U.S. Coast Guard National Pollution Funds Center:

Improvements Are Needed in Internal Control Over Disbursements

GAO-04-340R: Published: Jan 13, 2004. Publicly Released: Jan 13, 2004.

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The Oil Spill Liability Trust Fund (Fund) is a $1 billion fund that has two major components: the Emergency Fund and the Principal Fund. The Emergency Fund is used for paying for federal removal actions and the initiation of natural resource damage assessments by designated federal, state, or Indian tribe officials, resulting from oil spills or the substantial threat of oil spills to the waters or shorelines of the United States. The Principal Fund is used for paying certain claims for uncompensated removal costs and damages resulting from oil spills or the substantial threat of oil spills to the waters or shorelines of the United States. The Fund is administered by the National Pollution Funds Center (NPFC) of the U.S. Coast Guard (USCG). In May 2002, we issued a legal opinion related to the uses and limitations of the Fund and concluded that the Fund is not available to pay employee salaries and other operating expenses. The USCG reported that from fiscal years 1998 through 2002, $32.8 million from the Fund was used to pay costs associated with processing claims, including salaries and other operating expenses. In April 2003, the USCG returned the $32.8 million to the Fund. In light of our conclusion regarding the appropriate use of these funds, Congress asked that we review the control over disbursements from the Fund and assess the propriety of these disbursements. We reviewed disbursements for operating expenses and removal costs to determine whether (1) the design of existing internal control provided reasonable assurance that improper payments would not occur or would be detected in the normal course of business, (2) they were made in accordance with established USCG and NPFC policies and procedures, and (3) they were made in accordance with the uses specified in the Oil Pollution Act of 1990 (OPA) and other federal laws and regulations, and represented a proper use of government funds.

The USCG and NPFC have established a system of internal control over operating expenses and Emergency Fund disbursement processes. However, we found some weaknesses in the design and operation of internal control over operating expenses and disbursements from the Fund that increase the risk of improper payments. Weaknesses in the design of control included a lack of documented reconciliations of the amounts included in removal cost reports with those recorded in USCG's accounting system. We found additional internal control weaknesses in that USCG/NPFC did not always follow established policies and procedures that are intended to help ensure the validity of disbursements. Of the nonstatistical selection of 467 disbursements obtained through data mining for fiscal years 1998 through 2002, we found that 33, or 7 percent of these disbursements, totaling $43,425, lacked adequate supporting documentation. Of the 33 disbursements, 9 transactions lacked purchase receipts such as invoices, 10 additional transactions lacked purchase request forms, and 14 lacked both purchase receipts and purchase request forms. We also found that 25, or 5 percent of the 467 disbursements, totaling $26,182, lacked proper approvals. Specifically, 3 transactions lacked proof of approval from supervisors, 18 additional transactions lacked proof of approval from fund certifying officers before purchases were made, and 4 lacked proof of approval from supervisors and fund certifying officers. Another 39 transactions totaling $155,994 for payments to contractors and other government agencies, and reimbursements to employees and others lacked documentation of supervisory review and approval before payments were made. In addition, equipment purchases totaling $62,700 were not recorded in the property tracking system. We also used the nonstatistical selection of disbursements obtained through data mining to determine whether these disbursements complied with certain federal laws and regulations and represented a proper use of government funds. We found that (1) NPFC did not properly document their justification for using federal funds to reimburse $14,481 in travel expenses for 11 nonfederal potential claimants to attend natural resource damage (NRD) seminars, (2) the USCG Finance Center (FINCEN) incurred a total $24,546 in late payment fees and lost discounts, and (3) the validity of 17 disbursements tested totaling $6,589 was questionable because adequate supporting documentation was missing. The weaknesses we identified in the design and operation of internal control over the disbursement processes, if left uncorrected, increase the Fund's vulnerability to future improper payments. In addition, during fiscal year 2003, NPFC continued to improperly use the Fund to pay about $645,000 in operating expenses and obligated another $151,000 against the Fund. NPFC officials told us that they are in the process of transferring these transactions from the Fund into a newly established account created for recording NPFC operating expenses. As with the $32.8 million previously returned, this transfer will not compensate the Fund for lost interest. NPFC's continued improper use of the Fund to pay for operating expenses is a violation of federal law. Not only does this practice expose the Fund to misuse, but we estimate that the Fund may have lost as much as $1.6 million in interest as a result.

