United States General Accounting Office 

Washington, DC 20548 

October 3, 2003 

The Honorable Lane Evans 

Ranking Minority Member 

Committee on Veterans Affairs 

House of Representatives 

The Honorable Bob Filner 

Ranking Minority 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: Claims Payment 

Process Was Functioning Effectively, but Additional Controls Are Needed 

to Reduce the Risk of Improper Payments 

The Oil Spill Liability Trust Fund (Fund) is a $1 billion fund authorized by the Oil 


Pollution Act of 1990 (OPA) to pay for (1) federal removal actions, (2) certain claims 


for uncompensated removal costs and damages, and (3) natural resource damage and 


restoration activities 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. In May 2002, at 


your request, our Office of General Counsel reported on legal issues and limitations 


of the Fund and concluded that certain administrative costs were inappropriately 


being paid out of the Fund. In light of this conclusion, you asked that we review the 


internal controls over disbursements from the Fund. 


This report summarizes the information provided during our briefing on our review of 


claim payments made from the Fund, which was provided to your staff on 


September 17, 2003. A second briefing will be provided to your staff on the results of 


our review of controls over operating expenses and other disbursements from the 


Emergency Fund.1

 The enclosed briefing slides highlight the results of our work and 


the information provided. Specifically, we reviewed the Fund to determine whether 


1

The Emergency Fund is used to pay for emergency removal activities and the initiation of natural 

resource damage assessments. 

GAO-04-114R Oil Spill Liability Trust Fund Claims 
(1) the design of internal controls over the claims process provides reasonable 

assurance that improper payments will not occur or will be detected in the normal 

course of business and (2) internal controls over the claims process are operating as 

designed to help ensure proper payment of claims. 

Results in Brief 

The U.S. Coast Guard NPFC follows a systematic and effective process for payment 

of claims. However, there are some weaknesses in the design of internal controls 

over the claims process that expose the Fund to improper payments. The 

weaknesses in the design of controls include (1) ineffective access restrictions to the 

Authorization-to-Pay2

 (ATP) form, (2) lack of segregation of duties between 

individuals preparing and approving ATPs for payment, (3) lack of procedures to 

verify the validity of ATPs prior to payment by the U.S. Coast Guard Finance Center, 

(4) lack of compliance with certain established policies and procedures in the claims 

process and the claims processing system, and (5) inadequate documentation of the 

originator of actions in the claims processing system. 

We found that existing internal controls related to the documentation and approval of 

claims were generally operating in accordance with established policies and 

procedures. Of the 88 statistically sampled paid claims for fiscal year 2002, all but 3 

had adequate documentation.3

 We found no exceptions with approvals for the 88 

statistically sampled claims. We also found that all 88 claims met NPFC’s 10 

requirements for validity, as listed in appendix I of the attached slides. Through data 

mining, 4 we selected a nonstatistical sample of 50 claim payments and 8 denied 

claims for fiscal years 1998 through 2002 and performed limited tests to determine if 

the claims payments were valid and if the denied claims were properly processed. 

While we found some documentation and approval issues, we found that the 50 claim 

payments were valid and that the 8 denied claims were properly processed. 

Recommendations for Executive Action 

To improve the design of internal controls over the claims process, we recommend 

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

Pollution Funds Center to 

• require automatic control numbers for each ATP form; 

• 	 limit access to the ATP form control numbers to one individual and an 

alternate in each claims division; 

• 	 require two signatures on each ATP form, one for the preparer and one for the 

approver; 

2

An ATP is a form used to approve claim payments and generate the payments to claimants. 
 3

Based on these results, we estimate that 3.4 percent of the fiscal year 2002 paid claims lacked


adequate documentation. We are 95 percent confident that the error rate was between 1 to 9 percent


for claims paid in fiscal year 2002. 
 4

Data mining applies a search process to a data set, 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. 


Page 2 GAO-04-114R Oil Spill Liability Trust Fund Claims 
• 	 establish procedures requiring the National Pollution Funds Center to 

authenticate ATP forms prior to submitting them to the U.S. Coast Guard 

Finance Center for payment; 

• 	 establish and implement controls so that any required legal reviews of claims 

are completed before they are approved for payment; 

• 	 establish and implement controls to ensure that a release form is received 

from a claimant before a claim can be approved for payment; and 

• 	 modify the claims processing system to consistently identify the originator of 

all actions on user screens. 

