U.S. Coast Guard National Pollution Funds Center: Improved Controls Needed for Oil Removal Disbursements and Action Needed for Sustainable Funding
Published: 2015-09-15T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: The Coast Guard Authorization Act of 2010 included a provision for GAO to examine NPFC. This report addresses the extent to which (1) NPFC has designed and implemented internal controls over damage claim and oil removal disbursements to reasonably assure that amounts are appropriately disbursed from the Fund; (2) NPFC has designed and implemented internal controls to reasonably assure that responsible parties are designated and billed, as appropriate, for disbursements from the Fund that are over $500,000; and (3) the Fund was reimbursed for damage claim and oil removal costs in fiscal years 2011 through 2013. GAO also reviewed the Fund's primary source of revenues.
GAO obtained and analyzed data on damage claim and oil removal disbursements from fiscal years 2011 through 2013. GAO also obtained and analyzed data on billings and collections for fiscal years 2011 through August 2014 in order to determine which disbursements had been billed and paid. GAO reviewed relevant policies and procedures and interviewed officials and staff at the Coast Guard and EPA.
section_title: What GAO Found
paragraphs: The U.S. Coast Guard's National Pollution Funds Center (NPFC) has responsibility for disbursements from the Oil Spill Liability Trust Fund (Fund).The Fund enables the Coast Guard and the Environmental Protection Agency (EPA) to respond to oil spills. The Oil Pollution Act of 1990 (OPA) authorizes the Fund to pay for certain damage claims and oil removal costs. The federal government may subsequently seek reimbursement of these costs from responsible parties.
Damage claims. GAO found that for fiscal years 2011 through 2013, internal controls were designed and implemented to reasonably assure that damage claim expenses were appropriately disbursed from the Fund.
Oil removal. GAO identified several internal control deficiencies, which demonstrated that NPFC was unable to reasonably assure that oil removal disbursements were appropriately disbursed from the Fund. GAO's statistical tests of oil removal disbursements less than or equal to $500,000 identified design and implementation control deficiencies involving invoices that lacked required certifications, high visibility spills that were not identified, and missing supporting documentation for some costs. Also, GAO identified other issues, including that NPFC lacked policies and procedures for tracking and reconciling cash advances to EPA.
NPFC has established a system of internal controls for the designation and billing, as appropriate, of responsible parties. For fiscal years 2011 through 2013, GAO determined for the amounts over $500,000 that NPFC designed and implemented internal controls to provide reasonable assurance that responsible parties were designated and billed, as appropriate, for damage claim and oil removal disbursements.
For fiscal years 2011 through 2013, the Fund disbursed over $360 million, not including disbursements related to the Deepwater Horizon oil spill. During the period, not including the Deepwater Horizon oil spill, NPFC billed $272 million to responsible parties and collected $39 million. GAO found that NPFC was unable to bill for a large percentage of the damage claim and oil removal disbursements over $500,000 because the responsible party had reached its limit of liability, not all elements of liability were established, or the source of the spill could not be identified.
OPA authorizes using the Fund for immediate response costs and when responsible parties cannot be identified or pay. GAO analyzed the Fund's sources of income and found the 8-cent per-barrel tax on petroleum products is relied on as the primary, consistent source of funding because the Fund has disbursed more funding than it has been able to recover. This is because the Fund is not reimbursed for certain damage claim and oil removal costs, as noted above. The average amount of the Fund's revenue from the per-barrel tax was 60 percent of the total revenue for fiscal years 2011 through 2013. The per-barrel tax is set to expire at the end of 2017, creating uncertainty with regard to future revenue sources for the Fund. As of September 30, 2014, the Fund's balance was about $4.6 billion, which reflects approximately $1.3 billion in fines from the Deepwater Horizon oil spill. However, these fines are not a consistent funding source.
section_title: What GAO Recommends
paragraphs: Congress should consider options for sustaining the Fund, as well as the optimal level of funding, to address uncertainty regarding future funding. In addition, GAO is making several recommendations to improve the U.S. Coast Guard's internal controls for oil removal disbursements from the Fund. The Department of Homeland Security concurred with the recommendations and described actions taken or planned for each recommendation.

section_title: Letter
paragraphs: Annually, hundreds of oil spills occur on land and in coastal waters for  which a coordinated response involving private parties and all levels of  government takes place. The Oil Pollution Act of 1990 (OPA), which  Congress enacted after the Exxon Valdez spill in 1989, authorized use of  the Oil Spill Liability Trust Fund (Fund) to pay for certain oil spill cleanup  costs and damages for immediate response costs and when the  responsible parties cannot be identified or do not pay. OPA also  provided that the federal government may subsequently seek  reimbursement for these costs from responsible parties. The Fund is  administered by the U.S. Coast Guard’s National Pollution Funds Center  (NPFC).
The federal government’s potential fiscal exposure increases as  responsible parties’ capacity to cover their exposures is reduced, whether  as a result of extensive oil spill liabilities, poor financial condition of  responsible parties, or other factors. OPA and other federal laws set out  the federal process for oil spill response management, the liability of  different parties in the event of an oil spill incident, and federal funding to  cover certain oil spill costs not covered by private parties.
The Coast Guard Authorization Act of 2010 included a provision for GAO  to conduct an audit of Fund disbursements. This report examines the  extent to which (1) NPFC has designed and implemented internal controls  over damage claim and oil removal disbursements to reasonably assure  that amounts are appropriately disbursed from the Fund; (2) NPFC has  designed and implemented internal controls to reasonably assure that  responsible parties are designated and billed, as appropriate, for  disbursements from the Fund that are over $500,000; and (3) the Fund  was reimbursed for damage claim and oil removal costs in fiscal years  2011 through 2013. We also report on the Fund’s reliance on the per- barrel oil tax, which is its primary source of revenue. We excluded  information about the Deepwater Horizon oil spill, as we had previously  conducted work on that specific spill; it is the only spill of national  significance to occur since OPA passed in 1990, and its size and cost  would have skewed our analysis.
We obtained NPFC’s damage claim and oil removal disbursement data  for fiscal years 2011 through 2013 and performed procedures to  determine whether the data were sufficiently reliable for the purposes of  this engagement. Specifically, we interviewed knowledgeable agency  officials about the quality control procedures the agency had in place  when collecting and creating the data and electronically tested the data  for unusual items. Based on the results of these procedures, we  determined that the data were sufficiently reliable for our purposes. We  used these data to identify 27 damage claim disbursements and 95 oil  removal disbursements for fiscal years 2011 through 2013 that exceeded  $500,000. Of these 122 disbursements, we selected all disbursements  that were not fully reimbursed, resulting in a total of 27 damage claim  disbursements and 61 oil removal disbursements. To test oil removal  disbursements, a stratified random sample of 200 disbursements each  valued less than or equal to $500,000 was selected from the population of  11,093 disbursements covering fiscal years 2011 through 2013.
