

United States.
Enclosure

Page 11 GAO-04-340R Oil Spill Liability Trust Fund Disbursements

4

Introduction and Objectives ( cont.)

• In May 2002, at your request, GAO addressed legal issues related to the 

uses and limitations of the Fund. We concluded that the Fund is not

available to pay employee salaries and other operating expenses.1

• The U.S. Coast Guard (USCG) reported that from fiscal years 1998 through 2002, $32.8 million from the Fund was used to pay costs

associated with processing claims, including salaries and other

operating expenses. In April 2003, the USCG returned the $32.8 million 

to the Fund. 

• In light of our conclusion, you asked that we review the control over

disbursements from the Fund and assess the propriety of these

disbursements.

1These costs are to be paid out of an annual operating expense appropriation.
Enclosure

Page 12 GAO-04-340R Oil Spill Liability Trust Fund Disbursements

5

Introduction and Objectives (cont.)

• Specifically, we reviewed disbursements for operating expenses paid

from the Principal Fund as well as removal costs paid from the

Emergency Fund to determine whether

• the design of existing internal controls provides reasonable assurance that improper payments will not occur or will be detected

in the normal course of business,

• they were made in accordance with established USCG and National Pollution Funds Center (NPFC) policies and procedures, and

• these disbursements were made in accordance with the uses

specified in the Oil Pollution Act of 1990 (OPA)2 and federal laws 

and regulations, and represent a proper use of government funds.

• Also at your request, we are providing information about NPFC’s payroll

expense and claim activity fluctuations for fiscal years 1998 through

2003. This information is included in appendix I. 

2Pub. L. No. 101-380, 104 Stat. 484 (1990).
Enclosure

Page 13 GAO-04-340R Oil Spill Liability Trust Fund Disbursements

6

Introduction and Objectives (cont.)

• This is our second briefing on the Fund. The first briefing covered the

results of our work related to the review of claim payments made from

the Fund. This second briefing covers the results of our review of

disbursements for operating expenses paid from the Principal Fund and

removal costs paid from the Emergency Fund.
Enclosure

Page 14 GAO-04-340R Oil Spill Liability Trust Fund Disbursements

7

Results in Brief

• The USCG and NPFC have established a system of internal control over

operating expenses and Emergency Fund disbursement processes.

However, we found some weaknesses in the design and operation of

internal control over operating expenses and disbursements from the

Fund that increase the risk of improper payments.

• Weaknesses in the design of control included a lack of documented

reconciliations of the amounts included in removal cost reports and

those recorded in USCG’s accounting system.

• We found additional internal control weaknesses in that USCG/NPFC 

did not always follow established policies and procedures that are

intended to help ensure the validity of disbursements.
Enclosure

Page 15 GAO-04-340R Oil Spill Liability Trust Fund Disbursements

8

Results in Brief (cont.)

• We obtained a nonstatistical selection of 467 disbursement

transactions through data mining3 for fiscal years 1998 through 2002. We found that

• 33, or 7 percent of these transactions, totaling $43,425 lacked adequate supporting documentation

• 14 lacked both purchase receipts and purchase request forms;

• 9 additional transactions lacked purchase receipts such as invoices; and 

• 10 additional transactions lacked purchase request forms.

3Data mining applies a search process to a dataset, analyzing for trends, relationships, and interesting associations. For

instance, it can be used to efficiently query transaction data for characteristics that may indicate potentially improper activity.
Enclosure

Page 16 GAO-04-340R Oil Spill Liability Trust Fund Disbursements

9

Results in Brief (cont.)

• 25, or 5 percent of these transactions, totaling $26,182 lacked

proper approvals

• 4 lacked proof of approval from supervisors and fund certifying

officers before purchases were made;

• 3 additional transactions lacked proof of approval from

supervisors before purchases were made; and

• 18 additional transactions lacked proof of approval from the

fund certifying officers before purchases were made.

• 39 transactions totaling $155,994 for payments to contractors

and other government agencies, and reimbursements to 

employees and others lacked documentation of supervisory

review and approval before payments were made; and

• equipment purchases totaling $62,700 were not recorded in the

property tracking system.
Enclosure

Page 17 GAO-04-340R Oil Spill Liability Trust Fund Disbursements

10

Results in Brief (cont.)