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

Financial Officer of the U.S. Coast Guard to require that the Finance Center verify the 

validity of ATP forms prior to processing claim payments. 

Agency Comments 

We obtained oral comments on a draft of our briefing slides from the U.S. Coast 

Guard. U.S. Coast Guard officials agreed with our findings and recommendations and 

stated that they have already begun to take corrective actions to implement many of 

them and will continue to take additional actions as soon as possible to address the 

remaining recommendations. They provided us with a detailed list of actions taken 

or to be taken, which if properly implemented, should address our recommendations. 

U.S. Coast Guard officials also provided technical and clarifying comments that we 

incorporated as appropriate. 

Scope and Methodology 

To determine whether the design of internal controls over the claims process 

provided reasonable assurance that improper payments would not occur or would be 

detected in the normal course of business, we (1) reviewed OPA and related sections 

of the Code of Federal Regulations, (2) reviewed the Comptroller General’s 

Standards for Internal Control in the Federal Government,5

 (3) reviewed NPFC’s 

Standard Operating Procedures related to the claims process, and (4) performed 

walkthroughs of the claims process, including the claims processing system, and 

compared the results to NPFC’s Standard Operating Procedures and the Comptroller 

General’s Standards for Internal Control in the Federal Government. 

To determine if internal controls over the claims process were operating as designed 

to ensure proper payments of claims, we selected a statistical sample of 88 paid 

claims for fiscal year 2002, and reviewed the related claim files and the claims 

processing system records to test for adequate documentation, proper approvals, and 

validity. To test for validity, we also performed limited data mining of claims paid in 

fiscal years 1998 through 2002 to identify unusual transactions and patterns. Based 

on the data mining, we selected a nonstatistical sample of 50 claim payments and 8 

denied claims, reviewed the related documentation, and performed limited tests. 

5

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

GAO/AIMD-00-21.3 (Washington, D.C.: November 1999). 

Page 3 GAO-04-114R Oil Spill Liability Trust Fund Claims 
- - - - - 

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 December 2002 through July 2003, in accordance with generally accepted 

government 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 H. Donald 

Campbell, Lisa J. Crye, and Edward F. Tanaka. 

Linda M. Calbom 


Director, Financial Management and Assurance 


Enclosure 


Page 4 GAO-04-114R Oil Spill Liability Trust Fund Claims 
Enclosure 

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 

Briefing to the Staff of the Committees on Veterans Affairs and 

Transportation and Infrastructure, House of Representatives 

September 17, 2003 

1 

Page 5 GAO-04-114R Oil Spill Liability Trust Fund Claims 
Enclosure 

Table of Contents 

• Introduction and Objectives 

• Results in Brief 

• Background 

• Overview of Effective Internal Control 

• Internal Control Design 

• Internal Control Operation 

• Conclusions 

• Recommendations 

• Agency Comments 

• Scope and Methodology 

2 

Page 6 GAO-04-114R Oil Spill Liability Trust Fund Claims 
Enclosure 

Introduction and Objectives 

•	 The Oil Spill Liability Trust Fund (Fund) is a $1 billion fund authorized to 

pay for (1) federal removal actions, (2) certain claims for 

uncompensated removal costs and damages, and (3) natural resource 

damage assessments and restoration activities 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. 

•	 In May 2002, at your request, the GAO Office of General Counsel 

(OGC) reported on legal issues related to the uses and limitations of the 

Fund. 

•	 The U.S. Coast Guard reported that the Fund was being used to pay not 

only uncompensated claims, but also costs associated with processing 

those claims, including salaries and other administrative expenses. 

OGC concluded that the Fund is not available to pay employee salaries 

and other administrative expenses. 

3 

Page 7 GAO-04-114R Oil Spill Liability Trust Fund Claims 
Enclosure 

Introduction and Objectives (cont.) 

•	 In light of this conclusion, you asked that we review the controls over 

disbursements from the Fund. This is the first of two briefings on our 

review of disbursements from the Fund. This briefing covers the results 

of our work related to the review of claim payments made from the Fund. 

A second briefing on the results of our review of controls over operating 

expenses and other disbursements from the Emergency Fund1 will be 

presented at a later date. 

• Specifically, we reviewed the Fund to determine whether 

•	 the design of internal controls over the claims process provides 

reasonable assurance that improper payments will not occur or will 

be detected in the normal course of business and 

•	 internal controls over the claims process are operating as designed 

to help ensure proper payment of claims. 

