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Evolving but Uncertain Federal Financial Risks' which was released on
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United States Government Accountability Office:
GAO:
Report to Congressional Requesters:
October 2011:
Deepwater Horizon Oil Spill:
Actions Needed to Reduce Evolving but Uncertain Federal Financial
Risks:
GAO-12-86:
GAO Highlights:
Highlights of GAO-12-86, a report to congressional requesters.
Why GAO Did This Study:
On April 20, 2010, an explosion of the Deepwater Horizon oil rig
leased by BP America Production Company (BP) resulted in a significant
oil spill. GAO was requested to (1) identify the financial risks to
the federal government resulting from oil spills, particularly
Deepwater Horizon, (2) assess the Coast Guard’s internal controls for
ensuring that processes and payments for spill-related cost
reimbursements and claims related to the spill are appropriate, and
(3) describe the extent to which the federal government oversees the
BP and Gulf Coast Claims Facility cost reimbursement and claims
processes. We issued status reports in November 2010 and April 2011.
This is the third and final report related to these objectives. We
obtained and analyzed data on costs incurred from April 2010 through
May 2011 and claims submitted and processed from September 2010
through May 2011. We reviewed relevant policies and procedures,
interviewed officials and staff at key federal departments and
agencies, and tested a sample of claims processed and cost
reimbursements paid for compliance with internal controls.
What GAO Found:
Both the individual circumstances of the Deepwater Horizon incident,
as well as the overall framework for how the federal government
responds to oil spills, present a mix of evolving, but as yet
uncertain, financial risks to the federal government and its Oil Spill
Liability Trust Fund (Fund). The extent of financial risks to the
federal government from the Deepwater Horizon is closely tied to BP
and the other responsible parties. BP established a $20 billion Trust
to pay for individual and business claims and other expenses. As of
May 31, 2011, BP has paid over $700 million of federal and state
government costs for oil spill cleanup. Federal agency cleanup and
restoration activities are under way and agencies continue to incur
costs and submit them for reimbursement. However, the full extent of
these costs, particularly those related to environmental cleanup, may
not be fully realized for some time. As cleanup costs continue to
mount, it is possible that expenditures from the Fund will reach the
$1 billion total expenditure per incident cap. Expenditures were over
$626 million on May 31, 2011. If these amounts reach the total
expenditure cap of $1 billion, the Fund can no longer be used to make
payments to reimburse agencies’ costs (or to pay valid individual or
business claims if not paid by the responsible parties). At that
point, government agencies would no longer be able to obtain
reimbursement for their costs. In November 2010, GAO suggested that
Congress may want to consider setting a Fund per incident cap based on
net expenditures (expenditures less reimbursement), rather than total
expenditures. Finally, GAO found the federal government’s longer-term
ability to provide financial support in response to future oil spills
is also at risk because the Fund’s primary source of revenue, a tax on
petroleum products, is scheduled to expire in 2017.
GAO’s testing of the Coast Guard’s internal controls over Deepwater
Horizon claims processed and cost reimbursements processed and paid
showed that adjudicated claims processed and costs reimbursed were
appropriate and properly documented. In November 2010, GAO made four
recommendations regarding establishing and maintaining effective cost
reimbursement policies and procedures for the Fund. The Coast Guard
changed its operating practices to reflect lessons learned from the
initial response to the Deepwater Horizon incident, and it has updated
its cost reimbursement procedures accordingly. However, the Coast
Guard has not yet updated its procedures for processing significant
claims, so lessons learned from its experiences processing Deepwater
Horizon claims could be lost. Capturing lessons learned about
processing such claims will be essential should a significant spill
occur in the future.
The federal government has used a variety of approaches to oversee BP’
s and GCCF’s cost reimbursement and claims processing. Soon after the
Deepwater Horizon oil spill, the federal government established a
Deepwater Integrated Services Team (IST), which was initially
responsible for monitoring BP’s claims process, among other things.
Subsequently, the oversight of cost reimbursement and claims
activities transitioned to the Department of Justice, which continues
to lead this and other efforts. In addition, the Department of the
Interior and the National Oceanic and Atmospheric Administration are
serving as the federal government’s representatives for the natural
resource trustees in evaluating the environmental impact of the
Deepwater Horizon spill and selecting and implementing restoration
projects to be funded by BP.
What GAO Recommends:
GAO is (1) reiterating that Congress may want to consider setting a
Fund cap per incident based upon net expenditures, (2) presenting a
new matter concerning extending the barrel tax used to finance federal
oil spill responses to sustain program funding, and (3) making a
recommendation to improve procedures for future significant spills. In
responding, the Department of Homeland Security concurred with the
recommendation.
View GAO-12-86 or key components. For more information, contact Susan
Ragland at (202) 512-8486 or raglands@gao.gov.
[End of section]
Contents:
Letter:
Background:
Although the Total Federal Financial Risk Has Not Been Determined,
Actions Are Needed to Reduce Known Risks:
The Coast Guard Has Effective Claims Processing and Cost Reimbursement
Controls, However Could Benefit by Documenting Changes Made in Claims
Practices:
Federal Agencies' Oversight Efforts Include Monitoring GCCF's Claims
Process and Participating in Natural Resource Assessments:
Conclusion:
Matter for Congressional Consideration:
Recommendation for Executive Action:
Agency Comments:
Appendix I: Status of Prior Recommendations:
Appendix II: Objectives, Scope, and Methodology:
Appendix III: National Pollution Fund Center's Individual and Business
Claims Process:
Appendix IV: National Pollution Fund Center's Cost Reimbursement
Process:
Appendix V: Types of Oil Pollution Act-Compensable Removal Costs and
Damages:
Appendix VI: Inspectors General Are Reviewing Agencies' Deepwater
Horizon Oil Spill Costs:
Appendix VII: Agencies Authorized and Reimbursed Costs for Deepwater
Horizon Oil Spill Response Efforts:
Appendix VIII: Comments from the Department of Homeland Security:
Appendix IX: GAO Contact and Staff Acknowledgments:
Related GAO Products:
Tables:
Table 1: Claims Paid by GCCF as of May 31, 2011 (Unaudited):
Table 2: Implementation Status of Prior GAO Recommendations:
Table 3: List of OPA-Compensable Claim Types/Description, Eligibility,
and NPFC Claims Division Responsible for Processing the Claim:
Table 4: Agencies' Deepwater Horizon Authorized Response Costs and
Reimbursements Received as of May 31, 2011:
Figures:
Figure 1: Oil Spill Liability Trust Fund Balance, September 1993-May
2011 (Unaudited):
Figure 2: Oil Spill Liability Trust Fund Components:
Figure 3: The Trust's $20 Billion Funding Time Frame:
Figure 4: Participants in the Deepwater IST:
Figure 5: NPFC's Claims Adjudication Process:
Figure 6: NPFC's Cost Reimbursement Process:
Abbreviations:
BPBP: American Production Company:
COFR: Certificate of Financial Responsibility:
DHS: Department of Homeland Security:
DOD: Department of Defense:
DOI: Department of the Interior:
EPA: Environmental Protection Agency:
FEMA: Federal Emergency Management Agency:
FINCEN: Coast Guard's Finance Center:
FOSC: Federal On-Scene Coordinator:
GCCF: Gulf Coast Claims Facility:
IG: inspector general:
IST: Integrated Services Team:
MIPR: Military Interdepartmental Purchase Request:
NOAA: National Oceanic and Atmospheric Administration:
NPFC: National Pollution Funds Center:
OMB: Office of Management and Budget:
OPA: Oil Pollution Act of 1990, as amended:
PRFA: Pollution Removal Funding Authorization:
[End of section]
United States Government Accountability Office:
Washington, DC 20548:
October 24, 2011:
Congressional Requesters:
The explosion on the BP America Production Company's (BP) leased
Deepwater Horizon oil rig in the Gulf of Mexico on April 20, 2010
resulted in one of the largest environmental disasters in U.S.
history.[Footnote 1] Along with the devastating environmental impact,
the Deepwater Horizon oil spill affected the livelihoods of thousands
of Gulf Coast citizens and businesses. The total costs to clean up
this unprecedented spill, ease the economic suffering of affected
parties in the region, and assess and mitigate its eventual
environmental impact remain unknown but have been estimated in the
tens of billions of dollars.
The Oil Pollution Act of 1990, as amended (OPA), which was enacted
after the Exxon Valdez oil spill in 1989, established a "polluter
pays" system that places the primary burden of liability for costs of
spills up to a statutory maximum, on the responsible parties--BP and
several other companies in this case.[Footnote 2] However, responsible
parties are liable without limit if the oil discharge is the result of
gross negligence or willful misconduct, or a violation of federal
operation, safety, and construction regulations. OPA provides the Oil
Spill Liability Trust Fund (Fund) to pay for oil spill costs when the
responsible party cannot or does not pay. The Fund is administered by
the Coast Guard through its National Pollution Funds Center (NPFC), is
primarily financed through a tax on petroleum products, and is subject
to a $1 billion cap on the amount of expenditures from the Fund per
incident.[Footnote 3] NPFC administers the Fund by disbursing funds to
government agencies to reimburse them for their oil spill cleanup
costs (cost reimbursements), monitoring the sources and uses of funds,
adjudicating claims submitted by individuals and businesses to the
Fund for payment (claims), and pursuing reimbursement from the
responsible party for costs and damages paid from the Fund (billing
the responsible party).
In the case of the Deepwater Horizon oil spill, BP, as well as others,
have been identified as responsible parties. In this capacity, BP
established multiple claims centers along the Gulf Coast to receive
and process individuals' and businesses' damage claims; on May 3,
2010, BP began paying emergency compensation to them. In June 2010, as
part of an oral agreement between the Obama Administration and BP, BP
established a new claims processing facility, the Gulf Coast Claims
Facility (GCCF). GCCF, administered by Kenneth Feinberg, began
operations on August 23, 2010, and is responsible for handling claims
from individuals and businesses for damages resulting from the spill.
BP also established an irrevocable trust in August 2010--primarily to
pay claims approved by GCCF among other purposes--and pledged to
incrementally provide a total of $20 billion to the trust by 2014.
[Footnote 4]
Shortly after the April 20, 2010 explosion, members of Congress
requested that we (1) identify the financial risks to the federal
government resulting from oil spills, particularly Deepwater Horizon,
(2) assess NPFC's internal controls for ensuring that processes and
payments for cost reimbursements and processes for claims related to
the Deepwater Horizon spill were appropriate, and (3) describe the
extent to which the federal government oversees the BP and GCCF
Deepwater Horizon oil spill-related claims processes.
This report is the third and final in a series of reports related to
these objectives. In November 2010, we provided our preliminary
assessment of the financial risks and the cost reimbursement and
notification policies and procedures associated with the Deepwater
Horizon oil spill.[Footnote 5] We expressed the view that Congress
should consider changing the calculation of expenditures made against
the Fund's $1 billion per incident expenditure cap to take into
account reimbursements from responsible parties. We also made four
recommendations to NPFC directed at helping NPFC establish and
maintain effective cost reimbursement policies and procedures for the
Fund and update NPFC's current policies to reflect current
organization, structure, and management directives. (See appendix I
for the specific recommendations and their status.) In April 2011, we
provided updated information on the financial risks to the federal
government associated with the Fund's cap on total, rather than net,
expenditures, as well as claims submitted to and reviewed by NPFC and
GCCF.[Footnote 6] This final report provides an update on the issues
and risks to the federal government, the results of our testing of
NPFC's internal controls over the processes and payments for cost
reimbursement and the claims process, and an overview of the federal
government's oversight of BP and GCCF's claims processes.