To assess the design of existing internal controls over the damage claim  and oil removal processes for reasonably assuring amounts are  appropriately disbursed from the Fund, we (1) reviewed OPA and other  federal laws and regulations to obtain an understanding of allowed costs,  (2) reviewed Standards for Internal Control in the Federal Government  and evaluated the policies and procedures NPFC has in place for  damage claim and oil removal disbursements, (3) evaluated potential  risks and the effectiveness of NPFC’s controls to mitigate those risks,   (4) interviewed NPFC officials and staff, and (5) performed walk-throughs  of the damage claim and oil removal processes. Based on our review of  potential risks and NPFC’s documented controls, we identified key  controls for the damage claim and oil removal disbursement processes  and tested the implementation of those controls for the selected 27  damage claim disbursements and 61 oil removal disbursements valued  over $500,000, and for the 200 statistically selected oil removal  disbursements each valued at less than or equal to $500,000. The 27  damage claim disbursements accounted for 93 percent of the total  amount of damage claim disbursements and the 61 oil removal  disbursements accounted for 30 percent of the total amount of oil removal  disbursements for fiscal years 2011 through 2013.
To assess the design of internal controls for reasonably assuring that  responsible parties were designated and billed, as appropriate, for  disbursements from the Fund that are over $500,000, we (1) reviewed  NPFC’s policies and procedures for designating and billing the  responsible parties, (2) evaluated potential risks and the effectiveness of  NPFC’s controls to mitigate those risks, (3) interviewed NPFC officials  and staff, and (4) obtained billings and receipt data for fiscal years 2011  through 2014. Based on our review of potential risks and NPFC’s  controls, we identified key controls for the designation and billing  processes and tested the implementation of these controls for the  selected 27 damage claim disbursements and 61 oil removal  disbursements valued over $500,000.
To determine the extent to which the Fund is reimbursed for damage  claim and oil removal costs, we interviewed NPFC officials about the  billing and reimbursement processes and analyzed disbursement, billing,  and collection data obtained from NPFC. To identify disbursements over  $500,000 that were not fully reimbursed, as noted above, we obtained  NPFC’s damage claim and oil removal disbursement data for fiscal years  2011 through 2013 and the billings and receipt data for fiscal years 2011  through 2014. Appendix I describes our objectives, scope, and  methodology in greater detail.
We conducted this performance audit from February 2014 to September  2015 in accordance with generally accepted government auditing  standards. Those standards require that we plan and perform the audit to  obtain sufficient, appropriate evidence to provide a reasonable basis for  our findings and conclusions based on our audit objectives. We believe  that the evidence obtained provides a reasonable basis for our findings  and conclusions based on our audit objectives.
subsections: section_title: Background
subsections: section_title: Legal Framework Establishing Responsibilities to Pay Damage Claim and Oil Removal Costs
paragraphs: The legal framework for addressing and paying for maritime oil spills is  established by OPA, which places the primary burden of liability and the  costs of oil spills on the owner and operator of the vessel or onshore  facility and the lessee or permittee of the area in which an offshore facility  is located. This “polluter pays” framework requires that the responsible  party or parties assume the burden of spill response, natural resource  restoration, and compensation to those damaged by the spill, up to a  specified limit of liability.
In general, the level of potential exposure under OPA depends on the  kind of vessel or facility from which a spill originates and is limited in  amount unless, among other reasons, the oil discharge is the result of  gross negligence or willful misconduct or a violation of federal operation,  safety, and construction regulations, in which case liability under OPA is  unlimited. Subject to certain exceptions, such as removal cost claims by  states, all nonfederal claims for OPA-compensable removal or damages  must be submitted first to the responsible party or the responsible party’s  guarantor. If the responsible party denies a claim or does not settle it  within 90 days, a claimant may present the claim to the federal  government to be considered for payment.
OPA authorizes use of the Fund, subject to limitations on the amount and  types of costs, to pay specified damage claims above a responsible  party’s liability limit, to pay damage claims or removal costs when a  responsible party does not pay or cannot be identified, and to pursue  reimbursement from the responsible party for oil removal and damage  claims paid by the Fund. Under OPA, the amount that may be paid from  the Fund for one incident is limited to $1 billion. Further, within the   $1 billion cap, the costs for conducting a natural resource damage  assessment and damages paid in connection with any single incident  cannot exceed $500 million.
OPA defines the costs for which responsible parties are liable and for  which the Fund is made available for compensation in the event that the  responsible party does not pay, cannot pay, or is not identified. “OPA- compensable” costs include two main types: damage claims and oil  removal.
subsections: section_title: Damage Claim Costs
paragraphs: OPA-compensable damages cover a wide range of both actual and  potential adverse impacts from an oil spill. For example, damages from  an oil spill include the loss of profits to the owner of a commercial charter  boat if the boat was trapped in port because the Coast Guard closed the  waterway in order to remove the oil, or personal property damage to the  owner of a recreational boat or waterfront property that was damaged by  oil from the spill, for which a claim may be made first to any of the  responsible parties, then to the Fund. (See table 1.)
Oil removal costs are incurred by the federal government or any other  entity when responding to, containing, and cleaning up a spill. For  example, removal costs include cleaning up adjoining shoreline affected  by the oil spill and the equipment used in the response—skimmers to pull  oil from the water, booms to contain the oil, planes for aerial  observation—as well as salaries, travel, and lodging costs for responders.
section_title: The NPFC Damage Claim Process
paragraphs: Individual and business claimants may seek reimbursement from the  Fund for damages caused by an oil spill by submitting a claim to NPFC.  In general, if a responsible party is identified, the claimant must first  submit the claim to the responsible party. If the responsible party is  unable or unwilling to pay the claim within 90 days of submission, the  claimant may then elect to submit the claim to NPFC for adjudication or  pursue a lawsuit against the responsible party.
Certain circumstances exist where a claimant may submit a claim to  NPFC without first submitting it to the responsible party. These include  instances where (1) NPFC advertises that claimants may submit claims  directly to the Fund, (2) NPFC notifies claimants in writing that they may  submit claims directly to the Fund, (3) a responsible party submits a claim  for costs incurred beyond its liability, (4) the governor of a state submits a  claim for removal costs incurred by the state, and (5) a U.S. claimant  submits a claim to the Fund when a foreign offshore unit has discharged  oil causing damage for which the Fund is available.
Once NPFC receives a claim, NPFC staff conduct an initial review to  reasonably assure basic regulatory compliance. The claim is assigned  to a claims manager who reviews the claim to reasonably assure it is  payable under OPA, has not been paid by the responsible party, and is  under the $1 billion per-incident cap. As a part of the adjudication  process, any claim payment over $100,000 is sent to the Coast Guard  Judge Advocate General’s Office of Claims and Litigation for review. If  NPFC agrees to pay the claim, the claimant is notified and has 60 days to  accept the offer. After acceptance of the offer, NPFC forwards payment  information to the Coast Guard’s Finance Center to be processed. If the  claim is denied, NPFC sends the claimant the reason for denial and  advises that within 60 days, the claimant can resubmit the claim for  reconsideration. (See fig. 1 for an illustration of the claim process.)
section_title: The NFPC Oil Removal Costs Process
paragraphs: Responding to oil spills involves a coordinated effort by various parties,  including (1) the Coast Guard or the Environmental Protection Agency  (EPA) as Federal On-Scene Coordinator (FOSC); (2) federal, state,  local, and Indian tribal government agencies; (3) private companies that  specialize in oil spill cleanup; and (4) the responsible parties, their  guarantors, and qualified individuals designated by responsible parties to  respond to oil spills. To fund government agencies’ oil spill removal costs,  the FOSC issues authorizations to quickly obtain services and assistance  from government agencies and private companies, verifies that the  services or goods were received and are consistent with the National Oil  and Hazardous Substances Pollution Contingency Plan, commonly  called the National Contingency Plan, and certifies the supporting  documentation. The FOSC then forwards the contractor invoice or Military  Interdepartmental Purchase Request documentation to the contracting  officer at the Shore Infrastructure Logistics Center (SILC) and the  Pollution Removal Funding Authorization documentation to the case  officer at NPFC for review and authorization to pay. Once payment is  authorized, the Coast Guard’s Finance Center pays the government  agencies and private companies. (See fig. 2 for an illustration of the  payment process related to oil spill removal costs.)