• We also used the nonstatistical selection of disbursements obtained

through data mining to determine whether these disbursements

complied with certain federal laws and regulations and represented a 

proper use of government funds. We found that

• NPFC did not properly document their justification for using federal

funds to reimburse $14,481 in travel expenses for 11 nonfederal

potential claimants to attend natural resource damage (NRD)

seminars;

• USCG Finance Center (FINCEN) incurred a total of $8,868 in late 

payment fees and lost discounts;

• We extended our tests beyond the 467 disbursements to 

include all late payment fees and lost discounts incurred during

fiscal years 1998 through 2002. As a result, we found that

NPFC incurred an additional $15,678, for a total of $24,546.
Enclosure

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11

Results in Brief (cont.)

• The validity of 174 disbursements tested totaling $6,589 was questionable because supporting documentation was missing.

• In addition, during fiscal year 2003, NPFC continued to improperly use the Fund to pay about $645,000 in operating expenses and obligated

another $151,000 against the Fund. NPFC officials told us that they are

in the process of transferring these transactions from the Fund into a 

newly established account created for recording NPFC operating

expenses.

• As with the $32.8 million previously returned to the Fund, this transfer will not compensate for lost interest. We estimate that

total lost interest on the improper use of the Fund could be as

much as $1.6 million as of September 30, 2003.5

4As discussed earlier, 23 disbursements lacked adequate supporting documentation. Of the 23 disbursements, 17

were missing any form of purchase receipts or invoices and were therefore questionable. Another 6 had partial

supporting documentation and were not considered questionable.

5To calculate interest, we multiplied the average 6-month maturity rate for U.S. Treasury bills (the rate at which the Fund

earns interest) times the average operating expense balance for each fiscal year.
Enclosure

Page 19 GAO-04-340R Oil Spill Liability Trust Fund Disbursements

12

Results in Brief (cont.)

• We are making several recommendations intended to improve the

design of internal controls over the operating expense and Emergency

Fund disbursement processes and to establish better compliance with

policies and procedures and federal laws and regulations.

• USCG/NPFC officials agreed with our recommendations. They

emphasized that at the time they initially began using the Fund to pay

operating expenses, they had an opinion from the USCG Chief Counsel

that this was a proper use of the Fund. As noted earlier, GAO

concluded in May 2002 that the Fund is not directly available to pay

NPFC operating expenses.
Enclosure

Page 20 GAO-04-340R Oil Spill Liability Trust Fund Disbursements

13

Background

• OPA authorized the Fund to pay claims for certain costs resulting from

oil spills or the substantial threat of oil spills. The act also

• authorized the President to make up to $50 million available from the Fund each year without further appropriation to pay for

emergency removal costs and initiation of natural resource damage

assessments (NRDA) resulting from oil spills,

• authorized an appropriation from the Fund of not more than $25 million each year for operating expenses incurred by the USCG to

implement the act, and

• provided authorization for the appropriation of funds for other uses such as research, development, testing, and evaluation (RDT&E); 

and acquisition, construction, and improvements (ACI).
Enclosure

Page 21 GAO-04-340R Oil Spill Liability Trust Fund Disbursements

14

Background (cont.)

-

OIL SPILL LIABILITY TRUST FUND COMPONENTS

Emergency Fund

Principal Fund

•Removal Actions

•NRDA “Initiation”

•State Access6

•Claims

•Operating expense appropriation

•RDT&E

•ACI

6

State Access is a process through which states can directly receive federal funds for immediate removal costs in response

to an actual or substantial threat of a discharge of oil.

Source: NPFC Year in Review Report for Fiscal Years 2001 and 2002
Enclosure

Page 22 GAO-04-340R Oil Spill Liability Trust Fund Disbursements

15

Background (cont.)

• Administration of the Fund was delegated to the USCG by Executive

Order and in February 1991, NPFC was commissioned to perform this

function as an independent headquarters unit reporting directly to the

Coast Guard Chief of Staff.

• NPFC administers and manages uses of the Fund by

• making funds available for immediate federal oil removal activities

and the initiation of natural resource damage assessments,

• paying claims for losses or damages associated with an oil spill, and

• recovering costs from responsible parties.
Enclosure

Page 23 GAO-04-340R Oil Spill Liability Trust Fund Disbursements

16

Background (cont.)

• During fiscal years 1998 through 2002, about $32.8 million in disbursements were improperly paid from the Fund for operating

expenses.7 These expenses should have been paid from USCG’s annual operating expense appropriation.

