UNITED STATES DEPARTMENT OF COMMERCE 

Office of Inspector General 

Washington, O,C, 20230 

December 22, 2010 

MEMORANDUM FOR: 

FROM: 

Mary M. Glackin, Deputy Under Secretary for Operations, 

National Oceanic and Atmospheric Administration 

J~ t 1{[~ Ann C. Eilers, Principal Assistant Inspector General for 

Audit and Evaluation 

SUBJECT: Survey a/NOAA's System and Processes/or Tracl..ing Oil Spill 

Costs (Final Memorandum No. OlG-II-016-M) 

After the April 20, 2010, explosion of the Deepwater Horizon offshore drilling unit caused a 

massive oil spill in the Gulf of Mexico, the Department of Commerce's Office of Inspector 

General (OIG) initiated an audit survey to assess NOAA's system and processes for tracking 

costs associated with its response and damage assessment efforts. This memorandum is to advise 

you of our survey observations. 

We noted that while NOAA has developed processes to track the costs associated with its oil 

spill activities, improvements are needed to ensure that all costsI charged to oil spill projectswhether funded by appropriations or reimbursements-are properly recorded in the financial 

system and supported by sufficient, appropriate documentation; and that they reflect the full cost 

ofoil spill response, damage assessment, and restoration activities. Failure to implement 

improvements could result in costs not being full y reimbursed. Due to the timing ofour survey, 

which focused on NOAA's early response and damage assessment activities, we were not able to 

assess the processes for collecting, recording, and monitoring reimbursements ofNOAA's oil 

spill costs. 

We provided your office with a draft of our observations on December 7,2010, and made minor 

modifications and technical edits to this final memorandum based on the response we received. 

Your office's comments emphasize the agency's unprecedented mobilization as a result of this 

catastrophic event; further, NOAA maintains that its participation became more routine, and its 

documentation ofspill-related activities more consistent, as the response effort in the Gulf 

stabilized. In addition, NOAA communicated that they successfully received reimbursement for 

over $4 million in spill related costs on September 21,2010. Finally, NOAA acknowledges the 

value ofreviews such as this audit survey. As it evaluates its own execution ofresponse 

activities, the agency will closely examine the observations we provide in the following sections. 

I In this context, cost refers to the monetary value ofusing a government resource. 
Background 

As you know, NOAA is the government's leading scientific resource for oil spills. Since the 

Deepwater Horizon explosion, NOAA has provided coordinated scientific, weather, and 

biological services to federal, state, and local organizations. All of NOAA's offices-both in the 

Gulf of Mexico region and in remote locations-playa vital role in the ongoing oil spill response 

and environmental assessment activities. These activities are funded by three main sources: 

•	 The Pollution Removal Funding Authorization (PRFA) permits reimbursements to 

NOAA for certain oil spill response activities through the Oil Spill Liability Trust Fund, 

which is managed by the U.S. Coast Guard. These activities must be approved in advance 

by the U.S. Coast Guard Federal On-Scene Coordinator. 

•	 NOAA may also receive reimbursement from the party (or parties) responsible for the oil 

spill for natural resource damage assessment (NRDA) activities, which include preassessment, restoration planning, and restoration implementation. Costs associated with 

these activities are reviewed by an independent accounting firm and by the NOAA 

General Counsel for Natural Resources. 

•	 Any non-reimbursable costs incurred to support overall oil spill response efforts are 

funded via appropriations. Obligations incurred in fiscal year 2010 were funded by 

NOAA's annual appropriation and the Supplemental Appropriations Act of2010. 

A description of each type of funding source is included as an attachment to this memorandum. 

As of September 30, 2010, NOAA had incurred $131.4 million in obligations: $93.5 million in 

reimbursable activities and $37.9 million in appropriated activities. We reviewed a fraction of 

these transactions (through June), as described in the following section. 

Cost-Related Observations 

NOAA has established a project code structure within its core financial system, Commerce 

Business Systems (CBS), for recording and tracking costs associated with NOAA's spill-related 

activities; NOAA offices also have a process for recording such activities. We obtained a listing 

of spill-related financial transactions recorded in CBS as ofJune 29, 2010, totaling $16.7 million, 

and examined the supporting documentation for $9.0 million. 