In conducting a coastal oil spill response, the lead federal authority, or  FOSC, is usually the nearest Coast Guard Sector and is headed by the  Coast Guard captain of the port. When notice of an oil spill is received  by the Coast Guard, and as soon as the source is identified, NPFC must  notify the responsible party or parties of NPFC’s designation. According  to NPFC guidance, “the  has primary responsibility for  response to a spill incident, including setting up the [Incident Command  System] and joining with the FOSC and state on-scene coordinator  (SOSC) in the .” However, as reflected in the National  Contingency Plan, NPFC guidance explains that “even when the  responsible party leads a reasonable response effort, the FOSC is always  in ultimate command and may decide to direct specific action or, for  whatever reason it is deemed necessary, actually take the lead role in the  response.” If there is a potential for claims activity, the NPFC will issue a  Notice of Designation to the responsible party requiring advertisement to  potential injured parties to advise them of their rights to file claims. If the  responsible party is unknown or fails to take action, NPFC will advertise  and accept claims for adjudication.
section_title: The Fund’s Financial Obligations and Resources
paragraphs: The Fund is divided into two major components: the Emergency Fund  and the Principal Fund. The Emergency Fund constitutes $50 million the  President may make available each year to cover immediate expenses  associated with mitigating the threat of an oil spill, costs of oil spill  containment, countermeasures, and cleanup and disposal activities, as  well as to pay for other costs to initiate natural resource damage  assessments. The $50 million is transferred annually from the Principal  Fund to the Emergency Fund. Amounts made available remain  available until expended. The Principal Fund is used to provide funds for  claims, such as natural resource damage claims, loss of profits and  earning capacity claims, and loss of government revenues. Congress has  appropriated money from the Principal Fund to certain agencies, such as  the Coast Guard, EPA, and the Department of the Interior—each of which  has received an annual appropriation from the Fund to cover  administrative, operational, personnel, and enforcement costs. Congress  appropriated the following from the Fund for fiscal year 2014:
Department of Transportation, Pipeline and Hazardous Materials  Safety Administration: $18.573 million
Coast Guard: $45.0 million
Department of the Interior, Bureau of Safety and Environmental  Enforcement: $14.899 million
EPA’s Inland Oil Spills Programs: $18.209 million
Department of the Treasury, Bureau of the Fiscal Service: $165,000  The Fund is required annually to provide funds to the Denali Commission  and the Prince William Sound Oil Spill Recovery Institute. Specifically,  section 8102 of OPA provided for the eventual transfer of the remainder  of the balance in the Trans-Alaska Pipeline Liability Fund to the Fund.  The Omnibus Consolidated and Emergency Supplemental Appropriations  Act, 1999 provided that the interest produced from the investment of the  Trans-Alaska Pipeline Liability Fund shall be transferred annually to the  Denali Commission for a program to repair or replace bulk fuel storage  tanks in Alaska. In fiscal year 2014, the Fund transferred $6.5 million to  the Denali Commission. Similarly, OPA established the Prince William  Sound Oil Spill Recovery Institute, in part, to identify and develop the best  available techniques, equipment, and materials for dealing with oil spills in  the Arctic and sub-Arctic marine environments. The institute’s annual  funding is paid by the Fund based on interest earned on a $35.3 million  trust, which is held by the Department of the Treasury. In fiscal year 2014,  the institute received $854,833.
The Fund’s primary revenue source is an 8-cent per-barrel tax on both  domestically produced and imported petroleum products. Another  significant source of revenue has been transfers from other existing  pollution funds. OPA consolidated into the Fund the liability and  compensation requirements of certain prior federal oil pollution laws and  their supporting funds, including the Federal Water Pollution Control Act,  Deepwater Port Act, Trans-Alaska Pipeline System Authorization Act, and  Outer Continental Shelf Lands Act. Total transfers into the Fund since  1990 have exceeded $550 million. However, no additional funds from  these sources remain. Other revenue sources include recoveries from  responsible parties for costs of removal and damages, fines and penalties  paid pursuant to various statutes, and interest earned on the Fund’s U.S.  Treasury investments. (See fig. 3.)
section_title: NPFC’s Internal Control Policies and Procedures
paragraphs: NPFC utilizes three different policy and procedural guides as part of its  internal control framework over the damage claim and oil removal  process. The policy and procedural guides include (1) the 2011 Standard  Operating Procedures of the Claims Adjudication Division, which contains  the policies and procedures related to the damage claim process;   (2) the 2007 Case Management Division Standard Operating Procedures,  which contains policies and procedures related to the oil removal process,  and to a lesser extent, the damage claim process; and (3) the NPFC  User Reference Guide, which is a reference tool for Coast Guard and  EPA FOSCs.
section_title: Standards for Internal Control in the Federal Government
paragraphs: Standards for Internal Control in the Federal Government provides the  overall framework for establishing and maintaining internal control across  the federal government and for identifying and addressing major  performance and management challenges and areas at greatest risk of  fraud, waste, abuse, and mismanagement. Standards for Internal  Control in the Federal Government states that internal controls comprise  the plans, methods, and procedures used to meet missions, goals, and  objectives. To achieve this, management is responsible for developing  the detailed policies, procedures, and practices to fit the agency’s  operations and to reasonably assure that they are built into and are  integral to operations.
section_title: Controls Provided Reasonable Assurance That Damage Claim Disbursements Were Appropriately Disbursed, but Deficiencies in Design and Implementation of Controls for Oil Removal Disbursements Were Identified
paragraphs: NPFC has implemented a system of internal controls over damage claim  and oil removal disbursements. For damage claim disbursements, we did  not identify any deficiencies in the design and implementation of the  controls we tested. However, our review of a statistical sample of oil  removal disbursements identified internal control deficiencies that were  caused by design deficiencies or by staff not adhering to certain key  controls as designed. These included missing invoice certifications,  missing supporting cost documentation, and high visibility spills not  identified. Our review also identified other deficiencies in the design of  controls related to oil removal disbursements. These include the lack of  policies and procedures for taking advantage of vendor discounts, for  ensuring that document retention policies are consistently followed, and  for EPA disbursements.
subsections: section_title: NPFC’s Design and Implementation of Internal Controls for Its Damage Claim Disbursements Provide Reasonable Assurance That Expenses Are Appropriately Disbursed from the Fund
paragraphs: Our testing of the 27 selected high dollar damage claim disbursements,  which accounted for 93 percent of the total damage claim disbursements  for fiscal years 2011 through 2013, found that the design and  implementation of relevant key controls provide reasonable assurance  that damage claim expenses are appropriately disbursed. For example,  our tests of 18 key controls included determining if a claim was submitted  within the 3-year statutory period and if NPFC’s Legal Division and Office  of Claims and Litigation reviewed the claim. We did not identify any  deficiencies during our testing of the 27 damage claim disbursements.