• Some of the operating expenses paid from the Fund included

employee salaries, lease payments, travel expenses, training

costs, office supplies, equipment, furniture, health club

membership fees, and reimbursement of travel expenses for job 

interviewees.

• After our inquiries about the corrective actions taken to address

the problem discussed in our May 2002 legal opinion, the

USCG returned the $32.8 million to the Fund in April 2003.8

7According to USCG/NPFC officials, at the time they had an opinion from the USCG Chief Counsel which found

that the Fund was available to pay operating expenses.

8USCG/NPFC officials stated that they will continue to review the accuracy of this reimbursed amount and may adjust

it accordingly.
Enclosure

Page 24 GAO-04-340R Oil Spill Liability Trust Fund Disbursements

17

Background (cont.)

• During fiscal years 1998 through 2002, NPFC reported about 32,523

disbursements totaling $319.7 million. Of this amount, about

$41.1 million in operating expenses were reported.

• The following diagram illustrates NPFC’s operating expense

disbursement process.
Enclosure

Page 25 GAO-04-340R Oil Spill Liability Trust Fund Disbursements

18

Background (cont.)

Operating Expense Disbursement Process

Requester submits a 

purchase request

(PR) to program

manager and fund

certifying officer 

(FCO)

Program manager

and FCO approve

PR

Contracting officer

places an order with

vendor

Employee receives

goods or services

and transmits the

delivery receipt to

the USCG Finance

Center (FINCEN)

FINCEN receives

purchase

invoice/receipt from

vendor

FINCEN makes

payment to vendor

Source: Walk-through interview with NPFC officials.
Enclosure

Page 26 GAO-04-340R Oil Spill Liability Trust Fund Disbursements

19

Overview of Effective Internal Control

As discussed in GAO’s Standards for Internal Control in the Federal

Government,9

• internal control—a major part of managing an organization—is a continuous, built-in component of operations that provides

reasonable, but not absolute, assurance of meeting agency

objectives,

• internal control consists of the plans, methods, and procedures used to meet the agency’s missions, goals, and objectives, and

• internal control should be designed to provide reasonable assurance regarding prevention or prompt detection of unauthorized acquisition, use, or disposition of an agency’s assets.

9Standards for Internal Control in the Federal Government, GAO/AIMD-00-21.3.1, which was prepared to fulfill our

statutory requirement under the Federal Managers’ Financial Integrity Act, provides an overall framework for

establishing and maintaining internal control and for identifying and addressing major performance and management

challenges and areas at greatest risk of fraud, waste, abuse, and mismanagement.
Enclosure

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20

Internal Control Design

We identified weaknesses in the design of internal control over

disbursements from the Emergency Fund that made the Fund more

vulnerable to improper payments.

Control weakness: The case files for Emergency Fund

disbursements did not always include documented reconciliations of

the amounts included in removal cost reports submitted by federal onscene coordinators (FOSC)10 and those recorded in USCG’s

accounting system. NPFC officials told us that case officers reconcile

cost reports to the disbursements recorded in the accounting system.

However, NPFC’s policies and procedures do not require that these

reconciliations be documented.

• Standards for Internal Control in the Federal Government states

that internal control activities such as reconciliation and

maintenance of related records provide evidence that these

activities were executed and appropriately documented.

10FOSCs are USCG employees who are responsible for determining removal costs for an oil spill incident during oil

spill response. FOSCs are physically stationed in USCG field locations.
Enclosure

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21

Internal Control Design (cont.)

• Without consistently documented reconciliations, information is not

always readily available to support the accuracy of amounts

recorded for oil spill removal costs and proper supervisory review 

is impeded.
Enclosure

Page 29 GAO-04-340R Oil Spill Liability Trust Fund Disbursements

22

Compliance with Policies and Procedures

• Additional internal control weaknesses existed in that USCG/NPFC did

not always follow established policies and procedures that are intended

to help ensure the validity of disbursements.

• Through data mining, we obtained a nonstatistical selection of 467 disbursements totaling $2.5 million and performed tests for

• adequate documentation,

• proper approvals, and

• adequate safeguarding of assets.

• Standards for Internal Control in the Federal Government states that

(1) all transactions need to be clearly documented, and the 

documentation should be readily available for examination, (2) controls

should be established to ensure that all transactions are authorized, and

(3) physical controls should be established to secure and safeguard

vulnerable assets.
Enclosure

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23

Compliance with Policies & Procedures (cont.)