During our review of financial transactions, we identified several potential cost-related issues 

that, ifnot addressed by NOAA management, may increase the risk that NOAA's efforts in the 

Gulf will not be appropriately reimbursed: 

1.	 Unapproved Compensatory Time and Overtime. During our period ofreview, 

approximately 600 NOAA employees incurred $3.1 million in labor costs, of which 

$880,000 (28 percent) was attributable to overtime and compensatory time. Of the 41 

employees examined who were working on oil spill-related activities, 31 recorded 

overtime and compensatory time without receiving documented approval. For example, 

during the three biweekly time periods we examined, one employee incurred a total of 

$20,172 in labor-hour costs, of which $10,496 (52 percent) was unapproved overtime and 

compensatory time. 

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2.	 Manual Transfers ofCosts to Oil Spill Projects. Our interviews with NOAA officials 

indicate that some oil spill costs that had initially been charged to appropriated funds and 

commingled with other costs may be eligible for reimbursement. Additionally, during the 

three pay periods we examined in fiscal year 20 I0, unionized National Weather Service 

employees engaged in oil spill response activities were not permitted by the union to 

charge their time to oil spill project codes. In both instances, these costs must now be 

manually identified, documented, and transferred to oil spill project codes, a timeconsuming and potentially error-prone process. 

3.	 Application ofOverhead Costs. NOAA offices charge overhead costs to oil spill projects 

based on pre-established rates in CBS. Although a verification ofthe overhead rate was 

beyond the scope of our review, we asked NOAA staff responsible for applying the 

overhead costs to reimbursable projects if they have an established method for verifying 

that the rate applied is accurate and reasonable. We would expect NOAA staff to develop 

a mechanism for evaluating the rate, such as historical trend analysis, in order to ensure 

that rates are accurately calculated and consistently applied. However, due to the scope of 

our review, we were unable to conclude whether a method for evaluating the 

reasonableness of the rate has been developed. 

4.	 Improper Travel Costs. During our review of28 travel-related expenses, we found one 

instance in which a non-spill-related travel expense was incorrectly charged to the NRDA 

project. 

Labor, overhead, and other costs must be carefully tracked to ensure that they are accurately and 

properly recorded, reported, and paid. Failure to monitor and approve overtime and 

compensatory time may result in unworked labor hours being improperly billed to and 

reimbursed by third parties. Finally, inadequately supported costs may call into question all costs 

submitted for reimbursement to third parties. 

Observations on Documenting and Tracking Personnel Activities 

In addition to these cost-related concerns, we identified the following documentation and 

personnel-activity tracking issues: 

1.	 Vague Descriptions on Activity Logs and Hours. Employees working on certain oil spill 

projects are required to record a description of their work and hours on activity logs. 

However, our review of the activity logs for 17 employees found that 9 recorded vague 

descriptions, such as "NRDA Planning," without providing details as to specific 

activities. By contrast, another employee's activity logs did provide sufficiently detailed 

information, such as "Development ofNRDA sea turtle subgroup; conference call to 

outline NRDA data collection plan for sea turtles; initial coordination with chemistry 

subgroup on analytical methods." 

2.	 Activity Log Data Not Recollcilillg with Timekeeping Records. Ten of the 17 employees 

whose activity logs we examined had recorded hours that did not agree with the 

timekeeping records for the same timeframe and project code. During the three biweekly 

time periods we examined, the discrepancies between activity log totals and NOAA's 

automated timekeeping system ranged from I to 28 hours. 

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3.	 II/sufficiel/t Supportil/g Documel/tatiol/ for Payroll, Travel, alUl COl/tracts. During our 

examination oflabor cost transactions for 41 employees and 2 salary cost transfers, we 

received insufficient documentation for 7 payroll transactions charged to oil spill 

projects. For example, one employee's salary costs had initially been charged to non-oil 

spill projects but were later transferred to oil spill projects; however, the line office did 

not provide the supporting documentation we requested to account for the transfer. 

