Multimission stations, formerly referred to as small boat stations, are involved in all Coast Guard missions, including search and rescue, recreational and commercial fishing vessel safety, marine environmental response, and law enforcement activities such as drug and migrant interdiction. Search and rescue has traditionally been the stations’ top priority. However, after the terrorist attacks of September 11, 2001, the Coast Guard elevated the maritime homeland security mission to a level commensurate with the search and rescue mission. Congress’s actions to provide the Coast Guard with an additional $15.7 million for these stations in fiscal year 2003 was part of a longer-standing effort to address readiness concerns. In 2001, Congress directed the Department of Transportation’s Office of Inspector General (OIG) to conduct a thorough review of the operational readiness capability of stations, following a series of accidents involving search and rescue efforts initiated at these stations. The OIG reported that readiness levels at stations had been deteriorating for more than 20 years and were continuing to decline. In response, Congress provided an earmarked appropriation in fiscal year 2002 and directed the Inspector General to review the use of the earmarked funds. The OIG found that the Coast Guard generally complied with the intent of the earmark but also concluded that improving operational readiness at stations would require a substantial and sustained investment. The OIG also recommended that to improve congressional oversight of expenditures, the Coast Guard should make improvements to its accounting system to allow for the tracking of certain station expenditures. Since the additional funding efforts began, in fiscal year 2002, Coast Guard officials told us they have, among other actions, added approximately 1,100 personnel to stations, increased levels of personal protection equipment for station personnel, and started to replace old and nonstandard boats with new standard boats. In December 2002 the Coast Guard also developed, in response to a recommendation from the OIG in its 2001 report and at the direction of the Senate Appropriations Committee, a draft strategic plan to guide the recruiting and hiring of personnel. In its 2002 report, the OIG criticized the plan for being too general in nature, specifically regarding how and when the Coast Guard will increase staffing, training, equipment, and experience levels at stations. Because the Coast Guard’s automated databases are not set up in such a way that they can fully identify expenditure data at the station level, we were unable to fully determine expenditures for all four categories. However, through a combination of data runs and unit surveys performed at our request, the Coast Guard was able to estimate staffing and personnel retention expenditures, and develop actual expenditure data for personal protection equipment (PPE). Within these three categories, the Coast Guard estimates it spent at least $291 million in fiscal year 2003. The information available by category was as follows: Staffing: The Coast Guard incurred estimated costs of $277.6 million for 5,474 active duty personnel assigned to stations during fiscal year 2003. This figure does not include costs for the 1,657 reserve personnel assigned to stations, or an unknown number of auxiliary personnel. PPE: Reported expenditures for this category totaled $7.5 million. Personnel retention: Expenditure data for all aspects of this category are not available. However, in one specific category—reenlistment bonuses—the Coast Guard expended $5.9 million for bonuses to boatswain’s mates and machinists assigned to stations. Training: Coast Guard officials attempted to identify estimated costs of training station personnel at national training centers during fiscal year 2003 but could not provide reliable data for this category. Officials told us the Coast Guard has separate databases that track costs incurred by the national training centers, but do not have a database that can identify training costs expended on personnel after they have been assigned to stations. Further, expenditures incurred by stations in providing on-the-job training (a significant component of total training provided to station personnel) were not available because the Coast Guard, like many agencies, does not track time spent on this type of training. Using fiscal year 2002 data derived through similar analyses, we determined that estimated station expenditures for fiscal year 2003 exceeded fiscal year 2002 levels by at least $20.5 million—or $4.8 million more than the $15.7 million earmarked appropriation. Table 1 shows the differences in estimated expenditures (levels of effort) by fiscal year for the three categories that had available data. Only partial data were available on personnel retention, and no data were available on training expenditures. Although expenditure data for all personnel retention efforts were not available, the Coast Guard was able to provide annual expenditure data for reenlistment bonuses offered to selected multimission station personnel. Other information we gathered in discussions with Coast Guard personnel indicates that the Coast Guard’s levels of effort in station training also increased during fiscal year 2003. In fiscal year 2003, the Coast Guard increased the number of instructors and classrooms at two national training centers, which provide training to station and other personnel, in order to increase the number of total students