section_title: Deficiencies Identified in the Statistical Sample of Oil Removal Disbursements
paragraphs: In testing a stratified random sample of 200 oil removal disbursements  each valued at less than or equal to $500,000, we found that 9 of the 12  controls tested were effectively designed and implemented, while 1  control was effectively designed but was not effectively implemented and  2 controls were not effectively designed or implemented. Specifically,  these internal controls were not effective for (1) certifying invoices,   (2) maintaining supporting documentation, and (3) indicating whether an  oil spill is classified as a high visibility oil spill. Based on the results of our  stratified random sample, we estimate that $2.5 million from the  population of $108 million in oil removal disbursements each valued less  than or equal to $500,000 made during fiscal years 2011 through 2013  could contain one or more of the following control deficiencies, increasing  the risk of improper payments from the Fund.
subsections: section_title: Invoice Certifications Missing
paragraphs: In responding to oil spills, the FOSC has available both private  contractors and government agencies to provide an appropriate  response. For example, if a cleanup contractor is required, the FOSC  would place an order for the cleanup contractor with a delivery order  under the Basic Ordering Agreement administered by SILC. The  contracting officer issues the order and a contract for the necessary  services. A copy of the FOSC’s documentation is provided to NPFC as  documentation of these expenses. Government agencies can also be  called upon to provide services during a spill response. The FOSC  monitors the performance of the contractors and government agencies,  reporting on progress via periodic pollution reports. When oil removal  services are completed, the contractor or federal agency provides  documentation to the FOSC. The FOSC reviews the documentation and  certifies that services have been received. The FOSC then forwards the  documentation to SILC’s contracting officer or NPFC’s case officer, as  appropriate. The documentation is reviewed and payments are  authorized. Certification of invoices is an important internal control as it  reduces the risk of processing ineligible invoices. However, during testing  of our stratified random sample of oil removal disbursements, we  identified five oil removal disbursements that lacked FOSC certification.  Two of these five disbursements were made to EPA and the certifications  were not requested by NPFC. The remaining three certifications could not  be located. In addition, during our testing of the 61 high dollar oil removal  disbursements over $500,000, we identified two additional disbursements  that lacked FOSC certification.
Standards for Internal Control in the Federal Government states that  control activities, such as verifications, should be effective and efficient in  accomplishing the agency’s control objectives. The Coast Guard and  EPA entered into a memorandum of understanding dated June 11, 2012,  stating that the EPA FOSC shall review all costs incurred during the  removal operation and certify that they are proper and consistent with the  National Contingency Plan. The National Contingency Plan states that  during all phases of response, the lead agency (the Coast Guard or EPA)  shall complete and maintain documentation to support all actions taken  under the plan and to form the basis for cost recovery. It also designates  the FOSC to coordinate and direct responses. In addition, NPFC’s 2007  Case Management Division Standard Operating Procedures states, “As  the services are provided, the FOSC certifies that the services were  received and are consistent with the National Contingency Plan then  certifies eligibility for reimbursement.”
NPFC officials provided various explanations for the missing  certifications. The officials stated that (1) for three of the five invoices from  our stratified random sample of oil removal disbursements, NPFC could  not produce certified invoices because the invoices were likely filed  incorrectly; (2) for the remaining two disbursements from the stratified  random sample, which were EPA disbursements, the invoices were  already being processed when the memorandum of understanding  between the Coast Guard and EPA was signed; and (3) for the two high  dollar disbursements tested, NPFC officials stated that the contracting  officer had firsthand knowledge of the receipt of services, so it was not  necessary to rely on the FOSC’s certification. SILC officials further stated  that the contracting officer is not bound by the 2007 Case Management  Division Standard Operating Procedures because, under the Federal  Acquisition Regulation (FAR), acceptance of services is the responsibility  of the contracting officer. However, the FAR also states that acceptance  generally constitutes acknowledgment that the supplies or services  conform with applicable contract quality and quantity requirements, and  when this responsibility is assigned to a cognizant contract administration  office or to another agency, acceptance by that office or agency is binding  on the government. Because the Case Management Standard  Operating Procedures assign the responsibility to the FOSC to certify the  receipt of goods, the FOSC should have certified the disbursements. In  addition, the 2007 Case Management Division Standard Operating  Procedures has guidance and related checklists that include obtaining  FOSC certification.
Processing invoices that lack FOSC certification puts NPFC at risk of  improper payments. For instance, a payment could be made for services  or supplies that the FOSC did not authorize. Although NPFC has  established policies and procedures, the documentation issues identified  demonstrate that management has not reasonably assured that the  policies and procedures are consistently followed.
section_title: Required Supporting Cost Documentation Missing
paragraphs: We found three oil removal disbursements in our stratified random  sample that did not include appropriate supporting documentation.  Specifically, NPFC was unable to provide two travel orders and a contract  invoice to support three oil removal disbursements. These were in  addition to the three FOSC-certified invoices NPFC could not provide, as  discussed earlier. According to NPFC staff, the documentation was not  included in the case file because it was likely filed incorrectly. We found  that NPFC did not have policies and procedures requiring supervisory  review of the filing process. Having policies and procedures that require  periodic checks of the files could provide reasonable assurance that  documentation is properly maintained.
According to NPFC’s 2007 Case Management Division Standard  Operating Procedures, cost documentation, including contract invoices  and travel orders, should be maintained. In addition, Standards for  Internal Control in the Federal Government provides that control activities  should be effective and efficient in accomplishing the agency’s control  objectives. Specifically, transactions should be clearly documented, the  documentation should be readily available for examination, and  supervisory activity should occur in the course of operations. The lack of  documented transactions could lead to the payment of unauthorized  transactions or payment for the wrong amounts.
section_title: High Visibility Spills Not Always Identified
paragraphs: Our testing of the stratified random sample of oil removal disbursements  identified five oil spills each of which had a total cost over $5 million and  was not identified in NPFC’s Case Information Management System  (CIMS) as high visibility spills. Per NPFC’s 2007 Case Management  Division Standard Operating Procedures, the identification of a spill as  high visibility prompts NPFC to incorporate additional oversight  procedures for the oil spill. The additional procedures are necessary to  provide the careful consideration required while reviewing a high visibility  case. CIMS was designed to allow NPFC case managers to identify any  case over $5 million as high visibility. In addition to the five oil spills found  in our stratified random sample that were not identified in CIMS as high  visibility oil spills, we identified two additional oil spills during testing of the  high dollar oil removal disbursements that were not identified in CIMS as  high visibility oil spills. NPFC’s 2007 Case Management Division  Standard Operating Procedures states that among other criteria, any  case with a ceiling higher than $5 million should be identified as a high  visibility case. NPFC’s practice has changed from using the high visibility  identifier, which is specified in the current policy, to routinely discussing  all high visibility cases of any value during weekly staff meetings with  high-level officials, including the Director, Deputy Director, and the Legal  Division Chief. The details of the weekly staff meetings are documented  in the meeting minutes and are posted to NPFC’s internal website;  notification of recent meeting minutes is sent to all staff via e-mail. In  response to our inquiry, NPFC officials stated that they plan to eliminate  the requirement to identify cases as high visibility in CIMS as the  identification of high visibility oil spills take place during the weekly staff  meetings where the high visibility oil spills are discussed.