As part of our analysis of financial risks to the federal government
and the Fund, we identified and analyzed applicable laws and
regulations to determine statutory and regulatory limitations on the
liability of responsible parties that may pose financial risks to the
Fund and federal government. As one of OPA's goals is to make the
environment and public whole for injuries to natural resources
resulting from an oil spill, we reviewed applicable guidance,
regulations, and NPFC annual reports to gain an understanding of the
Natural Resource Damage Assessment[Footnote 7] process. These
processes involve determining the type and amount of restoration
needed to compensate the public for harm to natural resources as a
result of an oil spill, and the length of time these assessments may
take to complete. In addition, we reviewed publicly available
quarterly financial information of responsible parties through June
2011 to gain an understanding of the extent to which these companies
reported contingent liabilities.[Footnote 8] To determine the amounts
obligated and actual costs incurred in relation to the Fund's $1
billion per incident cap, we obtained and analyzed daily financial
summary data NPFC uses to track costs for the Deepwater Horizon oil
spill. We obtained invoices NPFC sent to the responsible parties to
reimburse the Fund, analyzed the requests for reimbursements submitted
by federal and state agencies, and compared the invoiced amounts to
the amounts federal and state agencies had submitted for payment from
the Fund.
To assess the extent to which NPFC's internal controls ensured that
cost reimbursements were appropriate, we tested a statistical sample
of payments made to federal and state agencies between April 2010 and
April 2011 for Deepwater Horizon removal and response activities for
compliance with NPFC's policies and procedures. In addition, while
NPFC had not made any payments in response to claims from individuals
and businesses submitted as of April 30, 2011, we tested a statistical
sample of Deepwater Horizon final claim determinations--all denials or
withdrawn by the claimant--that had been made by NPFC officials for
compliance with NPFC's policies and procedures to implement OPA
requirements. We also obtained information on NPFC's claims
contingency planning for handling a potentially large number of claims
related to the Deepwater Horizon oil spill. In order to update
information about claims submitted and reviewed by NPFC and GCCF, we
used available NPFC and GCCF claims data through May 31, 2011.
To provide an overview of the extent to which the federal government
oversees the BP and the GCCF claims processes, we interviewed agency
officials about oversight of BP's claims process. Specifically, we
interviewed Department of Justice (Justice) officials who worked with
BP to establish the GCCF and its claims processes, among other things.
We also interviewed NPFC officials who monitor GCCF's actions to
approve and deny claims from individuals and businesses. We
interviewed Justice and Office of Management and Budget (OMB)
officials about any plans to pursue payment from the responsible
parties for federal government costs for the Deepwater Horizon oil
spill that are not reimbursed through an intragovernmental agency
agreement. Appendix II provides additional details on our scope and
methodology.
We conducted this performance audit from July 2010 to October 2011, 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.
Background:
Legal Framework Establishing Responsibilities to Pay Oil Spill Costs
and Claims:
The legal framework for addressing and paying for maritime oil spills
is identified in OPA, which was enacted after the 1989 Exxon Valdez
spill. OPA places the primary burden of liability and the costs of oil
spills on the owner and operator of the vessel or on shore 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 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.[Footnote
9] For oil spills from an offshore facility, such as the Deepwater
Horizon, liability is limited to all removal--or cleanup--costs plus
$75 million.[Footnote 10]
Under OPA, before any vessel larger than 300 gross tons can operate in
U.S. waters, the owner/operator must obtain a Certificate of Financial
Responsibility (COFR) from NPFC. This COFR demonstrates that the
owner/operator has provided evidence of financial responsibility to
pay for removal costs and damages up to the liability limits required
by OPA. These OPA requirements for demonstrating financial
responsibility apply only to the statutory maximum amount of potential
liability under OPA, although states may impose additional liabilities
and requirements related to oil spills in state waters.[Footnote 11]
OPA requires that, subject to certain exceptions, such as removal cost
claims by states, all nonfederal claims for OPA-compensable removal or
damages 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.[Footnote 12] To pay
specified claims above a responsible party's liability limit, as well
as to pay claims when a responsible party does not pay or cannot be
identified, OPA authorizes use of the Fund subject to limitations on
the amount and types of costs. For example, under OPA, the authorized
limit on Fund expenditures for a single spill is currently set at $1
billion (without consideration of whether the Fund was reimbursed for
any expenditures). In addition to paying claims, the Fund is used to
reimburse government agencies for certain eligible costs they incur.
Further, within the $1 billion cap, the costs for conducting a natural
resource damage assessment and claims paid in connection with any
single incident shall not exceed $500 million. OPA provides that the
President designate the federal officials and that the governors
designate the state and local officials who act on behalf of the
public as trustees for natural resources.[Footnote 13] OPA regulations
provide that the trustees may recover costs for natural resource
damage assessment and restoration.[Footnote 14] The Fund may not be
used for certain types of personal injuries or damages that may arise
related to an oil spill incident, such as financial losses associated
with oil company investments by members of the public. Recovery for
such damages and injuries may be governed by other federal statutes,
common law, or various state laws.
Federal agencies are authorized to use the Fund to cover their oil
removal costs from the affected areas to the extent the Fund has funds
available within the $1 billion cap.[Footnote 15] The federal
government is entitled to reimbursement from responsible parties for
such costs.
The Coast Guard's NPFC administers uses of the Fund to reimburse
government agencies for their removal and cleanup costs;[Footnote 16]
adjudicating individual and business claims submitted to the Fund for
payment; and pursuing reimbursement from the responsible party for
costs and claims paid by the Fund. NPFC bills the responsible parties
directly, including BP in this case, for costs government agencies
have incurred, and all payments received from responsible parties are
deposited into the Fund.
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.
As described in greater detail in appendix V, "OPA compensable" costs
include two main types:
* Removal Costs: Removal costs are incurred by the federal government
or any other entity taking approved action to respond to, contain, and
clean up the 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.
* Damages: 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 oiled by the spill, for which a claim may
be made first to the responsible party, if possible, or to the Fund.
In addition to OPA-compensable costs, the federal government can also
incur other non OPA-compensable costs associated with oil spills. For
example, the federal government had various non-OPA-compensable costs
for the Deepwater Horizon oil spill, such as Department of Homeland
Security (DHS) costs associated with providing additional staff to
NPFC for receiving and processing claims.[Footnote 17]
Four Operational Response Phases for Oil Removal:
The National Oil and Hazardous Substances Pollution Contingency Plan,
more commonly called the National Contingency Plan is the federal
government's blueprint for responding to oil spill and hazardous
substance releases. The National Contingency Plan provides the
organizational structure and procedures for preparing for and
responding to discharges of oil and releases of hazardous substances,
pollutants, and contaminants.[Footnote 18] The plan outlines approved
procedures and removal activities when responding to an oil spill and
identifies the following four phases of response operations for oil
discharges:
1. Discovery and Notification include activities conducted to discover
oil spills or to notify appropriate authorities of oil spills.
2. Preliminary Assessment and Initiation of Action include activities
conducted to assess the magnitude and severity of the spill and to
assess the feasibility of removal and plan appropriate actions. These
activities are necessary whether or not the responsible party is
taking action.
3. Containment, Countermeasures, Cleanup, and Disposal include oil
spill cleanup activities such as hiring contractors and transporting
and staging required supplies and needed equipment.
4. Documentation and Cost Recovery include the activities necessary to
support cost recovery and record uses of the Fund.
Three of the four phases for oil removal remain under way for the
Deepwater Horizon incident, and the operational response is likely to
continue for years. The first phase, discovery and notification, is
substantially complete. Subject to certain thresholds, the costs
incurred in phases two, three, and four are eligible to be paid from
the Fund.
The Fund's Financial Resources to Pay Oil Spill Costs and Claims:
The Fund's primary revenue source is an 8 cent per barrel tax on
petroleum products either produced in the United States or imported
from other countries. 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. In fiscal year 2009, the barrel
tax was 92 percent of the Fund's revenue. As shown in figure 1, the
Fund's balance has varied over the years. The barrel tax expired in
December 1994 and was reinstituted at 5 cents per barrel in April 2006
as mandated by the Energy Policy Act of 2005. The Energy Improvement
and Extension Act of 2008 increased the tax to 8 cents per barrel and
provides that the Fund's barrel tax shall expire after December 31,
2017.[Footnote 19]
Figure 1: Oil Spill Liability Trust Fund Balance, September 1993-May
2011 (Unaudited):
[Refer to PDF for image: vertical bar graph]
Year: 1993;
Trust fund balance: $1.038 billion.
Year: 1994;
Trust fund balance: $975 million.
Year: 1995;
Trust fund balance: $1.138 billion.
Year: 1996;
Trust fund balance: $1.140 billion.
Year: 1997;
Trust fund balance: $1.122 billion.
Year: 1998;
Trust fund balance: $1.084 billion.
Year: 1999;
Trust fund balance: $1.028 billion.
Year: 2000;
Trust fund balance: $1.164 billion.
Year: 2001;
Trust fund balance: $1.129 billion.
Year: 2002;
Trust fund balance: $1.008 billion.
Year: 2003;
Trust fund balance: $969 million.
Year: 2004;
Trust fund balance: $843 million.
Year: 2005;
Trust fund balance: $740 million.
Year: 2006;
Trust fund balance: $604 million.
Year: 2007;
Trust fund balance: $943 million.
Year: 2008;
Trust fund balance: $1.182 billion.
Year: 2009;
Trust fund balance: $1.449 billion.
Year: 2010;
Trust fund balance: $1.694 billion.
Year: 2011;
Trust fund balance: $2.038 billion.
Source: GAO analysis of NPFC data.
[A] Fund balance as of May 31, 2011 (unaudited).
[End of figure]
In fiscal year 2011, the increase to the Fund is primarily
attributable to reimbursements received from responsible parties for
the Coast Guard's costs incurred in response to the Deepwater Horizon
incident. Specifically, as of May 31, 2011, the Coast Guard has billed
and received from responsible parties, $315.3 million for Coast Guard
recoverable, or indirect costs, such as personnel and equipment.
According to the agency, the Coast Guard has historically viewed its
OPA recoverable costs as activities normally funded through the
agency's operating expense appropriation, and thus it has not sought
reimbursement for these costs from the Fund.