Documentation

• Of the 467 transactions tested, at least 3311 (16 for NPFC and 17 for USCG field offices),or 7 percent of these transactions, totaling 

$43,425 lacked adequate supporting documentation.12 Specifically, 14 lacked purchase receipts such as invoices and purchase

requests, 9 additional transactions lacked purchase receipts, and 10

additional transactions lacked supporting purchase request forms.

• USCG/NPFC policies and procedures require that supporting documentation such as purchase receipts and purchase

request forms be maintained in the files.

• Without proper documentation, USCG/NPFC officials do not

have an adequate basis for determining the validity of 

transactions they are approving.

11There were another 91 transactions totaling $222,953 with transaction dates beyond NPFC’s 3-year records retention

policy. Supporting documentation for these transactions had been destroyed.

12According to USCG/NPFC officials, documentation for field transactions should have been maintained by USCG field

employees.
Enclosure

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24

Compliance with Policies & Procedures (cont.)

Approvals

• Of the 467 transactions tested, we found that 25, (19 for NPFC and 6 for USCG field offices) or 5 percent totaling $26,182 lacked 

proper approvals before purchases were made as required by

USCG/NPFC policies and procedures.13Specifically, 4 lacked proof of approval from supervisors and fund certifying officers, 3 additional transactions lacked proof of approval from supervisors, and 18 additional transactions lacked proof of approval from the

fund certifying officers.

• We also found that 39 NPFC transactions for payments to contractors and other government agencies, and reimbursements

to employees and others totaling $155,994, lacked documentation

of supervisory review and approval before payments were made as

required by NPFC policies and procedures.

• The lack of adequate approvals increases the risk of improper or erroneous purchases and payments.

13According to USCG/NPFC officials, purchases made by USCG field office personnel should have been approved by

USCG supervisors.
Enclosure

Page 32 GAO-04-340R Oil Spill Liability Trust Fund Disbursements

25

Compliance with Policies & Procedures (cont.)

Safeguarding Assets

• The NPFC property officer did not always record equipment purchases in the Accountable Item Management System (AIM),14

nor did NPFC management review the inventory listing to ensure

that all property was properly recorded in AIM. Of the 20

equipment purchases tested, 3 were only partially recorded in AIM.

The components not recorded totaled approximately $62,700.

• Without a complete record of accountable assets, NPFC cannot readily track the location of its equipment and has 

increased exposure to loss or theft of equipment.

14AIM was the USCG automated system used for tracking property during the timeframe for our review. In May 2003,

AIM was incorporated into the USCG oracle financials fixed assets system.
Enclosure

Page 33 GAO-04-340R Oil Spill Liability Trust Fund Disbursements

26

Propriety of Disbursements

We also used our nonstatistical selection of 467 transactions to test

whether they were in compliance with certain federal laws and

regulations and represented a proper use of government funds. We

found that overall improper use of the Fund was continuing. In addition,

we identified several instances of improper payments, wasteful 

spending, and questionable disbursements.

Improper Use of the Fund: In fiscal year 2003, NPFC continued to 

improperly pay operating expenses totaling $645,358 from the Fund and 

obligated operating expenses totaling $150,651 against the Fund.

• Although NPFC officials understand, based on our May 2002

legal opinion, that the Fund is not available to pay NPFC

operating expenses, they stated that they have continued to do 

so because in order to stop the expenses from being charged to

the Fund, modifications to accounting data on source documents

for contracts and leases are needed. These modifications are in

process but have taken longer than anticipated.
Enclosure

Page 34 GAO-04-340R Oil Spill Liability Trust Fund Disbursements

27

Propriety of Disbursements (cont.)

• NPFC officials explained that they are in the process of 

transferring these expenses from the Fund into a newly

established account that was created in March 2003 to be used

for recording NPFC operating expenses. The transfer was

delayed due to USCG’s conversion to a new accounting system.

• As with the $32.8 million previously returned to the Fund,

the transfer will not compensate for lost interest. We 

estimate that the total lost interest on the improper use of 

the Fund could be as much as $1.6 million as of

September 30, 2003.
Enclosure

Page 35 GAO-04-340R Oil Spill Liability Trust Fund Disbursements

28

Propriety of Disbursements (cont.)

Improper Payment: NPFC did not properly document their justification for using federal funds to reimburse $14,481 in travel expenses to 11

nonfederal potential claimants who traveled to NPFC to attend NRD 

seminars. The documented justification for the seminar stated that the 

purpose of the training was to reach out to people who could most

benefit from the opportunities and services provided by the Fund.