1The Emergency Fund is used to pay for emergency removal activities and the initiation of natural resource damage 

assessments. 

4 

Page 8 GAO-04-114R Oil Spill Liability Trust Fund Claims 
Enclosure 

Results in Brief 

•	 The U.S. Coast Guard National Pollution Funds Center (NPFC) 

generally follows a systematic process for payment of claims. However, 

we found some weaknesses in the design of internal controls over the 

claims process that increase the risk of improper payments. 

• Weaknesses in the design of the controls included 

•	 ineffective access restrictions to the Authorization-to-Pay (ATP) 

form, 

•	 lack of segregation of duties between individuals preparing ATPs 

and approving ATPs for payment, 

•	 lack of procedures to verify the validity of ATPs prior to payment by 

the U.S. Coast Guard Finance Center, 

5 

Page 9 GAO-04-114R Oil Spill Liability Trust Fund Claims 
Enclosure 

Results in Brief (cont.) 

•	 lack of compliance with certain established policies and procedures 

in the claims process and the claims processing system, and 

•	 inadequate documentation of the originator of actions in the claims 

processing system. 

6 

Page 10 GAO-04-114R Oil Spill Liability Trust Fund Claims 
Enclosure 

Results in Brief (cont.) 

•	 We also found that, generally, existing internal controls related to 

documentation and approval of claims were operating in accordance 

with established policies and procedures. 

•	 We statistically sampled 88 paid claims for fiscal year 2002. Of 

these, 3 did not have adequate documentation. We found no 

instances of invalid claim payments. 

•	 We selected a nonstatistical sample of 50 claim payments and 8 

denied claims through data mining2 for fiscal years 1998 through 

2002. While we found some documentation and approval issues, 

we found no instances of invalid claim payments. The 8 denied 

claims were properly processed. 

2Data mining applies a search process to a data set, 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. 

7 

Page 11 GAO-04-114R Oil Spill Liability Trust Fund Claims 
Enclosure 

Results in Brief (cont.) 

•	 We are making several recommendations intended to improve the 

design of internal controls over the claims process. 

•	 U.S. Coast Guard officials agreed with our recommendations and 

indicated that they have already prepared an action plan to address 

them. 

8 

Page 12 GAO-04-114R Oil Spill Liability Trust Fund Claims 
Enclosure 

Background 

•	 The Oil Pollution Act of 1990 (OPA)3 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 available from the Fund without 

further congressional appropriation up to $50 million each year to 

pay for emergency removal costs and initiation of natural resource 

damage assessments resulting from oil spills, 

• authorized an appropriation from the Fund of not more than 

$25 million each year for operating expenses incurred by the U.S. 

Coast Guard to implement the act, and 

•	 provided authorization for the appropriation of funds for other uses, such as research, development, testing, and evaluation, and 

acquisition, construction, and improvements. 

3

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

9 

Page 13 GAO-04-114R Oil Spill Liability Trust Fund Claims 
Enclosure 

Background(cont.) 

•	 Administration of the Fund was delegated to the U.S. Coast Guard 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. 

10 

Page 14 GAO-04-114R Oil Spill Liability Trust Fund Claims 
Enclosure 

Background (cont.) 

• NPFC has two claims processing divisions: 

•	 Claims – adjudicates claims for uncompensated removal costs and 

damages from oil spills 

•	 Natural Resource Damage Claims – adjudicates natural resource 

damage (NRD) claims from federal, state, Indian tribe, or foreign 

trustees as designated pursuant to OPA 

11 

Page 15 GAO-04-114R Oil Spill Liability Trust Fund Claims 
Enclosure 

Background (cont.) 

Claims paid in fiscal years 1998 through 2002 

Fiscal year Number of paid 

claims 

Total dollars 

(millions) 

1998 598 $ 3.7 

1999 507 10.4 

2000 601 2.4 

2001 311 16.8 

2002 300 7.0 

Totals 2,317 $ 40.3 

Source: NPFC’s data file for fiscal years 1998 through 2002. 

12 

Page 16 GAO-04-114R Oil Spill Liability Trust Fund Claims 
Enclosure 

Background (cont.) 

• NPFC’s Standard Operating Procedures (SOP) 

•	 provides guidance and requirements for the Claims and Natural 

Resource Damage Claims Divisions for the adjudication and 

payment of uncompensated removal costs and damages and NRD 

claims and 

• describes the responsibilities and conduct for each division. 