According to Standards for Internal Control in the Federal Government,  control activities should be effective and efficient in accomplishing the  agency’s control objectives. Specifically, internal controls need to be  clearly documented and properly managed and maintained to reasonably  assure relevance. Following a practice that differs from policy may cause  NPFC to inconsistently monitor high visibility spills and miss identifying or  reacting to other important events.
section_title: Deficiencies Identified in Other Oil Removal Disbursements
subsections: section_title: SILC Does Not Have Certain Disbursement-Related Policies and Procedures, and the Finance Center Did Not Follow Procedures
paragraphs: We found that for three disbursements from the high dollar sample, SILC  and the Finance Center did not take the discount for early payment  offered by the vendors. Some vendors offer cash discounts on the  amount owed when a customer pays within specified time frames as a  means of encouraging faster payment. However, we found that SILC did  not consistently identify available discounts and the Finance Center did  not consistently take available discounts. Specifically, in one instance  SILC identified the discount terms and the Finance Center paid the  vendor within the time frame required to receive the discount, but the  Finance Center did not take advantage of the discount when processing  the payment. Finance Center officials stated that the discount was not  taken because of personnel oversight. We also found two other  disbursements where SILC did not identify the discount terms offered by  the vendor so the discounts were not taken.
These occurred for two reasons. One, we found that SILC does not have  documented policies and procedures for reasonably assuring that  available discounts are identified. Second, we found that although the  Finance Center has established procedures for the appropriate  processing of available vendor discounts, it does not have a mechanism  to reasonably assure that its procedures are followed. SILC’s lack of  policies and procedures for identifying discounts and the Finance  Center’s failure to follow documented procedures increases the risk that  they will not take advantage of opportunities to save the government  money.
In addition, while testing the stratified random sample, we found that SILC  made an overpayment to a vendor for one disbursement. Specifically, a  vendor presented a charge on an invoice for Pollution Control Services to  a contracting officer in SILC that contained a math error; the charge had a  corresponding administrative fee of 10 percent. The contracting officer  identified the math error and correctly reduced the charge but failed to  also reduce the related administrative fee. We found that SILC does not  have documented policies and procedures to reasonably assure that  invoice amounts are correctly calculated. The lack of such policies and  procedures increases the risk of overpayments.
According to Standards for Internal Control in the Federal Government,  control activities should be effective and efficient in accomplishing the  agency’s control objectives. Specifically, policies and procedures should  be clearly documented to reasonably assure stewardship of government  resources. According to the Commercial Payables Branch, Commercial  Payments Section Contracts Desk Guide, the Department of Homeland  Security advises that any component that has earned a discount must  take the discount unless it is not advantageous to do so. In addition,  according to Office of Management and Budget (OMB) Circular No. A- 123, an improper payment is any payment that should not have been  made or that was made in an incorrect amount. Incorrect amounts are  overpayments or underpayments that are made to eligible recipients.  The failure to take the discount when the payment was made early and  the overpayment to the vendor for the incorrect administrative fee meet  the definition of improper payments.
section_title: NPFC Does Not Have Sufficient Policies and Procedures for Processing Cash Advances
paragraphs: In January 2013, the Coast Guard and EPA updated their existing June  2012 memorandum of understanding for use of the Fund in an appendix  to the memorandum for the provision of cash advances. Per the  appendix, EPA requests a cash advance based upon paid and pending  invoices for oil removal activities and NPFC validates the documentation  supporting the requested amount. The advance is then approved and  forwarded to the Finance Center for payment. Subsequently, the  appendix requires EPA to submit oil removal cost documentation to an  NPFC case officer for review and approval. The information is then  forwarded to the Finance Center, where the amount is taken against the  advance. According to NPFC officials, EPA is the only agency to which  NPFC advances funds, and EPA requested this process change because  of cash flow constraints.
Our review found that NPFC does not maintain the cost documentation  that supports the EPA cash advances. In addition, NPFC does not verify  amounts supporting the requested cash advance. According to NPFC  officials, the cost documentation, which is a summary of expenses, is not  maintained because of the large size of EPA’s submitted files, and NPFC  does not verify the amounts contained in the summary of expenses  because NPFC does not obtain detailed support, such as invoices, for the  EPA summary. NPFC has not developed policies and procedures for  providing cash advances from the Fund that include tracking and  maintaining supporting documentation for the amounts advanced,  reconciling amounts advanced to amounts expensed, and providing  approval to the Finance Center to liquidate the advances. Without such  policies and procedures to reasonably assure that the key control  activities over cash advances are performed, the risk of improperly  processing transactions, such as overpaying EPA, is increased.
Standards for Internal Control in the Federal Government states that  control activities should be effective and efficient in accomplishing the  agency’s control objectives. Specifically, internal controls need to be  clearly documented and properly managed and maintained to reasonably  assure relevance. Further, all documentation should be properly  managed and maintained, and the documentation should be readily  available for examination.
section_title: NPFC Controls Provide Reasonable Assurance That Responsible Parties Were Designated and Billed for Damage Claim and Oil Removal Disbursements over $500,000
paragraphs: NPFC has established a system of internal controls over designation and  billing of responsible parties for damage claim and oil removal  disbursements that are over $500,000. Through our testing of internal  controls for the designation and billing of disbursements, we did not  identify any deficiencies with the design and implementation of internal  controls in this area.
subsections: section_title: NPFC’s Internal Controls over Damage Claim Disbursements Provided Reasonable Assurance That Responsible Parties Were Designated and Billed for the Amounts over $500,000
paragraphs: We identified and tested the key internal controls for the 27 selected  unreimbursed high dollar damage claim disbursements for fiscal years  2011 through 2013. We tested and confirmed that when a responsible  party was found liable, NPFC case officers entered the responsible  party’s identifying information, including a valid name and address, into  NPFC’s case management system. We determined that the internal  controls provided reasonable assurance that responsible parties were  designated and billed, as appropriate, for damage claim disbursements  that are over $500,000.
section_title: NPFC’s Internal Controls over Oil Removal Cost Disbursements Provided Reasonable Assurance That Responsible Parties Were Designated and Billed for the Amounts over $500,000
paragraphs: We identified and tested key internal controls for the 61 selected  unreimbursed high dollar oil removal disbursements for fiscal years 2011  through 2013. We tested and confirmed that when a responsible party  was found liable, the FOSC forwarded the responsible party’s identifying  information to NPFC, and that NPFC case officers entered the  responsible party’s identifying information, including a valid name and  address, into NPFC’s case management system. We determined that the  internal controls provided reasonable assurance that the responsible  parties were designated and billed, as appropriate, for the oil removal  disbursements that are over $500,000.
section_title: The Fund Has Received Limited Reimbursement for Damage Claim and Oil Removal Disbursements, and Certain Revenue Sources for the Fund Are Set to Expire
paragraphs: NPFC disbursed in total over $360 million from the Fund for damage  claim and oil removal costs in fiscal years 2011 through 2013. During  this same period, NPFC billed in total $272 million to responsible parties,  and collected in total $39 million. For certain incidents, the Fund was not  fully reimbursed, which was appropriate in the circumstances. We found  that NPFC was unable to bill for a large percentage of high dollar claim  disbursements because either the responsible parties had reached their  limit of liability or the spills were classified as mystery spills.