Status Legend:

More Info
  • Review Pending-GAO has not yet assessed implementation status.
  • Open-Actions to satisfy the intent of the recommendation have not been taken or are being planned, or actions that partially satisfy the intent of the recommendation have been taken.
  • Closed-implemented-Actions that satisfy the intent of the recommendation have been taken.
  • Closed-not implemented-While the intent of the recommendation has not been satisfied, time or circumstances have rendered the recommendation invalid.
    • Review Pending
    • Open
    • Closed - implemented
    • Closed - not implemented

    Recommendations for Executive Action

    Recommendation: To improve the design of internal control over disbursements from the Fund, the Commandant of the U.S. Coast Guard should direct the Director of the National Pollution Funds Center to establish policies and procedures to require that case officers document the reconciliation of removal costs reports to amounts paid in the accounting system.

    Agency Affected: Department of Homeland Security: United States Coast Guard

    Status: Closed - Implemented

    Comments: NPFC has completed corrective action related to our recommendation to establish policies and procedures to require that case officers document the reconciliation of removal cost reports to amounts paid in the accounting system. In April 2004, NPFC developed the Case Reconciliation Checklist to be used by Case Managers in reconciliations of removal costs to amounts paid. In May 2004, NPFC promulgated procedures requiring the use of the checklist for all cases with payments.

    Recommendation: To improve the design of internal control over disbursements from the Fund, the Commandant of the U.S. Coast Guard should direct the Director of the National Pollution Funds Center to establish policies and procedures to require that case officers' supervisors document their review of these reconciliations.

    Agency Affected: Department of Homeland Security: United States Coast Guard

    Status: Closed - Implemented

    Comments: The National Pollution Funds Center (NPFC) has completed corrective action related to our recommendation to establish policies and procedures to require that case officers' supervisors document their review of the reconciliation of removal costs to the amounts paid. In May 2004, NPFC established policies which requires supervisors to perform a check on at least 10% of all cases. These reviews are required to be documented by supervisory sign-off on the checklist used by the case officer to document the reconciliation of removal costs to payments from the Oil Spill Liability Trust Fund.

    Recommendation: To establish better compliance with U.S. Coast Guard/National Pollution Funds Center policies and procedures, the Commandant of the U.S. Coast Guard should direct the Director of the National Pollution Funds Center to reinforce documentation and approval requirements by instituting training for all relevant employees.

    Agency Affected: Department of Homeland Security: United States Coast Guard

    Status: Closed - Implemented

    Comments: NPFC has taken corrective action related to our recommendation to reinforce documentation and approval requirements by instituting training for all relevant employees. In June 2004, NPFC distributed guidance on travel documentation retention. NPFC updated its travel instruction in August 2004 and its training instruction in November 2004. NPFC updated its purchasing procedures in September 2004. Procurement staff received updated purchasing procedures training during 2005. Finally, NPFC has developed a policy to continue formal training on an as needed basis and through on-the-job training.

    Recommendation: To establish better compliance with U.S. Coast Guard/National Pollution Funds Center policies and procedures, the Commandant of the U.S. Coast Guard should direct the Director of the National Pollution Funds Center to institute monitoring techniques such as periodic spot checks to help ensure that such requirements are consistently followed.

    Agency Affected: Department of Homeland Security: United States Coast Guard

    Status: Closed - Implemented

    Comments: NPFC has substantially completed corrective action related to our recommendation to institute monitoring techniques to help ensure that documentation and approval requirements are consistently followed. NPFC implemented corrective action by establishing audit procedures for travel claims and procurement files in September 2004. To date, NPFC has used the new guidance to perform two rounds of travel claim audits--the most recent in April 2005--and three rounds of procurement file audits--the most recent in June 2005.

    Recommendation: To establish better compliance with U.S. Coast Guard/National Pollution Funds Center policies and procedures, the Commandant of the U.S. Coast Guard should direct the Director of the National Pollution Funds Center to establish a mechanism to ensure that accountable assets are properly recorded in USCG's fixed assets system.

    Agency Affected: Department of Homeland Security: United States Coast Guard

    Status: Closed - Implemented

    Comments: NPFC has substantially completed corrective action related to our recommendation to establish a mechanism to ensure that accountable assets are properly recorded in USCG's fixed assets system. In August 2004, NPFC appointed an assistant property officer and implemented revised standard operating procedures for property management which includes procedures for all accountable assets to be delivered to the property officer before it is forwarded to the employee who requested the asset so it can be cataloged. NPFC also performed an inventory of property in November 2004.