Additionally, of the 47 non-payroll related transactions examined, insufficient 

documentation was received for one travel and one contract cost. 

4.	 II/complete Roster ofEmployees Deployed to the Gulf Our review of travel records 

found that while deployed to the Gulf, 13 ofthe approximately 100 deployed employees 

were not included on OAA's master roster of employees. 

Failure to properly track employee activities can have negative results that may adversely affect 

NOAA's mission in the Gulf. Because costs are reimbursed according to the activity being 

performed, if NOAA does not ensure that employee activity logs provide sufficient detail or that 

log data reconcile with timekeeping records, costs may not be reimbursed properly. Further, 

monitoring employees' hours and maintaining an accurate list of personnel are critical to 

ensuring safety and morale, as well as successfully and efficiently completing response and 

assessment activities. 

Recommel/datiol/ 

We recognize that NOAA will continue to provide significant expertise in the months and years 

ahead to assess the oil spill's impact on our ecosystem and to begin restoration of damaged 

natural resources. Therefore, we recommend that NOAA ensure that oil spill activities are 

charged to the appropriate project, costs are accurately recorded in the accounting system, and 

documentation supporting all activities and costs is complete and accurate. 

We appreciate the assistance provided by NOAA staff during our survey. If you have any 

questions or would like to discuss our observations, please contact me at (202) 482-2754, or 

Terry Storms at (202) 482-0055. 

Attachment 

cc:	 Maureen E. Wylie, Chief Financial Officer, OAA 

Scott B. Quehl, Chief Financial Officer and Assistant Secretary for Administration 

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Attachment-8ummary of Funding Sources as of September 30, 2010 

Type of Activity Description 

Obligations 

tin millions) Fundina Source & Process Summary 

Reimbursable Pollution Removal Funding $35.8 Oil Spill Liability Trust Fund ­ Upon 

Response Authorization (PRFA) completion of the activities approved in 

Activities Agreements with the 

United States Coast Guard 

(USCG), which authorize 

reimbursement of certain 

removal costs incurred in 

response to an oil spill. For 

costs to be reimbursed, 

they must be for activities 

that are approved in 

advance by the USCG 

Federal On-Scene 

Coordinator (FOSC). 

a PRFA agreement, NOAA compiles 

documentation with detailed records of 

expenditures and activities for which 

reimbursement is sought and submits it 

along with an invoice to the FOSC. The 

FOSC attests that agreed upon goods 

and services were authorized and 

provided, and forwards it to the USCG's 

National Pollution Funds Center for 

payment processing. Electronic 

payment is made to NOAA via the lntraGovernmental Payment and Collection 

Svstem. 

Reimbursable Natural Resource Damage $57.7 Responsible Party or Parties ­

Assessment and Assessment (NRDA) Periodically, NOAA compiles 

Restoration includes: documentation with detailed records of 

Activities • Pre-assessment 

activities ­ natural 

resource trustees 

assess injuries and 

determine if they can 

and should perform 

restoration planning; 

• Restoration Planning 

-trustees evaluate 

injuries and determine 

activities needed to 

restore damaged 

resources; 

• Restoration 

Implementation ­

implementing the 

plans and monitoring 

post-implementation 

proqress 

expenditures and activities for which 

reimbursement is sought. This 

documentation is reviewed by an 

independent public accounting firm and 

by NOAA's General Counsel for Natural 

Resources. The documentation, along 

with a request and instructions for 

payment, is forwarded to the 

responsible party's or parties' counsel. If 

approved, payment is made in 

accordance with the instructions. 

Non- These activities are $37.9 Appropriations ­ $27.4 million of these 

Reimbursable necessary to support the obligations were funded by the 

Response and overall oil spill effort. Supplemental Appropriations Act of 

Support However, they are not 2010. Remaining $10.5 million of 

Activities reimbursable under the 

PRFA and not considered 

NRDA activities. 

obligations were funded by NOAA's 

annual appropriations. 

(OAE-1990 I) 

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