In addition to the collections from billed responsible parties, the Fund is  primarily funded by an 8-cent per-barrel tax that increases to 9 cents a  barrel in 2017 and expires on December 31, 2017. As the Fund may not  be fully reimbursed for damage claim and oil removal costs, the per-barrel  excise tax is the only consistent source of funding for the Fund, as  discussed later in this report. Although the balance of the Fund was   $4.6 billion as of September 30, 2014, the loss of the funding source and  the potential for future spills and the cost of their associated cleanup  contribute to uncertainty regarding the sufficiency of the funding sources  for the Fund in the future.
subsections: section_title: Disbursements Made from the Fund in Fiscal Years 2011 through 2013
paragraphs: For fiscal years 2011 through 2013, $146 million was disbursed from the  Fund in total for damage claims. There were 409 damage claim  disbursement transactions during this period. In addition, for fiscal years  2011 through 2013, NPFC disbursed approximately $214 million in total  for oil removal. There were 11,188 oil removal disbursement transactions  during this period. (See table 2.)
section_title: Amounts Billed to and Collected from Responsible Parties in Fiscal Years 2011 through 2013
paragraphs: As shown in table 3, NPFC sent bills to responsible parties totaling   $272 million and collected $39 million in total for fiscal years 2011 through  2013 for both damage claim and oil removal disbursements. It is  important to note that collections are for the period indicated and are not  necessarily tied to billings made in the same period.
Because of the unique nature of each spill, cycle times vary for when  amounts are disbursed, when bills are sent, and when payments are  collected. For example, in March 2011 an oil spill occurred offshore of  Louisiana that was determined to have been caused by a company  plugging subsea wells. NPFC paid expenses associated with the spill  from April 2011 through May 2012 and then sent bills to the responsible  party for the expenses in May and June 2012. The responsible party  made multiple payments from August through November 2012. As such,  the cycle time for this oil spill was 20 months and spanned 3 different  fiscal years. According to NPFC staff, typically the larger the spill, the  longer the cycle is.
section_title: A Significant Amount of Disbursements from the Fund Are Not Fully Reimbursable
paragraphs: The high dollar damage claim disbursements we tested for fiscal years  2011 through 2013 included damage claim disbursements for spills that  occurred as early as 2004. We identified 95 oil removal disbursements  and 27 damage claim disbursements during the period that exceeded  $500,000. As discussed previously, of these, 61 oil removal  disbursements and 27 damage claim disbursements during the period  were not fully reimbursed. These disbursements ranged from a damage  claim of $505,084 for the F/V Milky Way sinking, which was located in  Washington State, to a damage claim of $20,257,121 for the T/V Athos I  oil spill, which affected Delaware, New Jersey, and Pennsylvania. Certain  spills had multiple disbursements over $500,000 during this period. For  instance, the M/V Jireh oil spill, which was located in Puerto Rico,  resulted in 14 oil removal disbursements over $500,000 in fiscal years  2011 through 2013, and the M/V Selendang Ayu oil spill, which affected  Alaska, resulted in 13 damage claim disbursements over $500,000. More  information on the individual disbursements over $500,000 that were not  fully reimbursed is presented in appendixes II and III. We analyzed  unreimbursed high dollar disbursements for fiscal years 2011 through  2013, which totaled $201 million, and determined that 79 percent or   $158 million will most likely not be reimbursed because the responsible  party had reached its limit of liability or the spill source could not be  determined. The following examples illustrate circumstances when the  Fund will not be reimbursed for all expenses it incurs because (1) the  responsible party reached its legal liability limit on paying for damage  claims or oil removal costs, (2) not all elements of liability were  established, or (3) a responsible party could not be determined.
subsections: section_title: Responsible Party Reached Its Legal Liability Limit
paragraphs: M/V Selendang Ayu. On December 8, 2004, the M/V Selendang Ayu  cargo ship ran aground off Unalaska Island in western Alaska’s  Aleutian Islands after its engine failed, resulting in a large oil spill. The  company (responsible party) that owned the ship assumed  responsibility for the spill and worked with the Coast Guard and state  of Alaska to address the spill, including directly paying the oil removal  costs and damage claims associated with the spill. The company was  not found to be grossly negligent, so its liability under OPA was  capped at $24 million. The response costs and damage claims paid  by the company totaled $149 million. The company filed a damage  claim request with NPFC for approximately $125 million, which  comprised the $149 million in total costs and damages minus the   $24 million liability cap. Of these damage claims, $88 million was  found compensable and reimbursed from the Fund in fiscal years  2012 through 2013.
T/V Athos I. The T/V Athos I departed Venezuela for the Citgo Asphalt  Refinery in Paulsboro, New Jersey, on November 20, 2004, carrying  approximately 13 million gallons of crude oil. On November 26, 2004,  tug operators assisting the T/V Athos I with docking at the refinery  notified the Coast Guard that the tanker was leaking oil into the  Delaware River. The vessel had struck several submerged objects  while maneuvering to its berth, including an 18,000-pound anchor.  The Coast Guard determined that the anchor punctured the vessel’s  number seven center cargo and port ballast tanks, allowing oil to spill  into the river. The Coast Guard estimated that 263,371 gallons had  spilled into the Delaware River. As of September 30, 2013, oil removal  costs disbursed by the Fund were $47.6 million and damage claims  disbursed by the Fund were $162.7 million. The Coast Guard  determined in 2006 that the responsible party had reached its liability  of $45.5 million under OPA, which means the responsible party had  paid oil removal claims, damage claims, or both that equaled or  exceeded its liability limit, and therefore the Fund will be not  reimbursed for any further expenses.
section_title: Not All Elements of Liability Were Established
paragraphs: Evolution Petrol Corp. An oily sheen was discovered on a creek in  Louisiana on August 1, 2007. The EPA FOSC determined on or about  August 2, 2007, that the oily sheen was from Evolution Petrol Corp  saltwater tanks. EPA explained that if Evolution did not take  responsibility, EPA would hire contractors for cleanup, which could be  more expensive, and that Evolution could be subject to penalties of up  to $32,500 per day. Evolution chose to accept responsibility and hired  a contractor to handle the cleanup. Evolution received over $777,000  in reimbursement for the cleanup from its insurance company. The  insurance company presented a claim of approximately $715,000 to  the Fund for reimbursement of the oil removal costs based on its  analysis that Evolution was not responsible for the spill. NPFC  determined that based on its analysis and evidence provided, the oily  sheen did not originate at the Evolution facility. The Fund paid the  insurance company approximately $696,000 in fiscal year 2011 and  because no liability was established, the Fund will not be reimbursed  for its expenses.
section_title: A Responsible Party Could Not Be Determined
paragraphs: S.S. Montebello. On December 23, 1941, the S.S. Montebello was  torpedoed by a Japanese submarine off the coast of Cambria,  California, sinking the 8,272 ton tanker carrying 3 million gallons of  crude oil that may still have been in its holds. On December 2, 2010,  the FOSC determined that there was a substantial threat of a  discharge of oil in part due to the reported volume of oil carried by the  vessel and the potential damage that a release might have on the  marine ecosystem in the surrounding area. In September 2011, the  Coast Guard awarded a contract to Global Diving and Salvage, Inc. to  conduct a survey to determine the intensity and immediacy (of the  threat) and to develop further courses of action for removal if  necessary. The survey was conducted in October 2011, at which time  a Unified Command led by the Coast Guard and California  Department of Fish and Game’s Office of Spill Prevention and  Response assessed cargo and fuel tanks of the sunken ship. The  Unified Command determined that there was no substantial oil threat  from the S.S. Montebello to California waters and shorelines. The cost  of the project was $3.2 million. These removal costs were not billed  because there was not a responsible party.