    Recommendation: To enforce compliance with the Oil Pollution Act of 1990 and other federal laws and regulations and reduce the risk of improper payments, the Commandant of the U.S. Coast Guard should direct the Director of the National Pollution Funds Center to expedite actions needed to cease using the Fund to pay operating expenses as advised in our May 2002 legal opinion.

    Agency Affected: Department of Homeland Security: United States Coast Guard

    Status: Closed - Implemented

    Comments: The National Pollution Funds Center (NFPC) has taken corrective action related to our recommendation to expedite actions needed to cease using the Oil Spill Liability Trust Fund to pay NPFC operating expenses. The trust fund accounting lines which had been used to pay operating expenses have been closed.

    Recommendation: To enforce compliance with the Oil Pollution Act of 1990 and other federal laws and regulations and reduce the risk of improper payments, the Commandant of the U.S. Coast Guard should direct the Director of the National Pollution Funds Center to record obligations against USCG's annual operating expense appropriation in order to ensure that adequate funds are available to reimburse the Fund for any unreimbursed or future use of the Fund to pay operating expenses.

    Agency Affected: Department of Homeland Security: United States Coast Guard

    Status: Closed - Implemented

    Comments: NPFC has taken corrective action related to our recommendation to record obligations against USCG's annual operating expense appropriation in order to ensure that adequate funds are available to reimburse the Trust Fund for any operating expenses paid through the Trust Fund. The Trust Fund has been reimbursed and the affected accounting lines have been closed.

    Recommendation: To enforce compliance with the Oil Pollution Act of 1990 and other federal laws and regulations and reduce the risk of improper payments, the Commandant of the U.S. Coast Guard should direct the Director of the National Pollution Funds Center to complete the transfer of all operating expenses that were improperly paid from the Fund in fiscal year 2003 to the new operating expense account.

    Agency Affected: Department of Homeland Security: United States Coast Guard

    Status: Closed - Implemented

    Comments: NPFC has taken corrective action related to our recommendation to transfer the charges made to the Trust Fund to the new operating expense account. The affected Trust Fund accounting lines have been closed.

    Recommendation: To enforce compliance with the Oil Pollution Act of 1990 and other federal laws and regulations and reduce the risk of improper payments, the Commandant of the U.S. Coast Guard should direct the Director of the National Pollution Funds Center to ensure proper justification exists for nonfederal travelers to be reimbursed to attend NRD seminars in advance of any such travel.

    Agency Affected: Department of Homeland Security: United States Coast Guard

    Status: Closed - Implemented

    Comments: NPFC has substantially completed corrective action related to our recommendation to ensure proper justification exists for reimbursing nonfederal travelers for attending natural resource damage (NRD) seminars. In August 2004, NPFC established specific guidance for nonfederal travel in its travel instruction which requires the director of NPFC to approve all such travel.

    Recommendation: To enforce compliance with the Oil Pollution Act of 1990 and other federal laws and regulations and reduce the risk of improper payments, the Commandant of the U.S. Coast Guard should direct the Director of the National Pollution Funds Center to follow up on transactions that were missing purchase invoices to determine what was purchased and whether the items were for legitimate government needs.

    Agency Affected: Department of Homeland Security: United States Coast Guard

    Status: Closed - Not Implemented

    Comments: NPFC has been unable to address this recommendation because the missing purchase orders are old and could not be located by agency officials. Agency officials stated that they provided all of the documentation they could locate related to these transactions during GAO's engagement.

    Recommendation: The Commandant of the U.S. Coast Guard should direct the Chief Financial Officer of the U.S. Coast Guard to reinforce documentation and approval requirements for disbursements from the Fund by instituting training for all relevant employees.

    Agency Affected: Department of Homeland Security: United States Coast Guard

    Status: Closed - Implemented

    Comments: NPFC has taken corrective action related to our recommendation that the Coast Guard reinforce documentation and approval requirements for disbursements from the Trust Fund. Corrective actions cover NPFC staff and the Federal On-Scene Coordinators.

    Recommendation: The Commandant of the U.S. Coast Guard should direct the Chief Financial Officer of the U.S. Coast Guard to institute a monitoring system such as periodic spot checks to help ensure that such requirements are consistently followed.

    Agency Affected: Department of Homeland Security: United States Coast Guard

    Status: Closed - Implemented

    Comments: NPFC has taken corrective action related to our recommendation to institute a monitoring system including regularly performed audits of judgementally selected transactions to help ensure that documentation and approval requirements are consistently followed.

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