As shown in figure 2, the Fund has been administratively divided into
two major components--the Emergency Fund and the Principal Fund--
administered by the Coast Guard's NPFC. The Emergency Fund authorizes
the President to make available $50 million 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 paying for other costs to initiate
natural resource damage assessments. Amounts made available remain
available until expended. For the Deepwater Horizon oil spill, the
Coast Guard's Federal On-Scene Coordinator[Footnote 20] used the
Emergency Fund to pay for oil spill removal activities (i.e., the
equipment used in removal activities and for the proper disposal of
recovered oil and oil debris), and the Federal Natural Resource Damage
Trustees[Footnote 21] also entered into reimbursable agreements with
NPFC with respect to funding for activities to initiate natural
resource damage assessments. To the extent that available amounts are
inadequate for an emergency (as was the case in the Deepwater Horizon
oil spill), the Maritime Transportation Security Act of 2002 granted
authority for the Coast Guard to advance up to $100 million to pay for
oil spill removal activities, and that amount was advanced from the
Principal Fund to the Emergency Fund.[Footnote 22]
Figure 2: Oil Spill Liability Trust Fund Components:
[Refer to PDF for image: pie-chart]
Principal fund:
Revenue sources:
* Per barrel tax;
* Cost recoveries from responsible parties;
* Interest;
* Fines and penalties;
* Transfers.
Agency appropriations:
* Congress appropriates money from the Fund annually to federal
agencies.
Claims:
* Natural resource damages;
* Removal costs;
* Property damages;
* Loss of profits and earning capacity;
* Loss of subsistence use of natural resources;
* Loss of government revenues.
Transfers:
* $50 million annual authorization from principal fund to emergency
fund and $100 million advance;
* Transfers in $100 million increments for Deepwater Horizon incident
only.
Emergency fund:
Emergency fund expenditures:
* Removal costs;
* To initiate Natural Resource Damage Assessments.
Sources: NPFC and DHS USCG Report on implementation of the Oil
Pollution Act of 1990.
[End of figure]
In June 2010, Congress amended OPA to authorize emergency advances for
the Deepwater Horizon oil spill in increments of up to $100 million
for each cash advance, but the total amount of all advances may not
exceed the $1 billion per incident cap.[Footnote 23] In contrast to
the Emergency Fund, the Principal Fund is to be used to provide funds
for natural resource damage claims,[Footnote 24] loss of profits and
earning capacity claims, and loss of government revenues. The
Principal Fund also provides for certain agency appropriations
including the Coast Guard, Environmental Protection Agency (EPA), and
the Department of the Interior (DOI)--each of which receives an annual
appropriation from the Fund through the Principal Fund to cover
administrative, operational, personnel, and enforcement costs.
Consistent with its Fund management responsibilities, in response to
the Deepwater Horizon oil spill, NPFC is responsible for billing the
responsible parties, including BP, directly for costs that government
agencies have incurred. The payments NPFC receives from BP are to be
deposited into the Fund and NPFC reimburses agencies for their removal
costs.
Funds are to be disbursed from the Fund to government agencies using
two vehicles--Pollution Removal Funding Authorizations (PRFA) and
Military Interdepartmental Purchase Requests (MIPR). The PRFA commits
the Fund to reimburse costs incurred for agreed-upon pollution
response activities undertaken by a federal agency assisting the
Federal On-Scene Coordinator. The terms of a PRFA include relevant (1)
personnel salary costs, (2) travel and per diem expenses, (3) charges
for the use of agency-owned equipment or facilities, and (4) expenses
for contractor or vendor-supplied goods or services obtained by the
agency for removal assistance. Similarly, the Federal On-Scene
Coordinator may issue a MIPR for agreed-upon activities of the
Department of Defense (DOD) or its related components and for some
other agencies' activities. In contrast to PRFAs, MIPRs generally
commit the Fund to disburse funds for oil spill response activities
prior to conducting the activity and incurring the related costs.
However, for the Deepwater Horizon oil spill, both NPFC and DOD
established procedures for submitting documentation on a regular basis
for MIPRs authorized in response to this spill of national
significance.
BP's Claims Process for Individuals and Businesses:
The Coast Guard, without in any way relieving the other responsible
parties it identified of liability, approved BP's advertisement of its
claims process.[Footnote 25] In response to economic harm caused by
the Deepwater Horizon oil spill and to fulfill its obligations as a
responsible party, BP established a claims process and multiple claims
centers throughout the Gulf states. On May 3, 2010, BP began paying
emergency compensation to individuals and businesses. BP stated that
emergency payments would continue as long as individuals and
businesses could show they were unable to earn a living because of
injury to natural resources caused by the oil spill. According to BP,
it would base emergency payments on 1 month of income and would be
adjusted with additional documentation.[Footnote 26] BP has been
working to ensure that the other Deepwater Horizon oil spill
responsible parties contribute to the response. On May 20, 2011, BP
announced that it had reached an agreement with MOEX Offshore 2007 LLC
and its affiliates to settle all claims between the companies related
to the Deepwater Horizon oil spill, which included MOEX paying $1.065
billion to BP. Additionally, on October 17, 2011, BP announced that it
had reached an agreement with Anadarko Petroleum Company to settle all
claims between the companies related to the Deepwater Horizon oil
spill, which included Anadarko paying $4 billion to BP.
On June 16, 2010, President Obama announced that BP had agreed to set
aside $20 billion to pay certain economic damage claims caused by the
oil spill.[Footnote 27] On August 6, 2010, BP established an
irrevocable Trust and committed to fund it on a quarterly basis over 3-
1/2 years to reach the $20 billion total (as shown in figure 3). The
Trust is to pay some OPA-compensable claims as well as some other
claims for personal injuries that are not OPA-compensable, but for
which BP would be liable under other law.[Footnote 28]
Figure 3: The Trust's $20 Billion Funding Time Frame:
[Refer to PDF for image: line graph]
8/6/10: Trust agreement finalized.
8/9/10: BP makes initial deposit to escrow account: $3.0 billion.
BP is to make subsequent $1.25 billion payments on 3/31, 6/30, 9/30,
12/31 for each year through 2013.
Trust fund total: $5.0 billion;
Date: 12/31/10.
Trust fund total: $6.25 billion;
Date: 3/31/11.
Trust fund total: $7.5 billion;
Date: 6/30/2011.
Trust fund total: $8.75 billion;
Date: 9/30/11.
Trust fund total: $10.0 billion;
Date: 12/31/11.
Trust fund total: $11.25 billion;
Date: 3/31/12.
Trust fund total: $12.5 billion;
Date: 6/30/12.
Trust fund total: $13.75 billion;
Date: 9/30/12.
Trust fund total: $15.0 billion;
Date: 12/31/12.
Trust fund total: $16.5 billion;
Date: 3/21/13.
Trust fund total: $17.75 billion;
Date: 6/30/13.
Trust fund total: $18.75 billion;
Date: 9/30/13.
Trust fund total: $20.0 billion;
Date: 13/31/13.
Source: GAO analysis of an August 9, 2010 BP press release on the
funding of the $20 billion account.
[End of figure]
On August 23, 2010, the GCCF took over the administration of claims
process and the centers BP had established.[Footnote 29] Since it
began operating, the GCCF has offered the following kinds of payments:
* Emergency Advance Payments: Payments available to individuals and
businesses that were experiencing financial hardship resulting from
damages incurred from the Deepwater Horizon oil spill. GCCF considered
claims on emergency payments that were submitted by November 23, 2010.
* Quick Payment Final Claim: On December 13, 2010, BP announced that
individuals and businesses that had received emergency payments from
the GCCF were eligible for a quick payment final claim, which offers a
fixed amount of $5,000 for individuals and $25,000 for businesses.
Acceptance of such a claim would resolve all claims by that claimant
against BP including past and future alleged damages. The GCCF
Protocols for Interim and Final Claims provides that final claims can
be submitted to the GCCF through August 23, 2013.[Footnote 30]
* Final Payment: Those who do not choose or are not eligible for the
quick payment may submit a full review final payment claim for all
documented losses and damages. Acceptance of a final claim would
resolve all claims by that claimant against BP including past and
future alleged damages. Under GCCF procedures, claimants will have
until August 23, 2013, to estimate damages and submit claims for final
payment.
* Interim Payments: The alternative to a final payment is to make an
interim payment claim for past damages that have not been compensated.
Individuals and businesses receiving interim payments are not required
to sign a release of liability and may file a final claim at a later
date. The GCCF Protocols for Interim and Final Claims provides that
interim claims can be submitted to the GCCF through August 23, 2013.
As of May 31 2011, GCCF has paid $4.2 billion for individual and
business claims as shown in table 1. While the GCCF is scheduled to
stop receiving claims on August 23, 2013, BP's obligation, as a
responsible party under OPA, to receive claims will continue after the
GCCF closes.
Table 1: Claims Paid by GCCF as of May 31, 2011 (Unaudited):
Dollars in millions.
Type: Emergency Advanced Payments;
Number of claims paid: 169,142;
Amount: $2.583 billion.
Type: Interim Payments;
Number of claims paid: 12,977;
Amount: $147.8 million.
Type: Quick Pay (Final)[A];
Number of claims paid: 114,320;
Amount: 1.105 billion.
Type: Full Review (Final)[A];
Number of claims paid: 25,102;
Amount: $390.5 million.
Type: Total[B];
Number of claims paid: 321,541;
Amount: $4.226 billion.
Source: GAO analysis of GCCF data.
[A] Both Quick Pay and Full Review require the claimants to sign a
release waiving any rights they may have against responsible parties
to file or participate in legal action or to submit any claim to NPFC
for payment.
[B] As described in our November 2010 report, claims approved by GCCF
are paid from a Trust established and funded (up to $20 billion) by
BP. Prior to the establishment of GCCF, BP had received and directly
paid claims from individuals and businesses totaling $396.0 million.
[End of table]
Although the Total Federal Financial Risk Has Not Been Determined,
Actions Are Needed to Reduce Known Risks:
Both the individual circumstances of the Deepwater Horizon incident,
as well as the overall framework of how the federal government
responds to oil spills, present a mix of financial risks to the Fund
and the federal government. The extent of financial risks to the
federal government from the Deepwater Horizon is closely tied to BP
and the other responsible parties and guarantors. Because the federal
government's Fund would pay if the responsible party (BP through its
Trust, for example) did not, and given the expectation for numerous
expenses to be paid from the Trust and the fact that the full amount
of damages may not be fully determined for some time, the extent of
any long-term financial risks for the federal government as a result
of this spill is not clear. Federal agency cleanup and restoration
activities are underway and agencies continue to incur costs and
submit them for reimbursement. As a result, it is possible that
expenditures from the Fund for Federal removal costs and claims will
reach the $1 billion cap, as the cap balance was over $626 million on
May 31, 2011.[Footnote 31] When the cap balance reaches the total
expenditure cap of $1 billion, no further payments to reimburse
agencies' costs (or to pay individual or business claims if not paid
by the responsible parties) can be made from the Fund, so federal
agencies would no longer be able to obtain reimbursement for their
costs. Finally, the federal government's longer-term ability to
provide financial support in response to future oil spills is also at
risk because the Fund's primary source of revenue, a tax on petroleum
products, is scheduled to expire in 2017.
BP Has Committed to Paying Deepwater Horizon Expenses, but the Extent
of the Federal Government's Financial Exposure Remains Unknown:
BP has committed to set aside $20 billion to cover potential Deepwater
Horizon oil spill expenses[Footnote 32]--and has stated its intent to
pay expenses over the $20 billion if needed. BP's track record for
reimbursing federal agencies for their expenses to this point has been
favorable. For example, as of May 31, 2011, NPFC had sent 11 invoices
to all of the responsible parties covering federal and state OPA-
compensable costs totaling $711 million and BP paid all 11 invoices.