Mystery spills. The FOSC is unable to determine the source of these  spills, so a responsible party cannot be identified. During fiscal years  fiscal years 2011 through 2013, NPFC made about $16 million   ($2.3 million in damage claims and $13.9 million in oil removal) in  disbursements for mystery spills. These disbursements are for  mystery spills that occurred during fiscal years 2004 through 2013.
section_title: The Per-Barrel Tax Expires in 2017
paragraphs: Uncertainties exist regarding the primary revenue source of the Fund, an  8-cent per-barrel tax on petroleum products. This tax is set to expire in  2017. If the Fund’s primary source of revenue expires, this could affect  future oil spill response and may increase risk to the federal government.  As discussed above, the Fund at times is unable to bill and collect  reimbursements from responsible parties. The Fund enables the Coast  Guard and EPA to respond to oil spills as the Fund can be used to cover  expenses associated with mitigating the threat of an oil spill as well as the  costs associated with containment, countermeasures, and cleanup and  disposal activities. During fiscal year 2014, NPFC reported 408 oil spills;  the Coast Guard and EPA responded to 324 of these. In the remaining 84  cases, the claimants sustained damages and directly submitted claims to  NPFC.
The per-barrel tax was increased and extended by a provision of the  Energy Improvement and Extension Act of 2008, through December 31,  2017. The act also eliminated a restriction on the growth of the balance  of the Fund beyond $2.7 billion. As shown in figure 4, the Fund’s  revenue sources include per-barrel tax, interest earned on the Fund’s  investments in Department of the Treasury securities, fines and penalties  paid pursuant to various statutes, and cost reimbursements from  responsible parties for costs of removal and damages. The average  amount of the Fund’s revenue from the per-barrel tax was 60 percent of  the total revenue for fiscal years 2011 through 2013.
The Fund’s balance has increased over the years, as shown in figure 5.  The significant increase in the balance from fiscal years 2012 through  2013 is primarily the result of the two judgments that resulted in  assessments of fines to BP PLC and Transocean Ltd. for the Deepwater  Horizon oil spill that collectively totaled approximately $1.3 billion.  Although the Fund’s balance was about $4.6 billion as of September 30,  2014, the potential for large spills exists, and if a responsible party is  unwilling, unable, or not required to pay, the Fund will be needed to pay  for the cleanup, including removal costs and damage claims. As  previously discussed, the costs and claims from oil spills can continue for  a number of years depending on the circumstances, and a significant  amount of disbursements from the Fund are not fully reimbursed for  various reasons.
The President’s fiscal year 2016 budget request included a proposal to  increase the excise tax on each barrel of oil produced domestically or  imported by 1 cent, to a total of 9 cents per barrel for January 1, 2016,  through December 31, 2016, and by another cent to a total of 10 cents  per barrel starting January 1, 2017. The President’s budget request did  not include an extension of the tax past December 31, 2017.
Bills have been introduced in recent sessions of Congress that included  provisions to extend the excise tax beyond 2017. Without such an  extension, the primary source of revenue for the Fund will cease to exist  after 2017.
section_title: Conclusions
paragraphs: Hundreds of oil spills occur annually on U.S. land and in U.S. coastal  waters. NPFC has an opportunity to improve its internal controls for  processing oil removal disbursements by developing and updating  policies and procedures. Improving its internal controls contributes to  reasonably assuring that the Fund is used efficiently and effectively to pay  for oil spill cleanup costs and damage claims. Because the Fund has  disbursed more funding than it has been able to recover, its primary  source of funding has been the per-barrel oil tax. However, the per-barrel  oil tax is set to expire in 2017, creating uncertainty with regard to future  funding. Given this, it will be important for Congress to determine what  mechanism it would like to rely on to provide sustained funding for the  Fund.
section_title: Matter for Congressional Consideration
paragraphs: Congress should consider the options for sustaining the Oil Spill Liability  Trust Fund as well as the optimal level of funding to be maintained in the  Fund, in light of the expiration of the Fund’s per-barrel tax funding source  in 2017.
section_title: Recommendations for Executive Action
paragraphs: We recommend that the Secretary of Homeland Security direct the  Commandant of the Coast Guard to take the following four actions to  improve the design and implementation of NPFC’s internal controls over  Fund disbursements.
Develop and implement a plan to reasonably assure that NPFC staff  comply with invoice certification policies and procedures.
Develop and implement policies and procedures for reasonably  assuring consistent supervisory oversight of the filing process related  to transaction documentation.
Update NPFC’s high visibility oil spill policy to reasonably assure that  it reflects management’s current practice of weekly meetings to  identify and discuss high visibility oil spills.
Develop policies and procedures for processing of cash advances  from the Fund, covering processes for (1) tracking the amounts  advanced, (2) reconciling amounts advanced to amounts spent,   (3) providing approval to the Finance Center to liquidate an advance,  and (4) maintaining supporting documentation.
We recommend that the Secretary of Homeland Security direct the  Commandant of the Coast Guard to take the following two actions to  improve the design and implementation of SILC’s internal controls over  Fund disbursements.
Develop and implement policies and procedures related to identifying  available vendor discounts.
Develop and implement policies and procedures to reasonably assure  that all amounts presented on an invoice are calculated correctly.
We also recommend that the Secretary of Homeland Security direct the  Commandant of the Coast Guard to develop and implement a mechanism  for the Finance Center to reasonably assure that its procedures for  processing available discounts related to Fund disbursements are  followed.
section_title: Agency Comments
paragraphs: We provided the Department of Homeland Security with a draft of this  report for review and comment. In written comments, reprinted in  appendix IV, the Department of Homeland Security concurred with our  recommendations and described actions taken or planned to address  each recommendation. The Department of Homeland Security also  provided technical comments, which we incorporated as appropriate.
We are sending copies of this report to the appropriate congressional  committees and the Secretary of Homeland Security. In addition, the  report is available at no charge on the GAO website at  http://www.gao.gov.
If you or your staff have any questions about this report, please contact  me at (202) 512-2623 or davisbh@gao.gov. Contact points for our Offices  of Congressional Relations and Public Affairs may be found on the last  page of this report. GAO staff who made key contributions to this report  are listed in appendix V.
section_title: Appendix I: Objectives, Scope, and Methodology
paragraphs: The Coast Guard Authorization Act of 2010 included a provision for GAO  to conduct an audit of Oil Spill Liability Trust Fund (Fund) disbursements.  This report examines the extent to which (1) the National Pollution Funds  Center (NPFC) has designed and implemented internal controls over  damage claim and oil removal disbursements to reasonably assure that  amounts are appropriately disbursed from the Fund; (2) NPFC has  designed and implemented internal controls to reasonably assure that  responsible parties are designated and billed, as appropriate, for  disbursements from the Fund that are over $500,000; and (3) the Fund  was reimbursed for damage claim and oil removal costs in fiscal years  2011 through 2013. We also report on the Fund’s reliance on the per- barrel oil tax, which is its primary source of revenue. We excluded  information about the Deepwater Horizon oil spill, as we had previously  conducted work on that specific spill. In addition, it is the only spill of  national significance to occur since the Oil Pollution Act of 1990 (OPA)  passed, and its size and cost would have skewed our analysis.