•	 The claims processing system (CPS) is NPFC’s current automated 

system for tracking and controlling claims. 

13 

Page 17 GAO-04-114R Oil Spill Liability Trust Fund Claims 
Enclosure 

Overview of Effective Internal Control 

As discussed in GAO’s Standards for Internal Control in the Federal 4 Government, 

•	 internal control—a major part of managing an organization—is a 

continuous, built-in component of operations that provides 

reasonable, 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. 

4Standards 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. 

14 

Page 18 GAO-04-114R Oil Spill Liability Trust Fund Claims 
Enclosure 

Internal Control Design 

The design of internal controls over the claims process did not provide 

reasonable assurance that improper payments would not occur or would 

be detected in the normal course of business. 

Control weakness: ATPs are word-processing documents that do not 

have control numbers and can be readily created by any individual who 

has access to the ATP in the claims processing system. 

•	 Standards for Internal Control in the Federal Government states that 

access to resources and records should be limited to authorized 

individuals, and accountability for their custody and use should be 

assigned and maintained. 

•	 The lack of control over the payment phase of the claims process 

increases the risk of invalid ATPs and improper or erroneous 

payments. 

15 

Page 19 GAO-04-114R Oil Spill Liability Trust Fund Claims 
Enclosure 

Internal Control Design (cont.) 

Control weakness: NPFC does not have controls to prevent the same 

individual from preparing and approving an ATP. Because NPFC 

policies require that an ATP be signed only by the approver, there is no 

assurance that the preparer and approver functions are separate. 

•	 Standards for Internal Control in the Federal Government states that 

key duties and responsibilities need to be divided or segregated 

among different people to reduce the risk of error or fraud. 

•	 As a result of this weakness, the risk that fictitious ATPs may be 

prepared and processed is increased. 

16 

Page 20 GAO-04-114R Oil Spill Liability Trust Fund Claims 
Enclosure 

Internal Control Design (cont.) 

Control weakness: NPFC does not ensure that ATPs sent to the U.S. 

Coast Guard Finance Center (FINCEN) for payment are authenticated, 

nor does FINCEN verify the validity of ATPs prior to processing 

payments. 

•	 When NPFC faxes ATPs to FINCEN for payment, FINCEN 

processes payments for claimants without independently verifying 

whether ATPs have been properly authorized. 

•	 Standards for Internal Control in the Federal Government states 

that controls should be established to ensure that all transactions 

are authorized. 

•	 As a result of this weakness, anyone with a basic knowledge of 

the claims payment process could divert funds. The risk of 

duplicate or erroneous payments is also increased. 

17 

Page 21 GAO-04-114R Oil Spill Liability Trust Fund Claims 
Enclosure 

Internal Control Design (cont.) 

Control weakness: The design of NPFC’s claims process and its CPS 

are not in accordance with all of NPFC’s policies and procedures. For 

example, NPFC does not have controls in place to prevent a payment 

from occurring (1) prior to required legal review and (2) without NPFC’s 

receipt of the claimant’s acceptance. 

•	 Standards for Internal Control in the Federal Government states that 

only valid transactions and other events should be initiated or 

entered into, in accordance with management’s decisions and 

directives. The terms of authorization should be in accordance with 

directives and within limitations established by law, regulation, and 

management. 

•	 The lack of controls to help ensure that the SOP is followed further 

increases the risk of invalid claim payments. 

18 

Page 22 GAO-04-114R Oil Spill Liability Trust Fund Claims 
Enclosure 

Internal Control Design (cont.) 

Control weakness: Information regarding who originated claim actions 

is not always readily available for management review in the claims 

processing system. While CPS is designed to track this information, due 

to a coding issue, user screens do not always display who originated 

claim actions. 

•	 Standards for Internal Control in the Federal Government states 

that significant events need to be clearly documented, and the 

documentation should be readily available for examination. 

•	 Lack of information regarding who originated claim actions could 

impede management and others’ ability to readily assess the validity 

of the claims or the integrity of the claims process. 

19 

Page 23 GAO-04-114R Oil Spill Liability Trust Fund Claims 
Enclosure 

Internal Control Operation 

Internal controls over the claims process were generally operating in 

accordance with established NPFC policies that are currently in place to 

help ensure proper payment of claims. 

•	 We tested a statistical sample of 88 paid claims for fiscal year 2002 

and reviewed the related claim files and CPS records to test for 

• adequate documentation, 

• proper approvals, and 

• validity. 