[Footnote 33] However, until the total expenses of the Deepwater
Horizon oil spill have been fully determined and those amounts have
then been paid by and reimbursed to the federal government, the extent
of any federal government financial exposure remains unknown.[Footnote
34] The financial responsibility for the spill will ultimately be
determined through a lengthy and complex process involving the
application of different laws and regulations, and depends upon a
continuation of the ability of the responsible parties to pay expenses
associated with the Deepwater Horizon oil spill.[Footnote 35]
Although BP has established a $20 billion Trust to pay claims from
individuals and businesses harmed by the spill, a number of
uncertainties regarding the Trust's uses may impact its ability to
adequately reimburse claimants, increasing the risk that the federal
government will ultimately be responsible for paying the remaining
claims. Although all uncertainties--and the associated expenses--may
not be known for many years, some uncertainties that are known relate
to the following issues.
* The federal government has begun an extensive natural resource
damage assessment process, but the associated costs have yet to be
determined. In order to start the process, in May 2010, BP agreed to
provide $10 million to DOI and $10 million to the National Oceanic and
Atmospheric Administration (NOAA) in the Department of Commerce. Also,
in April 2011, BP committed up to $1 billion from the Trust to
projects to help restore damaged natural resources in the Gulf of
Mexico, such as the rebuilding of costal marshes, replenishment of
damaged beaches, conservation of sensitive areas for ocean habitat for
injured wildlife, and restoration of barrier islands and wetlands that
provide natural protection from storms. The natural resource damage
assessment and restoration process will take years to complete, so the
full costs for which BP and the other responsible parties are liable
have yet to be determined. The National Commission on BP Deepwater
Horizon Oil Spill and Offshore Drilling report estimates that fully
restoring the Gulf will take $15 billion to $20 billion and over 30
years.[Footnote 36] If the responsible parties are unable or unwilling
to pay, then the agencies' costs for the natural resource damages,
including the costs to assess and restore, rehabilitate, replace, or
acquire equivalent natural resources, would need to be reimbursed from
the Fund (provided that funds were still available, given the $1
billion per incident cap).
* The responsible parties also are likely to face fines and penalties
which have yet to be determined and which will be levied by federal
and state governments. In particular, under the Clean Water Act,
liable parties face substantial administrative and civil penalties
that may be imposed by EPA or DHS.[Footnote 37] According to the BP
Oil Spill Commission Report, the maximum Clean Water Act civil
penalties could range from $4.5 billion to $21 billion.
* BP and the other responsible parties face over 500 lawsuits from the
federal government, states, investors, employees, businesses, and
individuals. The extent to which these lawsuits will impact the
responsible parties financially is uncertain at this time since they
will take years to litigate. BP has stated that it may use the Trust
to pay lawsuit settlements as well as for paying claims and for
natural resource damages.
* Justice is continuing to evaluate federal government costs incurred
related to the Deepwater Horizon oil spill that are not OPA-
compensable. On May 13, 2011, Justice sent the responsible parties an
invoice requesting reimbursement to the federal government for $81.6
million (for agencies' costs incurred through December 2010).
Although BP has stated that it will pay expenses over the $20 billion,
if necessary, it is uncertain how this would be accomplished over
time, thus posing an element of risk to the federal government. In
addition, although MOEX and its affiliates have settled with BP by
paying $1.065 billion and Anadarko settled with BP which included a
payment of $4 billion, other responsible parties have not reached a
settlement. If BP becomes unable to pay future cleanup costs,
individual and business claims, and natural resource restoration
costs, the federal government may need to consider paying costs and
then pursuing reimbursement from the other responsible parties.
Reaching the Fund's $1 Billion Cap Could Result in Federal Agencies
Needing Additional Funding for Oil Spill Response Costs:
NPFC's Deepwater Horizon oil spill amounts counted towards this cap
was $626.1 million as of May 31, 2011, and is thereby approaching the
$1 billion per-incident cap mandated by OPA. The $626.1 million
consists of $128.0 million incurred by the Coast Guard and $498.1
million incurred by other agencies. Once expenditures from the Fund
reach the cap, NPFC will be statutorily barred from reimbursing
federal agencies for response and restoration work, or paying
individuals and businesses to settle claims. Consequently, if federal
agencies did not receive dedicated appropriations for oil spill costs,
the federal agencies would be faced with reallocating their
appropriated funding to cover oil spill costs, or seeking additional
funding from Congress. In November 2010, we suggested that Congress
may want to consider setting a Fund cap associated with an incident,
based upon net expenditures (expenditures less reimbursements).
[Footnote 38]
As of May 31, 2011, government agencies continue to submit
documentation of their Deepwater Horizon oil spill recovery costs for
reimbursement from the Fund. (Appendix VII provides information about
government agencies' authorized response costs and amounts
reimbursed.) Further, although as of May 31, 2011 all individual and
business claims reviewed by NPFC have been denied, claims continue to
be submitted.[Footnote 39] According to NPFC officials, individuals
and businesses will continue to submit claims associated with the
Deepwater Horizon oil spill for several years. In addition, the
natural resources restoration process is beginning and these
associated costs will accumulate over many years.
Uncertainties Regarding Future Funding Availability:
Uncertainties exist regarding the primary revenue source of the Fund,
which is set to expire in 2017, and the potential for future oil
spills. If the Fund's primary source of revenue expires, this could
affect future oil spill response and may increase risk to the federal
government. Also, although the Deepwater Horizon oil spill was the
largest oil spill disaster in U.S. history, annually over 500 spills
of varying size and response occur.
* The per barrel tax revenue. A provision of The Energy Improvement
and Extension Act of 2008 mandates that the Fund's primary source of
revenue, a per barrel tax, is set to expire on December 31, 2017.
[Footnote 40] Therefore, even with substantial amounts reimbursed by
BP, the Fund balance would likely decrease as a result of the
expiration of its primary source of funding and the expectation of
future Deepwater Horizon costs. This could raise the risk that the
Fund would not be adequately equipped to deal with future spills,
particularly one of this magnitude, and it will be important for
Congress to determine a funding mechanism for the Fund going forward.
The two other sources of revenue are cost recoveries from responsible
parties and interest on the Fund principal from U.S. Treasury
investments.[Footnote 41] As we reported in September 2007,[Footnote
42] the balance of the Fund generally declined from 1995 to 2006
mostly because the per barrel tax expired in December 1994 and revenue
was not collected from January 1995 to March 2006.[Footnote 43]
* The potential need to fund the response to future spills poses
risks. The possibility of needing to respond to another spill of
national significance increases the risk to the Fund and the federal
government. In fiscal year 2011 alone, the Fund has already paid for
267 oil spills through May 31, 2011. According to NPFC officials, on
an annual basis, approximately 500 spills with varying costs and
magnitude occur. In 2007, we reported that since 1990 approximately 51
spills amounting to over $1 million have occurred, and that
responsible parties and the Fund have spent between $860 million and
$1.1 billion for oil spill removal costs and compensation for damages.
[Footnote 44] Responsible parties paid between 72 and 78 percent of
these expenses, while the Fund paid the remainder. As of May 31, 2011,
the Fund's balance was approximately $2.0 billion. The federal
government would need to consider using other sources of funds
particularly if another spill of national significance occurs and if
the responsible party(ies) are unable or unwilling to pay.
The Coast Guard Has Effective Claims Processing and Cost Reimbursement
Controls, However Could Benefit by Documenting Changes Made in Claims
Practices:
Our testing of the Coast Guard's controls over Deepwater Horizon
claims processed as of April 30, 2011, and cost reimbursements
processed as of April 20, 2011, showed that adjudicated claims
processed and costs reimbursed were consistent with its procedures.
The Coast Guard's operating practices in these areas have changed to
reflect the largely unprecedented size and evolving scope of the
Deepwater Horizon incident. It has updated its cost reimbursement
procedures to incorporate lessons learned from the initial response to
this spill and although it has not yet updated its procedures for
processing claims from spills of national significance to reflect
lessons learned from its experiences processing Deepwater Horizon
claims, it has plans to do so.
Tests Show Coast Guard's NPFC Has Established Effective Controls for
Processing Deepwater Horizon Claims and Cost Reimbursements:
We found that internal controls related to the documentation, review,
and adjudication of individual and business claims submitted following
the Deepwater Horizon oil spill were operating in accordance with
established policies and procedures. During the period September 1,
2010, through May 31, 2011, NPFC received 901 Deepwater Horizon claims
totaling $238 million. Of these claims, NPFC has finalized 570, all of
which resulted in a denial or a withdrawal by the claimant.
Our testing of a statistical sample of 60 out of the 432 Deepwater
Horizon finalized claims through April 30, 2011 found that NPFC had
followed its policies and procedures.[Footnote 45] Specifically, all
claims:
* were submitted in writing, for a sum certain amount, and included
the required claimant information (i.e., address, nature and extent of
the impact of the incident, etc.);
* complied with OPA's order of presentment (which requires that all
claims for removal costs or damages must be presented first to the
responsible party for payment), and verified that claimants had filed
with the responsible party first before submitting their claim to NPFC;
* included evidence submitted by the claimant, or if needed, NPFC sent
a letter to the claimant requesting additional support;
* were adjudicated within the time provided by regulation;[Footnote 46]
* underwent legal review and were submitted within the required time
frame, if reconsideration was requested;[Footnote 47] and:
* when denied, were appropriately transmitted by sending a denial
letter to the claimant along with a Claim Summary/Determination Form
explaining the basis for denial.
However, because all finalized claims resulted in denials or
withdrawals, our testing could not assess the effectiveness of NPFC's
controls over payments to individuals and business claimants.
Our statistical testing of 57 of 954 Deepwater Horizon cost
reimbursements for government oil spill response activities from the
Fund between April 20, 2010, and April 20, 2011, found that in all
cases NPFC had followed established policies and procedures.
Specifically, NPFC:
* accepted only cost reimbursement packages from government agencies
with a signed PRFA or MIPR agreement in place for Deepwater Horizon
response costs;
* determined that the Federal On-Scene Coordinator certified that all
services or goods were received;
* ensured that supporting cost documentation submitted for
reimbursement complied with the PRFA statement of work or MIPR
agreement;
* wrote a letter to FINCEN[Footnote 48] authorizing payment (signed by
an NPFC Case Officer for the amount disbursed from the Fund under the
appropriate PRFA or MIPR); and:
* obtained supporting documentation from the government agency
requesting reimbursement.
NPFC Updated Its Cost Reimbursement Procedures to Reflect Lessons
Learned for Deepwater Horizon, and Plans to Similarly Update Its
Claims Procedures:
NPFC has strengthened its cost reimbursement guidance to reflect
lessons learned from experiences during the initial Deepwater Horizon
oil spill response, and officials told us they planned to take similar
steps to update its claims processing guidance. Updating NPFC's claims
procedures to fully reflect Deepwater Horizon lessons learned will be
critical should another spill of national significance occur.