graduated. Appendix I describes our methodology for developing these estimates, and appendix II contains a more detailed description of the data in each category. Because complete comparative data could not be identified for all four categories, we cannot say with certainty that Coast Guard expenditures for multimission stations in fiscal year 2003 were at least $15.7 million above fiscal year 2002 levels. However, we believe this is a reasonable conclusion based on the following: Although the staffing data provided to us are based on budget cost formulas, we determined that the data are sufficiently reliable for the purpose of demonstrating increases in staffing levels between the two years. Discussions with station officials indicate that station personnel have sufficient levels of PPE. In its fiscal year 2002 audit, the OIG reported that the Coast Guard did not provide PPE for 69 percent of the personnel added to stations during fiscal year 2002. Our visits to a limited number of stations—8 out of 188 stations—and discussions with station personnel, indicated that all active and reserve personnel assigned to these stations—even newly assigned personnel—had received what they considered to be an appropriate level of PPE (basic and cold weather). Although available quantitative data were limited for this category, over the past few years the Coast Guard has implemented a variety of financial incentives aimed at improving personnel retention. Training officers at the 8 stations we visited indicated that training for station personnel did not decrease in fiscal year 2003 compared with the prior year. In addition, in fiscal year 2003 the Coast Guard increased training resources in two areas—the boatswain’s mate training school increased its training output by over a third, and unit training provided by headquarters to station personnel also increased. The Coast Guard did not have adequate processes in place to sufficiently account for the expenditure of the entire $15.7 million earmarked fiscal year 2003 appropriation or to provide assurance that these earmarked funds were used appropriately, as set forth by federal management and internal control guidelines. The purpose of an earmark is to direct an agency to spend a certain amount of its appropriated funds for a specific purpose. Federal guidelines and government internal control standards indicate that agencies should account for the obligation and expenditure of earmarked appropriations both as a sound accounting practice and to demonstrate compliance in the event of an audit. The expectation that agencies will be able to effectively demonstrate compliance in their use of earmarked funds stems from the following: Office of Management and Budget Circulars: These circulars hold that agencies’ management controls should reasonably ensure that laws and regulations are followed. The Federal Managers’ Financial Integrity Act: This act establishes specific requirements regarding management controls and directs agency heads to establish controls to reasonably ensure that obligations and costs comply with applicable laws. Standards for Internal Control in the Federal Government: These standards specify that internal controls should provide reasonable assurance that an agency is in compliance with applicable laws and regulations. They also direct that internal controls and transactions should be clearly documented and the documentation should be readily available for examination. Further, the Department of Homeland Security (DHS), the parent agency for the Coast Guard, recently issued budget execution guidance that encourages component agencies to identify the obligation and expenditure of earmarked funds separately from other appropriated funds. (This guidance was issued in fiscal year 2004 after the Coast Guard had obligated the fiscal year 2003 earmark.) In response to a recommendation made in our recent report on the reprogramming of Federal Air Marshal Service funds, DHS has agreed to make this a requirement. The Coast Guard told us at the onset of our review that it did not have adequate processes in place to collect data with respect to earmarked expenditures. Although officials had taken steps to account for PPE expenditures (because purchase receipts could be easily tracked), they did not have adequate processes in place to account for earmarked funds spent on staffing and training needs at the station level. Consequently, the Coast Guard could not demonstrate conclusively that it was complying with the earmark. Basically, the Coast Guard’s databases were not designed for this purpose and would have to be modified to provide actual expenditure data for stations, according to Coast Guard officials. On the basis of lessons learned from the OIG’s audit in fiscal year 2002, which faulted the Coast Guard for not having cost accounting systems in place to allow for the tracking of certain multimission station expenditures, Coast Guard officials developed a plan to show how various allocations would add up to $15.7 million if expended. The plan, although useful as an indicator of the Coast Guard’s intentions, is not sufficient to show that the Coast Guard had expended the earmarked appropriation as directed. Coast Guard officials also told us that, in response to the OIG’s 2002 recommendation to allow for the tracking of certain station expenditures, they are assisting DHS in developing a new enterprise-wide financial system called “electronically Managing enterprise resources for government effectiveness and efficiency” (eMerge).