• Appropriated funds may not be used to pay the costs of nonfederal individuals to attend training unless they are providing 

a direct benefit to the government.15

• According to NPFC officials, they view this as a documentation issue since they believe the individuals did in fact provide a direct

benefit to the government through their participation in the

seminars because of their expertise in the topics being

discussed.

15See 31 U.S.C. 1345; see also 5 U.S.C. 5703, which allows an agency to use invitational travel to pay the costs

of nonfederal individuals to attend meetings if the attendees are providing a direct service to the government.
Enclosure

Page 36 GAO-04-340R Oil Spill Liability Trust Fund Disbursements

29

Propriety of Disbursements (cont.) 

Wasteful Spending: The transactions we selected for testing included

$8,868 in late payment fees and lost discounts during fiscal years 1998

through 2002. According to USCG officials, this occurred primarily

because contract officers did not provide payment approval forms to

FINCEN in time for it to make timely payments.

• We extended our tests beyond the 467 disbursements to include all 

late payment fees and lost discounts incurred during fiscal years

1998 through 2002, and found that the Fund incurred an additional

$15,678 for a total of $24,546.

• USCG officials told us that they changed their procedures for

contract payments in fiscal year 2000. Since that time, invoices

have been sent directly to contracting officers with automated online

approval available through FINCEN’s Workflow Image Network 

System (WINS). This procedure allows payables personnel at

FINCEN to expedite payments, take advantage of discounts, and 

avoid late payment penalties.
Enclosure

Page 37 GAO-04-340R Oil Spill Liability Trust Fund Disbursements

30

Propriety of Disbursements (cont.) 

Questionable Disbursements: We identified several transactions

that were missing purchase receipts.16 Because USCG/NPFC could not 

provide purchase receipts for 17 of the 467 transactions tested, we

could not determine whether these transactions were valid.

• Without key purchase documentation, neither we nor USCG/NPFC

officials could determine what was actually purchased, the number

of items purchased, the cost of the items purchased, or if there

was a legitimate government need for the items.

16As discussed earlier, 23 disbursements lacked adequate supporting documentation. Of the 23 disbursements, 17

were missing any form of purchase receipts or invoices and were therefore questionable. Another 6 had partial

supporting documentation and were not considered questionable.
Enclosure

Page 38 GAO-04-340R Oil Spill Liability Trust Fund Disbursements

31

Conclusions

The USCG NPFC has established a system of internal control over its 

operating expenses and Emergency Fund disbursement processes.

However, weaknesses in the design and operation of internal control

over the disbursement processes, if left uncorrected, increase the

Fund’s vulnerability to future improper payments.

In addition, NPFC’s continued improper use of the Fund to pay for

operating expenses is a violation of federal law. Not only does this

practice expose the Fund to misuse, but we calculated that the Fund

may have lost as much as $1.6 million in interest during fiscal years 

1998 through 2002 as a result.
Enclosure

Page 39 GAO-04-340R Oil Spill Liability Trust Fund Disbursements

32

Recommendations

To improve the design of internal control over disbursements from the

Fund, we recommend that the Commandant of the USCG direct the

Director of NPFC to 

• establish policies and procedures to require that (1) case officers 

document the reconciliation of removal costs reports to amounts

paid in the accounting system and (2) their supervisors document

their review of these reconciliations.
Enclosure

Page 40 GAO-04-340R Oil Spill Liability Trust Fund Disbursements

33

Recommendations (cont.)

To establish better compliance with USCG/NPFC policies and

procedures, we recommend that the Commandant of the USCG direct

the Director of NPFC to 

• reinforce documentation and approval requirements by 

instituting training for all relevant employees;

• institute a monitoring system such as periodic spot checks to

help ensure that such requirements are consistently followed;

and

• establish a mechanism to ensure that accountable assets are

properly recorded in USCG’s fixed assets system.
Enclosure

Page 41 GAO-04-340R Oil Spill Liability Trust Fund Disbursements

34

Recommendations (cont.)