On April 14, 2011, NPFC issued an appendix for its cost reimbursement
procedures manual modifying the procedures the agency is to follow for
spills of national significance. This appendix is based on the lessons
learned from addressing the unprecedented challenges posed by the
Deepwater Horizon oil spill.[Footnote 49] It provides guidance, for
example, targeting some of the issues that arose related to the
management of finances, including cost documentation requirements for
MIPRs with DOD. Specifically, the modified procedures provide that
MIPRs will be reimbursed after the cost documentation is reviewed and
work completion verified.
NPFC officials told us that its current claims processing practices
have also evolved since April 2010 to reflect lessons learned from the
Deepwater Horizon oil spill. Over the past 10 years, NPFC typically
received, on average, fewer than 300 claims each year. However, in
light of the dramatic increase in the number of Deepwater Horizon oil
spill claims received, NPFC refined its practices to augment its
claims processing capacity. These practices included using
contractors, Coast Guard reservists and, as needed, reassigning other
NPFC staff. NPFC's Standard Operating Procedures of the Claims
Adjudication Division, which have not been updated since April 2004,
do not yet include specific procedures required for processing claims
for a spill of national significance.[Footnote 50] In particular, the
procedures do not include modified practices to respond to the
dramatic increase in claims filed as a result of the Deepwater Horizon
incident. For the Deepwater Horizon oil spill, NPFC adopted practices
involving newly developed performance indicators, past experience and
continuous updates on current GCCF statistics as tools to identify the
timing and extent of additional resources needed to augment its claims
processing capabilities. GAO's Standards of Internal Control in the
Federal Government[Footnote 51] provide that internal control should
provide for specific activities needed to help ensure management's
directives are carried out.
NPFC has an opportunity to help ensure that expertise and effective
practices are not lost by incorporating the lessons learned from the
Deepwater Horizon incident in its guidance. Clearly documenting the
policies and procedures used for the Deepwater Horizon incident would
position NPFC for more effectively processing claims from any future
spills of national significance by incorporating guidance, for
example, on the use of performance indicators and statistics to
address the size and timing of claim submissions. NPFC officials told
us they are in the process of drafting an appendix for claims for
spills of national significance for its individual and business claims
procedures manual to document such procedures.
Federal Agencies' Oversight Efforts Include Monitoring GCCF's Claims
Process and Participating in Natural Resource Assessments:
The federal government has used a variety of approaches to oversee
BP's and GCCF's cost reimbursement and claims processing including
monitoring their activities. Soon after the Deepwater Horizon oil
spill, the Deepwater Integrated Services Team (IST)[Footnote 52] was
established at the direction of the National Incident Command, under
the command of the U.S. Coast Guard, and initially was responsible for
monitoring BP's claims process. As Deepwater IST scaled back, its
responsibilities were transitioned to relevant agencies. The oversight
effort for cost reimbursement and claims activities transitioned to
Justice, who continues to lead the efforts. In addition, DOI and NOAA
are serving as the federal government representatives for the natural
resource trustees in evaluating the environmental impact of the
Deepwater Horizon incident.
The Role of the Deepwater Integrated Services Team Evolved during the
Response Effort and Concluded in February 2011:
In order to coordinate federal agencies' and departments' efforts to
provide support services and initially monitor claims in response to
the Deepwater Horizon oil spill, the IST was established with the
Federal Emergency Management Agency (FEMA) leading this effort. Figure
4 shows the IST participants. IST coordinated intergovernmental
efforts to monitor BP and the GCCF claims processes to promote their
efficiency and effectiveness by raising awareness and ensuring
accountability and positive outcomes. It also helped raise awareness
of concerns related to payment policy clarity for claimants, data
access and reporting, and coordination of federal and state benefits
and services to avoid duplicate payments. In conjunction with the
stand-down of the National Incident Command on September 30, 2010, IST
began scaling back its staffing and functions and concluded the final
transition of its functions to federal agencies under the agencies
existing authorities and responsibilities effective February 1, 2011.
For example, Justice continues to monitor the effectiveness and
efficiency of the BP and GCCF claims processes, and also leads
coordination efforts to connect government stakeholders with BP and
GCCF as needed.
Figure 4: Participants in the Deepwater IST:
[Refer to PDF for image: illustration]
Deepwater Integrated Services Team (IST):
National level IST;
Field based IST.
Participants:
* Executive Office of the President;
* Corporation for National and Community Service;
* Department of Agriculture;
* Department of Commerce;
* Department of Education;
* Department of Health and Human Services;
* Department of Homeland Security (Lead);
* Department of Interior;
* Department of Labor;
* Department of Housing and Urban Development;
* Department of Justice;
* Department of the Treasury;
* Department of Veteran Affairs;
* Department of Energy;
* Environmental Protection Agency;
* Federal Mediation and Conciliation Service;
* Small Business Administration;
* Social Security Administration.
Source: Deepwater Integrated Services Team.
[End of figure]
Justice Is Leading the Federal Government's Efforts to Monitor GCCF's
Claims Process:
Justice has been proactive in leading federal agencies in using a
range of approaches to establish practices to monitor the cost
reimbursement and claims activities of BP and the GCCF. Justice
encouraged BP to establish the Trust and the GCCF. Justice sent at
least four letters to GCCF highlighting key concerns with the claims
process. For example, in a letter dated February 4, 2011, Justice
reiterated that OPA requires BP and other responsible parties to pay
for damages as a result of the oil spill and to make the GCCF claims
process more transparent so that claimants clearly understand the
status of their claims. According to a Justice official, Justice's
involvement stems from a regulatory interest to ensure that the
administration of the Trust is consistent with OPA and that claimants
are treated fairly, as well as to help ensure transparency.
On another related front, in order to identify non-OPA-compensable
costs which the federal government incurred due to the duration, size,
and location of the Deepwater Horizon oil spill, OMB issued guidance
between July 2010 and January 2011 to federal agencies on identifying,
documenting and reporting costs associated with the Deepwater Horizon
oil spill.[Footnote 53] Specifically, OMB's guidance directed federal
agencies to include in their summary cost reports federal employee
time, travel, and other related costs that were not being reimbursed
through the Fund.[Footnote 54] Justice has used the information
submitted by the federal agencies to identify and seek reimbursement
from responsible parties for certain non-OPA-compensable costs.
According to Justice officials, Justice reviewed and analyzed the
information submitted by the agencies through December 31, 2010, to
determine which agency costs reflected agency activities directly
related to the Deepwater Horizon oil spill. After compiling this
information, on May 13, 2011, Justice sent the responsible parties an
invoice requesting reimbursement to the federal government for $81.6
million for the first two reporting quarters (through approximately
December 2010) for other federal agency non-OPA-compensable costs.
[Footnote 55] According to Justice officials, they will continue to
analyze the Deepwater Horizon oil spill costs that federal agencies
submit on a quarterly basis and plan to send additional requests for
cost reimbursement to the responsible parties, as appropriate.
Justice has also coordinated investigations of Deepwater Horizon
potential fraudulent claims from individuals and businesses under
review by its National Center for Disaster Fraud.[Footnote 56] As of
July 28, 2011, over 3,000 referrals had been submitted for
investigation from BP, GCCF and NPFC.
The National Commission on BP Deepwater Horizon Oil Spill and Offshore
Drilling recommended that Justice's Office of Dispute Resolution
conduct an evaluation of GCCF once all claims have been paid, in order
to inform claims processes in future spills of national significance.
The Commission said the evaluation should include a review of the
process, the guidelines used for compensation, and the success rate
for avoiding lawsuits.
NPFC has also participated in monitoring the individual and business
claim activities of BP and GCCF in order to determine and prepare for
any potential inflows of related claims that might be coming to NPFC
following any significant number of claim denials by BP or the other
responsible parties. Claimants who are denied payment by the GCCF or
whose claims are not settled within 90 days may pursue the following
options:
* appeal GCCF's decision, if the claim is in excess of $250,000 under
procedures established by the GCCF administrator;
* begin litigation against the responsible parties in court;[Footnote
57] or:
* file a claim with NPFC.[Footnote 58]
Over 900 Deepwater Horizon claims (some of which were denied by BP and
GCCF) have been filed with NPFC between September 2010 and May 2011.
NPFC's claims adjudication division regularly obtains information from
GCCF on GCCF claims paid and denied. This oversight information allows
NPFC to determine the extent to which cases should be closed as the
claimants were paid by GCCF, helps prevent claimants being paid by
both GCCF and NPFC for the same claim, and enables it to better
anticipate denied GCCF claims that could be resubmitted to NPFC for
adjudication.
DOI and NOAA Are Actively Participating As the Federal Natural
Resource Trustees:
The natural resource trustees for the Deepwater Horizon incident--
responsible for evaluating the oil spill's impacts on natural
resources--are DOI, NOAA, DOD, and the five Gulf Coast states (Texas,
Louisiana, Mississippi, Alabama, and Florida). On September 27, 2010,
NOAA sent the eight responsible parties identified by DOI a Notice of
Intent to Conduct Restoration Planning for the Deepwater Horizon
incident on behalf of federal and state trustees. On April 21, 2011,
the federal and state trustees announced that BP had agreed to provide
$1 billion from the Trust for early restoration projects in the Gulf
of Mexico to address natural resource damage caused by the Deepwater
Horizon oil spill. Under the agreement, the $1 billion will be
provided to fund projects such as the rebuilding of coastal marshes,
replenishment of damaged beaches, conservation of sensitive areas for
ocean habitat for injured wildlife, and restoration of barrier islands
and wetlands that provide natural protection from storms.
The $1 billion in early restoration projects will be selected and
implemented as follows:
* DOI will select and implement $100 million in projects;
* NOAA will select and implement $100 million in projects;
* each of the five states (Alabama, Florida, Louisiana, Mississippi,
and Texas) will select and implement $100 million in projects; and:
* DOI and NOAA will select projects submitted by the state trustees
for $300 million.
Conclusion:
Several factors contribute to financial risks that the federal
government will continue to face for a number of years as a result of
the Deepwater Horizon oil spill. Future uncertainties include the
total expenses of fully addressing the impact of the Deepwater Horizon
oil spill and the responsible parties' and guarantors' willingness and
ability to continue to pay, possibly for the next several decades.
Uncertainty over federal financial risks also arise from the per
barrel oil tax expiration in 2017--the primary revenue source for the
Fund--and the need for funding in response to other potential
significant spills. Given these risks, it will be important for
Congress to consider whether additional legislative action would help
ensure that OPA's $1 billion per-incident cap does not hinder NPFC's
ability to reimburse federal agencies' costs, pay natural resources
damages, and pay valid claims submitted by individuals and businesses.
To this end, we are reiterating the Matter for Congressional
Consideration in our November 2010 report that Congress should
consider amending OPA, or enacting new legislation to take into
account reimbursements from responsible parties in calculating an
incident's expenditures against the Fund's $1 billion per-incident
expenditure cap.[Footnote 59] For its part, NPFC has an opportunity to
document and incorporate the lessons learned from its Deepwater
Horizon oil spill experience in its policies and procedures to help
improve its management of any future spills of national significance.