20 

Page 24 GAO-04-114R Oil Spill Liability Trust Fund Claims 
Enclosure 

Internal Control Operation (cont.) 

Documentation 

•	 The SOP requires that claim files include supporting documentation for claim payments, including documentation of 

determinations, offers to claimants, release forms, and 

authorizations to pay. 

•	 We found that 3 of the 88 claims did not have adequate 

documentation in the claim files. For example, the claim 

payment amounts were not fully supported. 

•	 Based on these results, we estimate that 3.4 percent of the 

fiscal year 2002 paid claims lacked adequate documentation.5 

•	 While we found some exceptions, NPFC is generally documenting the claims process in accordance with its 

policies and procedures. 

5We are 95 percent confident that the error rate was between 1 and 9 percent for claims paid in fiscal year 2002. 

21 

Page 25 GAO-04-114R Oil Spill Liability Trust Fund Claims 
Enclosure 

Internal Control Operation (cont.) 

Approvals 

•	 The SOP requires proper approvals of offers to claimants; legal 

reviews, in certain cases; and approvals of payments to 

claimants. 

•	 We found no exceptions with approvals of claims for the 88 

statistically sampled claims. 

Validity 

•	 The SOP requires that a claim meet the 10 initial review 

requirements to be valid (see app. I). 

•	 We found no exceptions with the validity of the 88 statistically 

sampled claims. 

22 

Page 26 GAO-04-114R Oil Spill Liability Trust Fund Claims 
Enclosure 

Internal Control Operation (cont.) 

Through data mining, we selected a nonstatistical sample of 50 claim 

payments and 8 denied claims and performed limited tests to determine 

if the claims were valid and if the denied claims were properly 

processed. 

•	 We found that the claim payments were valid and that the denied 

claims were properly processed. 

•	 While we were able to satisfy ourselves with the validity of the 

claims, we found some documentation and approval issues. 

23 

Page 27 GAO-04-114R Oil Spill Liability Trust Fund Claims 
Enclosure 

Conclusions 

•	 The U.S. Coast Guard NPFC has a systematic and effective process for 

payment of claims. However, certain weaknesses in the design of 

internal controls over the claims process expose the Fund to improper 

payments. While we found no instances of invalid claim payments in our 

testing, the weaknesses we identified, if left uncorrected, make the Fund 

vulnerable to future improper payments. 

24 

Page 28 GAO-04-114R Oil Spill Liability Trust Fund Claims 
Enclosure 

Recommendations 

To improve the design of internal controls over the claims process, we 

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

Director of NPFC to 

• require automatic control numbers for each ATP; 

•	 limit access to ATP control numbers to one individual and an 

alternate in each claims division; 

•	 require two signatures on each ATP, one for the preparer and one 

for the approver; 

•	 establish procedures requiring NPFC to authenticate ATPs prior to 

submitting them to the U.S. Coast Guard Finance Center for 

payment; 

25 

Page 29 GAO-04-114R Oil Spill Liability Trust Fund Claims 
Enclosure 

Recommendations (cont.) 

•	 establish and implement controls so that any required legal reviews 

of claims are completed before they are approved for payment; 

•	 establish and implement controls so that a release form is received 

from a claimant before a claim can be approved for payment; and 

•	 modify the claims processing system to consistently identify the 

originator of all actions on user screens. 

26 

Page 30 GAO-04-114R Oil Spill Liability Trust Fund Claims 
Enclosure 

Recommendations (cont.) 

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

direct the Chief Financial Officer of the Coast Guard to require that the 

Finance Center verify the validity of ATPs prior to processing payments. 

27 

Page 31 GAO-04-114R Oil Spill Liability Trust Fund Claims 
Enclosure 

Agency Comments 

•	 U.S. Coast Guard officials agreed with our recommendations and stated 

that they have already begun to take corrective actions to implement 

many of them and will continue to take additional actions as soon as 

possible to address the remaining recommendations. They provided us 

with a detailed list of actions taken or to be taken, which if properly 

implemented, should address our recommendations. U.S. Coast Guard 

officials also provided technical and clarifying comments, which we 

incorporated as appropriate. 