We obtained NPFC’s damage claim and oil removal disbursement data  for fiscal years 2011 through 2013 and performed procedures to  determine whether the data were reliable enough for our purposes.  Specifically, we interviewed knowledgeable agency officials about the  quality control procedures the agency had in place when collecting and  creating the data and electronically tested the data for unusual items.  Based on the results of these procedures, we determined that the data  were reliable enough for our purposes. We used these data to identify 27  damage claim disbursements and 95 oil removal disbursements for fiscal  years 2011 through 2013 that exceeded $500,000. Of these 122  disbursements, we selected and tested all disbursements that were not  fully reimbursed, resulting in a total of 88 disbursements for both damage  claim and oil removal disbursements, which is further explained below.
To determine whether the disbursements were reimbursed, we  interviewed NPFC staff about the quality control procedures the agency  had in place when collecting and creating the data and reviewed the  billings to the responsible parties and the subsequent collections. Based  on our interviews with the NPFC staff and analyzing of the billings and  collection data, we determined that the billing and collection data were  reliable enough for our purposes. NPFC sends the responsible party an  itemized bill containing direct and indirect costs. The itemized bill  typically contains multiple individual disbursements. The responsible party  may not always pay 100 percent of the amount billed, but any collection is  applied to the total amount billed. Since amounts collected are not applied  to individual items, such as disbursements on the bill, we were unable to  determine whether individual disbursements were fully reimbursed if the  bill was not paid in full. Our analysis found that 32 of the 122  disbursements were fully reimbursed by the responsible party.  Additionally, 2 of the 122 disbursements were not fully reimbursed as the  responsible party filed bankruptcy and settled with NPFC for a lesser  amount; these were excluded from our review, as NPFC recognized  these 2 disbursements as paid in full. The remaining 88 items consisted  of 27 damage claim disbursements and 61 oil removal disbursements that  were over $500,000 (high dollar disbursements) and not fully reimbursed  by the responsible party, guarantor(s), or both for fiscal years 2011  through 2013. These 88 disbursements were either fully uncollected or  partially reimbursed (see app. II and app. III).
The selected 27 damage claim disbursements totaled $136.1 million,  which represented 93 percent of total damage claim dollars disbursed  during fiscal years 2011 through 2013. The selected 61 oil removal  disbursements totaled $65.4 million, which accounted for 30 percent of  the total oil removal dollar disbursements during fiscal years 2011 through  2013 (see tables 4 and 5).
Because of the low dollar coverage for oil removal disbursements, we  also selected a stratified random sample of disbursements less than or  equal to $500,000. This sample of 200 oil removal disbursements, which  was generalizable, was from the population of 11,093 fiscal year 2011  through 2013 oil removal disbursements. (See table 6.)
To determine whether the design of existing internal controls over the  damage claim and oil removal processes assure that amounts are  appropriately disbursed from the Fund, we (1) reviewed OPA and other  federal laws and regulations to obtain an understanding of allowed costs,  (2) reviewed Standards for Internal Control in the Federal Government  and evaluated the policies and procedures NPFC has in place for  damage claim and oil removal disbursements, (3) evaluated potential  risks and the effectiveness of NPFC’s controls to mitigate those risks   (4) interviewed NPFC officials and staff, and (5) performed walk-throughs  of the damage claim and oil removal processes. Based on our review of  potential risks and NPFC’s documented controls, we identified key  controls for the damage claim and oil removal disbursement processes  and tested the implementation of those controls for the damage claim and  oil removal disbursements described above and for the statistical sample  of oil removal disbursements less than or equal to $500,000. The key  controls include verifying that transactions are properly authorized,  processed for payment, and recorded. For damage claims, the testing of  key controls included  reviewing controls to reasonably assure that claimants presented their  claims to the responsible party before submitting them to NPFC;  reviewing controls related to the processing of claim reconsiderations  and reviewing controls related to NPFC’s coordination efforts with the  Federal On-Scene Coordinators (FOSC) in adjudicating the claims  and identifying responsible parties;  reviewing controls to reasonably assure that where applicable,  responsible parties were identified and recorded; and  reviewing controls to reasonably assure that claim determinations  were appropriately reviewed and approved by an appropriate  individual, payments were authorized, and each claimant signed a  release letter accepting the payment as full and final within the  allowable time frame.
For oil removal costs, the testing of key controls included  reviewing NPFC’s internal controls related to the review and  authorization of oil removal activities;  reviewing controls around the FOSC’s certification of the  appropriateness of oil removal activities;  reviewing NPFC’s coordination efforts with the FOSCs in identifying  responsible parties; and  reviewing controls to reasonably assure that where applicable,  responsible parties were identified and recorded and that payments  for removal cost activities were appropriately authorized and recorded  in the agency’s accounting records.
We analyzed the results of these tests to determine if the internal controls  in place were effective.
To assess the design of internal controls for reasonably assuring that  responsible parties were designated and billed, as appropriate, for all  disbursements, we (1) reviewed NPFC’s policies and procedures for  designating and billing the responsible parties, (2) evaluated potential  risks and the effectiveness of NPFC’s controls to mitigate those risks,   (3) interviewed NPFC officials and staff, and (4) obtained billings and  receipt data for fiscal years 2011 through 2014. To determine if these  data were reliable enough for our purposes, we interviewed  knowledgeable agency officials about the quality controls associated with  the collection of these data. Based on the results of these tests, we  concluded that these data were reliable enough for our purposes. Based  on our review of potential risks and NPFC’s documented controls, we  identified key controls for the designation and billing processes and tested  the implementation of these controls for the selected 27 high dollar  damage claim disbursements and 61 high dollar oil removal  disbursements. We analyzed the results of these tests to determine  whether the controls in place were effective.
To understand the extent to which the Fund is reimbursed for damage  claim and oil removal costs both under and over $500,000, we  interviewed NPFC officials about the billing and reimbursement  processes. We analyzed disbursement, billing, and collection data  obtained from NPFC. We also identified certain examples of when the  disbursement from the Fund is not eligible for reimbursement.
We conducted this performance audit from February 2014 to September  2015 in accordance with generally accepted government auditing  standards. Those standards require that we plan and perform the audit to  obtain sufficient, appropriate evidence to provide a reasonable basis for  our findings and conclusions based on our audit objectives. We believe  that the evidence obtained provides a reasonable basis for our findings  and conclusions based on our audit objectives.
section_title: Appendix II: Damage Claim Disbursements
paragraphs: Tables 7, 8, and 9 show damage claim disbursements over $500,000 for  fiscal years 2011 through 2013, which were not fully reimbursed to the Oil  Spill Liability Trust Fund as of March 31, 2015. As of that date, two items  had been partially collected, as noted in tables 7 and 8.
section_title: Appendix III: Oil Removal Disbursements
paragraphs: Tables 10, 11, and 12 show oil removal disbursements over $500,000 for  fiscal years 2011 through 2013 that were not fully reimbursed to the Oil  Spill Liability Trust Fund as of March 31, 2015.
section_title: Appendix IV: Comments from the Department of Homeland Security
section_title: Appendix V: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Staff Acknowledgments
paragraphs: In addition to the contact named above, Kim McGatlin (Assistant  Director), Teressa Gardner (Analyst-in-Charge), Justin Fisher, Sarah  Florino, Wilfred B. Holloway (Assistant Director), Pierre Kamga, Elizabeth  Sodipo, and Andrew Stephens made key contributions to this report.