Capturing lessons learned about processing such claims will be
essential should a significant spill occur in the future In addition,
NPFC took action to address recommendations made in our November 2010
report to ensure and maintain cost reimbursement policies and
procedures and ensure responsible parties are properly notified (see
appendix I for the recommendations and their current status).
Matter for Congressional Consideration:
Congress should consider the options for funding 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.
Recommendation for Executive Action:
In order to provide guidance for responding to a spill of national
significance and build on lessons learned, we recommend that the
Secretary of Homeland Security direct the Director of the Coast
Guard's NPFC to finalize the revisions the Coast Guard is drafting to
its Claims Adjudication Division's Standard Operating Procedures to
include specific required steps for processing claims received in the
event of a spill of national significance.
Agency Comments:
We provided copies of the draft report to the Departments of Homeland
Security, Justice, Interior, Defense, and Commerce; Office of
Management and Budget; and Environmental Protection Agency for comment
prior to finalizing the report. In its written comments, reproduced in
appendix VIII, the Department of Homeland Security concurred with our
recommendation and stated it plans to finalize changes to operating
procedures by October 31, 2011. The Departments of Homeland Security,
Justice, and Interior and Environmental Protection Agency also
provided technical comments that were incorporated, as appropriate.
We are sending copies of this report to the appropriate congressional
committees. We are also sending copies to the Secretary of Homeland
Security; Director of NPFC; Attorney General of the United States;
Secretary of the Interior; Secretary of Defense; Secretary of
Commerce; Director of Office of Management and Budget; Administrator
of the Environmental Protection Agency; and to other interested
parties. This report will also be available at no charge on our
website at [hyperlink, http://www.gao.gov].
Should you or your staff have any questions concerning this report,
please contact Susan Ragland at (202) 512-8486 or raglands@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 IX.
Signed by:
Susan Ragland:
Director Financial Management and Assurance:
List of Requesters:
The Honorable John Conyers, Jr.
Ranking Member:
Committee on the Judiciary:
House of Representatives:
The Honorable Bennie G. Thompson:
Ranking Member:
Committee on Homeland Security:
House of Representatives:
The Honorable Tom Carper:
Chairman:
Subcommittee on Federal Financial Management, Government Information,
Federal Services, and International Security:
Committee on Homeland Security and Governmental Affairs:
United States Senate:
The Honorable Sheldon Whitehouse:
Chairman:
Subcommittee on Oversight:
Committee on Environment and Public Works:
United States Senate:
The Honorable Cliff Stearns:
Chairman:
Subcommittee on Oversight and Investigations:
Committee on Energy and Commerce:
House of Representatives:
The Honorable Mary Landrieu:
United States Senate:
The Honorable Michael C. Burgess:
The Honorable Nick J. Rahall, II:
House of Representatives:
[End of section]
Appendix I: Status of Prior Recommendations:
The National Pollution Fund Center (NPFC) took actions as of September
2011 to address the four recommendations we made in our November 2010
report.[Footnote 60]
Table 2: Implementation Status of Prior GAO Recommendations:
In order to help establish and maintain effective cost reimbursement
policies and procedures for the Fund, we recommended that the
Secretary of Homeland Security direct the Director of the Coast
Guard's NPFC to update NPFC's policies and procedures to include:
GAO recommendations: 1. Current Fund reimbursement-billing practices
that reflect both a percentage of federal agencies' obligations as
well as expenditures;
Implementation status: NPFC officials stated they updated their
policies and procedures to formally incorporate the practices in April
2011.
GAO recommendations: 2. Specific procedural guidance on processing
Department of Defense (DOD) requests for reimbursement using Military
Interdepartmental Purchase Requests;
Implementation status: NPFC officials stated they updated their
policies and procedures to formally incorporate the procedures in
April 2011.
In order to ensure that responsible parties are properly notified of
their responsibilities for an oil spill, we recommend that the
Secretary of Homeland Security direct the Director of NPFC to:
GAO recommendations: 3. Update NPFC's current policies to reflect
current organization and structure and management's directives;
Implementation status: NPFC officials stated that this recommendation
resulted from outdated procedures regarding Notices of Designation and
the procedures were corrected in August 2011.
GAO recommendations: 4. Update NPFC's current procedures to provide
detailed guidance and procedures for identifying and documenting
responsible party notification;
Implementation status: In their comments to GAO's November 2010
report, NPFC officials disagreed with our recommendation and stated
its responsible party designations are unrelated to the imposition of
liability under the Oil Pollution Act of 1990 (OPA) and that they
serve the purpose of getting a responsible party to advertise the
Deepwater Horizon oil spill claims process. NPFC's procedures provided
that responsible parties and their guarantors are to be notified of
their oil spill-related responsibilities. In accordance with its
procedures, NPFC sent formal letters of designation to some, but not
all, of the responsible parties it identified for the Deepwater
Horizon oil spill. To other responsible parties, NPFC provided only
invoices that reflected NPFC's assessment of liability for removal
costs. NPFC's procedures for notifying responsible parties using
invoices did not clearly communicate their "responsible party"
designation. NPFC officials stated that NPFC updated its procedures in
August 2011 to clarify the process.
Source: GAO-11-397R and GAO analysis of NPFC information.
[End of table]
[End of section]
Appendix II: Objectives, Scope, and Methodology:
This report is the third and final in a series of reports on the
Deepwater Horizon oil spill in response to this request. Shortly after
the explosion and subsequent sinking of BP's leased Deepwater Horizon
oil rig in the Gulf of Mexico in April 2010, we were requested to (1)
identify the financial risks to the federal government and, more
specifically, to the Oil Spill Liability Trust Fund (Fund) resulting
from oil spills, particularly Deepwater Horizon, (2) assess NPFC's
internal controls for ensuring that processes and payments for cost
reimbursements and processes for claims related to the Deepwater
Horizon oil spill were appropriate, and (3) describe the extent to
which the federal government oversees the BP and Gulf Coast Claims
Facility (GCCF) Deepwater Horizon oil spill-related claims processes.
Concerning our analysis of the financial risks and exposures to the
federal government and Fund, we identified and analyzed applicable
laws and regulations in order to determine statutory and regulatory
limitations on the liability of responsible parties that may pose
financial risks to the Fund and federal government. We also considered
GAO reports on the use of the Fund, reviewed publicly available
quarterly financial information of responsible parties through June
2011 to gain an understanding of the extent to which contingent
liabilities are reported by these companies, and reviewed reports
issued by the Congressional Research Service on responsible party
liabilities under OPA. [Footnote 61] To determine the obligations and
costs incurred in relation to the Fund's $1 billion per incident cap,
we obtained and analyzed daily financial summary data NPFC used
related to the Deepwater Horizon oil spill. We also reviewed NPFC's
daily financial summary data to compare the amounts federal and state
agencies had submitted for reimbursement from the Fund to the amounts
NPFC had authorized for payment from the Fund to these government
agencies through May 2011. We obtained invoices NPFC sent to the
responsible parties to reimburse the Fund, analyzed the requests for
reimbursements submitted by federal and state agencies, and compared
the invoiced amounts to the amounts federal and state agencies had
submitted for payment from the Fund.
To assess NPFC's internal controls for ensuring that agencies'
requests for cost reimbursements and claims from individuals and
businesses are appropriate, we reviewed relevant sections of OPA and
compared the sections to NPFC's cost reimbursement and claims Standard
Operating Procedures and to GAO's Standards for Internal Control in
the Federal Government.[Footnote 62] We interviewed cognizant NPFC
officials about its cost reimbursement and claims processes, Deepwater
Horizon oil spill response efforts, specific cost recovery actions
under way or completed, and the NPFC division(s) responsible for those
actions. We also conducted walkthroughs of the cost reimbursement and
claims processes, observed NPFC's process for generating an invoice to
the responsible parties for Deepwater Horizon response costs, and
conducted a site visit to the Gulf area in October 2010.
For agency cost reimbursements, we tested a statistical sample of
payments to federal and state agencies for their Deepwater Horizon
removal and response activities paid from the Fund between April 2010
and April 2011. We interviewed NPFC's Case Management Officer for
Deepwater Horizon and other NPFC officials to gain a thorough
understanding of NPFC's cost reimbursement process. In addition, we
performed walk-throughs of NPFC's cost reimbursement and billing
processes and reviewed NPFC's Case Management's standard operating
procedures and other guidance documents. We also obtained updated
information from NPFC officials about the status of the response to
recommendations made in our November 2010 report.
To determine our population for sampling cost reimbursements for the
Deepwater Horizon oil spill, we obtained a disbursement file from U.S.
Coast Guard's Finance Center (FINCEN)[Footnote 63] which consisted of
173,458 disbursements from the Fund between April 2010 and April 2011.
We reviewed the information in the file to determine whether we could
rely on the data in order to select a sample and test internal
controls associated with the cost reimbursement process. We assessed
the reliability of the data in the file and determined it could be
used to select a statistical sample for testing. From the population
of 173,458 disbursements from the Fund between April 2010 and April
2011, we identified 954 disbursements for Deepwater Horizon.[Footnote
64] We then selected a random statistical sample of 57 disbursements
for testing. We tested the 57 Fund disbursements for adherence to
NPFC's case management standard operating procedures. Our test
included reviewing the request for reimbursement submission to:
* determine if a signed Pollution Removal Funding Authorization (PRFA)
or Military Interdepartmental Purchase Request (MIPR) was in place
between the performing federal or state agency and the Federal On-
Scene Coordinator;
* assess that the services or goods provided were in accordance with
the terms of the PRFA statement of work or MIPR agreement;
* confirm evidence of supporting documentation;
* confirm the Federal On-Scene Coordinator's approval of the amount
requested for reimbursement by the performing federal or state agency;
and:
* confirm an NPFC Case Manager signed an Authorization to Pay or
Authority to Allow Intra-Governmental Payment and Collection
memorandum addressed to FINCEN authorizing payment from the Fund.
For claims, we tested a statistical sample of finalized Deepwater
Horizon claims presented to the Fund between September 2010 and April
2011. First, we interviewed NPFC's Claims Division Chief, Senior
Claims Manager, and other cognizant NPFC officials to gain an
understanding of NPFC's claims adjudication process. On the basis of
information provided by NPFC, we identified 432 finalized claims from
NPFC's Claims Processing System[Footnote 65] submitted for the
Deepwater Horizon spill between September 2010 and April 2011. From
the population of 432 finalized claims, we selected a random sample of
60 claims to test. We tested the sample for adherence to OPA's and
NPFC's claims policies and procedures. We tested NPFC's adherence to
its procedures for claim receipt, initial review, adjudication review,
determination, and reconsideration. In conducting our work, we
reviewed documents from individual claim files, and also used NPFC's
Claims Processing System to review the responsible party's
communication on the claims presented to the NPFC for payment. We
tested to ensure that NPFC had a process for complying with OPA's
prioritization requirement that all claims be presented to the
responsible party before they can be presented to the Fund. We tested
to confirm that the claims were signed and submitted in writing, for a
sum certain amount, and were processed by NPFC within the required
statutory time frame. Because there were no payments made for claims
submitted for Deepwater Horizon for our scope period, we were unable
to test the payment process.