28 

Page 32 GAO-04-114R Oil Spill Liability Trust Fund Claims 
Enclosure 

Scope and Methodology 

To determine whether the design of internal controls over the claims 

process provides reasonable assurance that improper payments would 

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

•	 reviewed OPA and related sections of the Code of Federal 

Regulations; 

• reviewed Standards for Internal Control in the Federal Government; 

•	 reviewed NPFC’s Standard Operating Procedures related to the 

claims process; and 

•	 performed walkthroughs of the claims process, including the claims 

processing system, and compared the results to NPFC’s Standard 

Operating Procedures and GAO’s Standards for Internal Control in 

the Federal Government. 

29 

Page 33 GAO-04-114R Oil Spill Liability Trust Fund Claims 
Enclosure 

Scope and Methodology (cont.) 

To determine if internal controls over the claims process were operating 

as designed to help ensure proper payments of claims, we 

•	 selected a statistical sample6 of 88 claims paid in fiscal year 20027 

and 

•	 reviewed the related claims files and CPS records to test for 

adequate documentation, proper approvals, and validity. 

6Our sample was based on a 95 percent confidence level and an expected error rate of 3 percent.
 7We selected claims from fiscal year 2002 because we were assessing the condition of current controls and because this 
 was the most recent information available at the time of review.


30 

Page 34 GAO-04-114R Oil Spill Liability Trust Fund Claims 
Enclosure 

Scope and Methodology (cont.) 

•	 To test for adequate documentation, we reviewed the claims files 

and CPS records to determine if 

• the claim payments were adequately supported and 

•	 the files and records were complete and included the offer letters 

to the claimants, summary/recommendation forms, claimant 

release forms, and the ATP forms. 

31 

Page 35 GAO-04-114R Oil Spill Liability Trust Fund Claims 
Enclosure 

Scope and Methodology (cont.) 

•	 To test for proper review and approval, we reviewed the claim files 

and CPS records to determine if the 

•	 Claims Division Branch Chief approved the determination letter 

prior to the payment of a claim, 

•	 legal reviews were obtained for policy and determinations when 

required, 

•	 determination letters for reconsiderations were properly 

approved, 

•	 claims manager signed the determination letter prior to payment 

of a claim, 

• claimant signed the release form, and 

•	 Division or Branch Chief approved the ATP prior to payment of a 

claim. 

32 

Page 36 GAO-04-114R Oil Spill Liability Trust Fund Claims 
Enclosure 

Scope and Methodology (cont.) 

To test for validity, we 

•	 reviewed documentation for the 88 statistically sampled claims and 

performed tests to determine if they met the 10 SOP initial review 

requirements; 

•	 performed limited data mining of claims paid in fiscal years 1998 

through 2002 to identify unusual transactions and patterns, 

specifically looking for claims with even dollar amounts, large dollar 

amounts, multiple payments of the same dollar amounts, multiple 

payments to the same claimant for the same incident, incorrect 

coding, questionable status, and claims that had been denied; and 

•	 selected, based on our data mining, a nonstatistical sample of 50 

claim payments and 8 denied claims, reviewed the related 

documentation, and performed limited tests. 

33 

Page 37 GAO-04-114R Oil Spill Liability Trust Fund Claims 
Enclosure 

Scope and Methodology (cont.) 

•	 We requested comments on a draft of these briefing slides from the U.S. 

Coast Guard. We received oral comments from U.S. Coast Guard 

officials that were incorporated into these briefing slides as appropriate. 

•	 We conducted our work from December 2002 through July 2003 in 

accordance with generally accepted government auditing standards. 

34 

Page 38 GAO-04-114R Oil Spill Liability Trust Fund Claims 
Enclosure 

Appendix I 

Ten Initial Review Requirements 

The incident is after the implementation of OPA 

(Aug.18, 1990). The claim is not currently the subject of litigation 

in any court. 

The incident involved the discharge, or substantial threat of discharge, of oil from a The claimant has not waived right of recourse covered source. against any party relative to the incident giving 

rise to the claim. The discharge was into or upon the navigable waters of the United States, their adjoining 

shorelines, or the Exclusive Economic Zone of The claimant has signed the claim in ink. 

the United States. 

The claimant has not already been The claimant has demonstrated an injury that compensated for the costs or damages in the was caused by the incident described above, or current claim. by the response to that incident. 

The claim has been presented to NPFC within The claim has been properly presented to the 

the applicable statute of limitations. responsible party prior to submission to the 

Fund. 

35 

(190113) 


Page 39 GAO-04-114R Oil Spill Liability Trust Fund Claims 
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