To enforce compliance with OPA and other federal laws and regulations

and reduce the risk of improper payments, we recommend that the

Commandant of the USCG direct the Director of NPFC to 

• expedite actions needed to cease using the Fund to pay 

operating expenses as we advised in our May 2002 legal opinion; 

• in the interim, for any unreimbursed or future use of the Fund to 

pay operating expenses, record obligations against USCG’s

annual operating expense appropriation in order to ensure that

adequate funds are available to reimburse the Fund;

• complete the transfer of all operating expenses that were

improperly paid from the Fund in fiscal year 2003 to the new

operating expense account;
Enclosure

Page 42 GAO-04-340R Oil Spill Liability Trust Fund Disbursements

35

Recommendations (cont.)

• ensure proper justification is documented for nonfederal travelers

to be reimbursed to attend NRD seminars; and

• follow up on transactions that were missing purchase invoices to

determine what was purchased and whether the items were for

legitimate government needs.
Enclosure

Page 43 GAO-04-340R Oil Spill Liability Trust Fund Disbursements

36

Recommendations (cont.)

We also recommend that the Commandant of the USCG direct the

Chief Financial Officer of the USCG to 

• reinforce documentation and approval requirements for

disbursements from the Fund by instituting training for all relevant

employees; and

• institute a monitoring system such as periodic spot checks to help

ensure that such requirements are consistently followed.
Enclosure

Page 44 GAO-04-340R Oil Spill Liability Trust Fund Disbursements

37

Agency Comments

• USCG/NPFC officials agreed with our recommendations. They

emphasized that at the time they initially began using the Fund to pay

operating expenses, they had an opinion from the USCG Chief 

Counsel that this was a proper use of the Fund. As noted earlier, GAO

concluded in May 2002 that the Fund is not available to pay NPFC

operating expenses.

• USCG/NPFC officials also emphasized that they now have electronic

approvals which they believe provide better supervisory review and

oversight.

• USCG/NPFC provided technical and clarifying comments, which we 

incorporated as appropriate.
Enclosure

Page 45 GAO-04-340R Oil Spill Liability Trust Fund Disbursements

38

Scope and Methodology

To determine whether the design of existing internal control over

operating expenses and Emergency Fund removal costs disbursement

processes provide reasonable assurance that improper payments will 

not occur or will be detected in the normal course of business, we

• reviewed USCG/NPFC’s policies and procedures related to operating expenses and Emergency Fund removal costs

disbursements,

• considered Standards for Internal Control in the Federal

Government,

• interviewed staff and officials in the USCG and NPFC offices, and

• performed walkthroughs of the operating expenses and Emergency Fund removal costs disbursement processes, and

compared the results to NPFC’s policies and procedures and the

Standards for Internal Control in the Federal Government.
Enclosure

Page 46 GAO-04-340R Oil Spill Liability Trust Fund Disbursements

39

Scope and Methodology (cont.)

To determine whether disbursements were made in accordance with

USCG/NPFC’s policies and procedures, we

• performed data mining of operating expenses paid from the Fund

during fiscal years 1998 through 2002 to identify unusual

transactions and patterns including personal use items, Internet

purchases, training and travel, equipment purchases, employee

reimbursements, contract payments other than removal costs, and

late payment fees;

• used a nonstatistical selection of 467 disbursements obtained

through data mining and tested for adequate documentation,

proper approvals, and adequate safeguarding of assets.
Enclosure

Page 47 GAO-04-340R Oil Spill Liability Trust Fund Disbursements

40

Scope and Methodology (cont.)

• To test for adequate documentation, we looked for supporting

purchase receipts, purchase request forms, contracts, delivery

reports, and inventory documents, if applicable.

• To test for proper approvals, we reviewed transactions for

evidence of proper approvals from supervisors and fund

certifying officers prior to the purchase and for evidence of

proper approvals prior to payment.

• To test for adequate safeguarding of assets, we reviewed

NPFC’s inventory report for equipment purchases and

compared it to purchase receipts to ensure that the equipment

was properly recorded in the AIM system.
Enclosure

Page 48 GAO-04-340R Oil Spill Liability Trust Fund Disbursements

41

Scope and Methodology (cont.)

We also used the nonstatistical selection of disbursements obtained

through data mining to determine whether disbursements were made

in accordance with OPA and other federal laws and regulations and

represent a proper use of government funds. Specifically, we

• reviewed OPA and federal laws and regulations to obtain an 

understanding of allowable costs, and

• reviewed purchase receipts or invoices to ensure that purchases

were made for official government use and were for allowable

costs.

We did not project our test results to the universe of NPFC 

disbursements in fiscal years 1998 through 2002.
Enclosure

Page 49 GAO-04-340R Oil Spill Liability Trust Fund Disbursements

42

Scope and Methodology (cont.)