Because we selected a sample of claims and cost disbursements, our
results are estimates of the population and thus are subject to sample
errors that are associated with samples of this size and type. Our
confidence in the precision of the results from these samples is
expressed in 95-percent confidence intervals. A 95-percent confidence
interval is the interval that would contain the true population value
in 95 percent of samples of this type and size. The results of our
tests on both the sample of claims and the sample cost disbursements
did not find any exceptions. On the basis of these results, we
estimated that the 95-percent confidence intervals range from zero to
5 percent for both sample results and concluded with 95-percent
confidence that the error rate in each population does not exceed 5
percent.
We reviewed NPFC's policies and procedures for processing and
adjudicating oil spill claims and obtained information on NPFC's
claims contingency planning for handling potential surges in claims
submitted related to the Deepwater Horizon oil spill.
We obtained claims information from the GCCF and NPFC through May 2011
to describe the number and types of claims filed by individuals and
businesses against the GCCF and the Fund, and the number and dollar
amounts submitted, reviewed, and paid. We also obtained the Notices of
Designation[Footnote 66] NPFC sent to responsible parties and
interviewed NPFC officials about their methodology for identifying
responsible parties and their procedures for notifying them.
We interviewed officials at the Departments of Commerce, Defense,
Interior, and Homeland Security, and the Environmental Protection
Agency to obtain an understanding of these agencies' response
activities for the Deepwater Horizon oil spill and its process for
billing on costs incurred. We also obtained invoices NPFC sent to the
responsible parties and analyzed these billed amounts and summarized
the amounts by federal and state agencies. We compared the amounts
submitted for reimbursement from the Fund by the performing federal
and state agencies, to the amounts billed to the responsible parties
on their behalf to identify which agencies have begun their cost
recovery efforts. We compared the amounts requested for reimbursement
from the Fund by the performing federal and state agencies, to the
amounts reimbursed from the Fund to determine the status of agency's
cost recovery efforts.
To describe how the federal government oversees the BP and GCCF claims
processes, we interviewed Department of Justice (Justice) officials
about their oversight of BP's claims process, the establishment of
BP's $20 billion Trust, and the setup of the GCCF. We reviewed
Justice's comments on the draft GCCF Emergency Advanced Payment and
GCCF Final Payment protocols, and we obtained and reviewed the Trust
agreement. We obtained and reviewed letters sent by Justice to the
responsible parties discussing their financial responsibilities in
connection with the Deepwater Horizon oil spill, which requested that
the responsible parties provide advance notice of any significant
corporate actions related to organization, structure, and financial
position. We obtained and reviewed letters sent by Justice to the GCCF
highlighting concerns about its pace for processing claims, need for
transparency, and compliance with OPA standards. In addition, we
interviewed Deepwater Integrated Services Team (IST) officials about
their coordination activities regarding the BP and GCCF claims process
and social services coordination efforts. The IST which was
established in June 2010 and stood down in September 2010, took steps
to raise awareness of concerns related to claim payment policy
clarity, data access and reporting of overall claims information, and
the coordination of federal/state benefits and services to avoid
duplicate payments. We reviewed documentation from the Deepwater IST
including its coordination plan, team updates, and transition plan. We
did not evaluate the effectiveness of the monitoring and oversight
efforts by Justice and the Deepwater IST. Furthermore, we reviewed
publicly available claim reports from BP and GCCF for claim amounts
paid, but we did not test the claims data or amounts reported by BP or
GCCF. We also interviewed Office of Management and Budget and Justice
officials about their role and planned actions in collecting and
reviewing agency quarterly cost submissions to bill the responsible
parties on behalf of the federal government.[Footnote 67]
We conducted this performance audit from July 2010 to October 2011 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.
[End of section]
Appendix III: National Pollution Fund Center's Individual and Business
Claims Process:
Overview:
OPA provides for the payment of claims for uncompensated removal costs
and certain damages caused by the discharge, or substantial threat of
discharge, of oil into or upon the navigable waters of the U.S., its
adjoining shorelines, or the Exclusive Economic Zone of the U.S.
Adjudication and payment of claims for certain uncompensated removal
costs and damages are paid out of the Principal Fund of the Fund.
Order of Presentment and Time Limitation for Submitting Claims to
NPFC. Claims for removal or damages may be presented first to the Fund
only in the following situations: NPFC has advertised or notified
claimants in writing; by a responsible party who may assert a claim;
by a governor of a state for removal costs incurred by the state;
[Footnote 68] and by a U.S. claimant in a case where a foreign
offshore unit has discharged oil causing damage for which the Fund is
liable.
In all other cases where the source of the discharge can be
identified, the claimant must first present their OPA claim to the
responsible party for payment. If the responsible party denies the
claim the claimant may submit the claim to NPFC for adjudication.
Regardless of specific action to deny the claim, if the responsible
party is unable or unwilling to pay the claim within 90 days of the
claimant's submission, the claimant may then submit the claim to NPFC
for adjudication. If the responsible party denies a claim that is
subsequently processed and payment is made from the Fund, NPFC will
seek to recover these costs from the responsible party. Damage claims
must be made within 3 years of when the damage and its connection to
the spill were reasonably discoverable with the exercise of due care.
Claims for removal costs must be made within 6 years after the date of
completion of all removal actions for the incident. [Footnote 69]
Designation of the Source of the Incident, Responsible Party
Notification, and Advertisement. The process of designating the source
of an oil discharge and notifying the responsible party frequently
advances concurrently with the Federal On-Scene Coordinator's attempt
to identify the responsible party during the initial stages of spill
response. In addition to the Federal On-Scene Coordinator issuing a
letter of Federal Interest,[Footnote 70] the Federal On-Scene
Coordinator and NPFC's Case Management and Claims Division[Footnote
71] may decide that the potential for claims exists. Once decided, the
Claim Manager is normally responsible for executing the Notice of
Designation.[Footnote 72] Designation of a responsible party may also
occur immediately following an on-site visit or more incrementally as
information on the identity of the responsible party becomes available.
Claimant Requirements. While NPFC has a form which claimants may use
to submit their claim, there is no required format for submitting a
claim to NPFC. However, OPA through its implementing regulations,
requires that the claim be (1) submitted in writing, (2) for a sum
certain amount of compensation for each category of uncompensated
damages or removal, and (3) signed by the claimant. The claimant bears
the burden of providing all evidence, information, and documentation
deemed necessary by NPFC to support the claim. While the claim is
pending against the Fund, if the claimant receives any compensation
for the claimed amounts, the claimant is required to immediately amend
the claim submitted to NPFC.
Table 3: List of OPA-Compensable Claim Types/Description, Eligibility,
and NPFC Claims Division Responsible for Processing the Claim:
Claim type: Natural Resource Damages;
Description: Damages for injury to, destruction of, or loss of natural
resources, including the reasonable costs of assessing the damage;
Eligible claimant: Federal, state, foreign and Indian tribal trustees;
Responsible NPFC claims division: Natural Resource Damage Claims
Division.
Claim type: Real or Personal Property;
Description: Damages or economic loss related to the destruction or
harm of real or personal property presented by either a claimant
owning or leasing the property. Does not include personal injury;
Eligible claimant: Person or entity who owns or leases property;
Responsible NPFC claims division: Claims Adjudication Division.
Claim type: Removal Costs[A];
Description: Costs to prevent, minimize, or mitigate oil pollution;
Eligible claimant: Anyone incurring removal costs;
Responsible NPFC claims division: Claims Adjudication Division.
Claim type: Loss of Subsistence Use of Natural Resources;
Description: Damages resulting from the injury, destruction, or loss
of natural resources used by the claimant to obtain food, shelter,
clothing, medicine, or other minimum necessities of life.[B];
Eligible claimant: Claimant who actually uses for subsistence, the
natural resources which have been injured, destroyed, or lost, without
regard to the ownership or management of the resources;
Responsible NPFC claims division: Natural Resource Damage Claims
Division.
Claim type: Loss of Government Revenues;
Description: Net loss of taxes, royalties, rents, fees, or net profit
shares due to the injury, destruction, or loss of real property,
personal property, or natural resources;
Eligible claimant: Federal government, state, or a political
subdivision of a state;
Responsible NPFC claims division: Claims Adjudication Division.
Claim type: Loss of Profits and Earning Capacity;
Description: Damages equal to the loss of profits or impairment of
earning capacity due to the injury, destruction, or loss of property
or natural resources;
Eligible claimant: Claimant sustaining the loss or impairment;
Responsible NPFC claims division: Claims Adjudication Division.
Claim type: Cost of Increased Public Services;
Description: Net costs of providing increased or additional public
services during or after removal activities, including protection from
fire, safety, or health hazards caused by a discharge of oil;
Eligible claimant: State or political subdivsion of a state;
Responsible NPFC claims division: Claims Adjudication Division.
Claim type: Claims by a Responsible Party;
Description: Claims submitted by a responsible party are not processed
like other OPA claims. A responsible party may present a complete
defense or limitation of liability claim to NPFC for removal costs and
damages paid under the provisions of OPA. Claims that meet the initial
review and preliminary screening must first be evaluated to determine
"entitlement" to a complete defense or limit of liability. Once
entitlement has been granted, the underlying cost portion of the claim
may be measured and adjudicated;
Eligible claimant: Responsible party who establishes entitlement to a
defense to liability or limitation of liability in accordance with OPA
(33 U.S.C. 2703-04 and 2708);
Responsible NPFC claims division: Claims Adjudication Division.
Source: GAO analysis of NPFC information.
[A] Claimant must establish that the actions taken were necessary,
removal costs were incurred as a result of these actions, and the
actions taken were determined by the Federal On-Scene Coordinator to
be consistent with the National Contingency Plan or were directed by
the Federal On-Scene Coordinator. This is the most common claim type
received by NPFC.
[B] Compensation allowable is based on the reasonable replacement cost
of the natural resource needed during the loss period for subsistence,
less all compensation made available for subsistence loss, all income
received by using the time otherwise for subsistence, and all overhead
or other normal expenses for subsistence use that was avoided as a
result of the incident.
[End of table]
NPFC's Claims Process. NPFC has established standard operating
procedures[Footnote 73] for the activities its Claims Division
undertakes throughout its process for receiving and adjudicating
claims. For some oil spill incidents, the Claims Division activities
begin prior to the submission of any claims. These activities include
designation of the source of the spill, responsible party
notification, advertisement, as well as a number of on-site
activities. As noted in the table above, the Claims Adjudication
Division accepts claims for uncompensated removal costs incurred and
damages suffered as a result of an oil pollution incident, whereas the
Natural Resource Damage Claims Division[Footnote 74] accepts claims
from authorized claimants for damages to natural resources and loss of
subsistence use claims. In general, regardless of which division is
responsible for adjudicating the claim, NPFC follows the same steps in
processing these claims.[Footnote 75]
1. Claim Receipt and Assignment;
2. Initial Review;
3. Adjudication Review;
4. Determination and Reconsideration;
5. Payment;
6. Archive.
Figure 6: NPFC's Claims Adjudication Process:
[Refer to PDF for image: illustration]
Claim is accepted:
1. Claim submitted to NPFC.
Is claim complete?