To determine the fluctuations in payroll expenses and claims activity

we

• obtained data from NPFC and USCG and identified significant

fluctuations in payroll and claims activity for fiscal years 1998

through 2003, and

• obtained USCG/NPFC’s explanations for these fluctuations.

• We did not verify the accuracy of the amounts included in

USCG/NPFC’s payroll or claims systems.
Enclosure

Page 50 GAO-04-340R Oil Spill Liability Trust Fund Disbursements

43

Scope and Methodology (cont.)

• We requested oral comments on a draft of these briefing slides from

USCG/NPFC officials that were incorporated as appropriate.

• We conducted our work from November 2002 through November 2003,

in accordance with generally accepted government auditing standards.
Enclosure

Page 51 GAO-04-340R Oil Spill Liability Trust Fund Disbursements

44

Appendix I 

Payroll Expense Fluctuations 

• USCG and NPFC also provided the following data on NPFC’s payroll

expenses for fiscal years 1998 through 2003.17 The following table 

depicts the changes in payroll expenses for these years.

Source: NPFC and USCG data for fiscal years 1998 through 2003.

Note: The annual change amount equals the difference between the current year and the prior year expenses. The annual change percentage

equals the current year dollar variance divided by the prior year amount. 

17Payroll expenses represent pay, benefits, and entitlements.

Dollars Percentage

1998 5,451,471 - -

1999 6,003,953 552,482 10.1%

2000 7,066,690 1,062,737 17.7%

2001 7,944,824 878,134 12.4%

2002 8,736,055 791,231 10.0%

2003 9,367,615 631,560 7.2%

Total Increase since 1998 3,916,144 71.8%

Fiscal Year Amount

Change
Enclosure

Page 52 GAO-04-340R Oil Spill Liability Trust Fund Disbursements

45

Appendix I 

Payroll Expense Fluctuations (cont.)

• Payroll expenses increased by more than 70 percent over the 5 year

period ended September 30, 2003.

• USCG/NPFC officials told us that NPFC hired 26 new employees in fiscal year 1999, a 30 percent increase, and 1 new employee in fiscal year 2000 to assist with the implementation of the then

newly acquired NRD claim adjudication program and to support

substantial workload requirements of NPFC’s existing claim 

adjudication backlog.

• USCG/NPFC officials also told us annual increases in payroll from fiscal years 2000 through 2003 were due primarily to 

increases in national pay raises, housing allowances for military 

employees, health care and retirement costs, and within grade

increases or promotions.
Enclosure

Page 53 GAO-04-340R Oil Spill Liability Trust Fund Disbursements

46

Appendix I 

Payroll Expense Fluctuations (cont.)

NPFC Full-Time Positions for Fiscal Years 1998 through 2003

• According to NPFC officials, the number of full-time positions has

remained constant since fiscal year 2000 because current staffing levels 

are required to keep pace with the ongoing claims workload and to

adjudicate increasingly complex claims.
Enclosure

Page 54 GAO-04-340R Oil Spill Liability Trust Fund Disbursements

47

Appendix I 

Claim Activity Fluctuations (cont.)

• The following figure depicts the fluctuations in the number of claims

received and processed during fiscal years 1998 through 2003.

Note: Claims processed include those claims that were administratively closed, pending, withdrawn, denied, and paid and a number of

claims that were received prior to fiscal year 1998 but processed during fiscal years 1998 through 2003. Claims pending in fiscal year

2000 includes claims received prior to fiscal year 1998.
Enclosure

Page 55 GAO-04-340R Oil Spill Liability Trust Fund Disbursements

((00(

48

Appendix I 

Claim Activity Fluctuations (cont.)

• NPFC officials provided the following explanations for the fluctuations in 

claims received and processed during fiscal years 1998 through 2003.

• During fiscal years 1998 through 2001, there was a backlog of claims received because NPFC did not have enough claims 

adjudicators to process the claims.

• In fiscal year 2000, the total number of pending claims increased because NPFC reopened about 1,900 NRD claims that had been

administratively closed prior to fiscal year 1998.

• In fiscal year 2001, NPFC reviewed a large number of NRD claims that did not meet OPA’s criteria for valid claims resulting in an

increase in denials during this time.

• By fiscal year 2001, the number of backlogged claims decreased because NPFC hired more employees between fiscal years 1999

and 2000 to process the claims.

(190118)
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