If yes: continue;
If no: Claim faces challenges: Additional information: Claimant has 60
days to supply additional information and resubmit claim.
2. Claims adjudication: NPFC informs the RP of the claims’ presentment
and begins adjudication.
Is claim accepted?
If yes: continue;
If no: Does claimant ask NPFC to reconsider?
If yes: go to step 1;
If no: go to step 4.
3. Pay claim: NPFC pays claim and bills.
4. Archive claim: NPFC archives and retains a copy of the claim and
its documentation.
Source: GAO analysis of NPFC’s Claims Adjudication Process.
[End of figure]
[End of section]
Appendix IV: National Pollution Fund Center's Cost Reimbursement
Process:
Overview:
Among other duties, the U.S. Coast Guard's NPFC administers the Fund
by disbursing funds to federal, state, local, or tribal agencies for
their removal activities under the Oil Pollution Act of 1990, as
amended (OPA).[Footnote 76] When an oil spill occurs, relevant federal
agencies are notified by the National Response Center[Footnote 77]
including the U.S. Coast Guard and the Environmental Protection Agency
(EPA).[Footnote 78] The Coast Guard has responsibility and serves as
the Federal On-Scene Coordinator for spills occurring in the coastal
zones, while EPA has responsibility for spills that occur on land.
NPFC's Case Management Division is responsible for providing access to
the Emergency Fund when a spill occurs and for working with the
Federal On-Scene Coordinator and agencies to ensure accurate cost
documentation to support cost recovery. NPFC's Case Management
Division operates through a matrix organization comprised of four
regional case teams. Each regional case team consists of a manager and
multiple case officers. When a spill occurs, NPFC assigns
responsibility to the regional case team representing the geographic
area in which the spill occurs.
NPFC uses a three-level system to help determine the complexity of an
oil spill case and its required documentation for cost reimbursement.
Level I (Routine) represents about 85 percent of all oil spill
incidents, in which total removal costs to the government are not
expected to exceed $50,000, removal activities are localized, and
removal activities can be completed within 2 weeks. For a Level I
incident, agencies submit documentation to the Federal On-Scene
Coordinator at the completion of removal activities. Level II
(Moderately Complex) represents about 10 to 15 percent of all oil
spill incidents, in which total removal costs to the government are
not expected to exceed $200,000. Level II removal activities take
place in multiple locations, require the involvement of several
external resources (i.e., state agencies and other government units),
and removal activities take longer than 2 weeks to complete. Level III
(Significantly Complex) represents less than 5 percent of all oil
spill incidents with total removal costs greater than $200,000. Level
III removal activities take place in multiple locations, require the
involvement of numerous contractors, and similar to Level II, the
assistance of several external resources is needed. For both Level II
and III incidents, documentation is submitted to the Federal On-Scene
Coordinator as often as practical (daily if possible) until final
removal activities are completed. Because the Federal On-Scene
Coordinator is considered the best judge of factors regarding the oil
spill, he or she is expected to select the level of documentation
appropriate for the situation.
The Federal On-Scene Coordinator is responsible for issuing PRFAs or
MIPRs to obtain removal and logistical services from other government
agencies.
The PRFA commits the Fund to payment, by reimbursement, of costs
incurred for agreed-upon pollution response activities undertaken by a
federal agency assisting the Federal On-Scene Coordinator. The terms
of a PRFA may include (1) salary costs, (2) travel and per diem
expenses, (3) charges for the utilization of agency-owned equipment or
facilities, and (4) expenses for contractor-or vendor-supplied goods
or services obtained by the agency for removal assistance. Similarly,
the Federal On-Scene Coordinator may issue a MIPR for agreed-upon
activities of the DOD or its related components. In contrast to PRFAs,
MIPRs (used primarily by DOD and its components)[Footnote 79] commit
the Fund to reimburse costs based on valid obligations incurred for
oil spill response activities prior to being incurred. For the
Deepwater Horizon oil spill, NPFC's cost reimbursement documentation
requirements are the same for both MIPRs and PRFAs. Differences
between PRFAs and MIPRs include that PRFAs are a reimbursement
agreement and require the agency to submit documentation demonstrating
services and have the Federal On-Scene Coordinator certify completion
of work, prior to NPFC disbursing funds to the agency. For other than
Deepwater Horizon, MIPRs allow DOD to receive the funds from NPFC
prior to submitting documentation or obtaining certification of
completion of work.
The following are the six major steps for NPFC's cost reimbursement
process for federal, state, and local government agencies requesting
payment from the Fund.
1. Federal On-Scene Coordinator issues PRFA or MIPR to government
agency.
2 Government agency performs oil spill removal and response activities
and submits reimbursement request to the Federal On-Scene Coordinator.
3. Federal On-Scene Coordinator reviews and certifies that services
were provided by the government agency.
4. Federal On-Scene Coordinator forwards agency's reimbursement
request to NPFC for review and approval.
5. NPFC reviews agency's reimbursement documentation and sends
Authorization-to-Pay memorandum to FINCEN[Footnote 80] approving
payment from the Fund.
6. FINCEN reimburses government agency for its oil spill removal costs.
Figure 6: NPFC's Cost Reimbursement Process:
[Refer to PDF for image: illustration]
Federal On-Scene Coordinator (FOSC):
Issues funding authorizations to government entities for removal and
response activities.
Work performed:
Government entities perform removal and response activities.
Process for non-Deepwater Horizon oil spills:
Costs submitted to FOSC: Government entities submit documented costs
to FOSC.
Process for Deepwater Horizon oil spills:
Costs submitted to NPFC: Government entities submit documented costs
to NPFC.
NPFC: Reviews documentation submitted by government entities.
FOSC: Certifies government entities’ documentation and sends to NPFC.
NPFC: Authorizes FINCEN to pay government entities.
Coast Guard Finance Center: Makes payments to government entities from
the Fund.
Source: GAO analysis of Cost Reimbursement Process.
[End of figure]
[End of section]
Appendix V: Types of Oil Pollution Act-Compensable Removal Costs and
Damages:
Removal costs:
Removal of oil:
Costs for the containment and removal of oil from water and shorelines
including contract services (such as cleanup contractors and incident
management support) and the equipment used for removal.
Disposal:
Costs for the proper disposal of recovered oil and oily debris.
Personnel:
Costs for government personnel and temporary government employees
hired for the duration of the spill response, including costs for
monitoring the activities of the responsible parties.
Prevention:
Costs for the prevention or minimization of a substantial threat of an
oil spill.
Damages:
Natural resources:
Federal, state, foreign, or Indian tribe trustees can claim damages
for injury to, or destruction of, and loss of, or loss of use of,
natural resources, including the reasonable costs of assessing the
damage.
Real or personal property:
Damages for injury to, or economic loses resulting from destruction
of, real or personal property.
Subsistence use:
Damages for loss of subsistence use of natural resources, without
regard to the ownership or management of the resources.
Government revenues, profits, and earning capacity:
The federal, state, or local government can claim damages for the loss
of taxes, royalties, rents, fees, or profits. Companies can claim
damages for loss of profits or impairment of earning capacity.
Public services:
States and local governments can recover costs for providing increased
public services during or after an oil spill response, including
protection from fire, safety, or heath hazards.
Source: GAO summary of the Oil Pollution Act of 1990 (33 U.S.C. 2702
(b)).
[End of table]
[End of section]
Appendix VI: Inspectors General Are Reviewing Agencies' Deepwater
Horizon Oil Spill Costs:
DHS, EPA, and the Department of Commerce inspectors general (IG)
performed or are performing work related to their agency's costs to
respond to the Deepwater Horizon oil spill. The DHS IG is performing
an audit to determine whether the Coast Guard has adequate policies,
procedures, and controls in place to capture all direct and indirect
costs associated with the Deepwater Horizon oil spill. The EPA IG is
conducting work to determine if EPA has adequate controls in place to
recover its Gulf Coast oil spill response costs.
The Department of Commerce IG has published a review of the National
Oceanic and Atmospheric Administration's (NOAA) tracking of oil spill
costs.[Footnote 81] In December 2010, the Department of Commerce IG
found that while NOAA had developed processes to track the costs
associated with its Deepwater Horizon oil spill activities,
improvements are needed to ensure that all costs charged to oil spill
projects--whether funded by appropriations or reimbursements--are
properly recorded in the financial system and supported by sufficient,
appropriate documentation. NOAA's official comments emphasized the
unprecedented mobilization as a result of the scope of the Deepwater
Horizon oil spill, and stated that as NOAA's participation has become
more routine, its documentation of the oil spill activities has become
more consistent. In addition, as NOAA evaluates its own execution of
the response process, NOAA stated it will examine the observations
provided by the IG.
[End of section]
Appendix VII: Agencies Authorized and Reimbursed Costs for Deepwater
Horizon Oil Spill Response Efforts:
To determine the extent to which government agencies have been
reimbursed from the Fund for their Deepwater Horizon response efforts,
we obtained and analyzed reimbursement information from NPFC from
April 2010 through May 2011. We found that the total maximum amount
authorized through intergovernmental agency agreements for federal
agencies' and states' Deepwater Horizon oil spill response costs is
over $477.7 million. However, only seven federal agencies[Footnote 82]
have submitted and received payment from the Fund totaling $189.4
million for their response costs; and six federal agencies[Footnote
83] that have an agreement in place authorizing them to perform work
and receive reimbursement from the Fund for their response efforts,
have either not yet submitted a request for reimbursement or have not
provided sufficient supporting documentation for their request. (See
table 4.)
Table 4: Agencies' Deepwater Horizon Authorized Response Costs and
Reimbursements Received as of May 31, 2011:
Agency: Department of Defense;
Amount authorized (ceiling amount): $163,700,489;
Amount reimbursed (actual expenditures): $98,125,651;
Amount reimbursed to amount authorized: 60%.
Agency: Department of Interior;
Amount authorized (ceiling amount): $93,367,928;
Amount reimbursed (actual expenditures): $11,743,756;
Amount reimbursed to amount authorized: 13%.
Agency: Department of Commerce;
Amount authorized (ceiling amount): $76,962,059;
Amount reimbursed (actual expenditures): $25,437,859;
Amount reimbursed to amount authorized: 33%.
Agency: Environmental Protection Agency;
Amount authorized (ceiling amount): $61,920,863;
Amount reimbursed (actual expenditures): $36,002,465;
Amount reimbursed to amount authorized: 58%.
Agency: States[A];
Amount authorized (ceiling amount): $40,320,984;
Amount reimbursed (actual expenditures): $29,854,662;
Amount reimbursed to amount authorized: 74%.
Agency: Department of Homeland Security;
Amount authorized (ceiling amount): $16,998,513;
Amount reimbursed (actual expenditures): $11,949,732;
Amount reimbursed to amount authorized: 70%.
Agency: Department of Energy;
Amount authorized (ceiling amount): $9,056,712;
Amount reimbursed (actual expenditures): $4,301,033;
Amount reimbursed to amount authorized: 47%.
Agency: Department of Health and Human Services;
Amount authorized (ceiling amount): $8,849,859;
Amount reimbursed (actual expenditures): 0;
Amount reimbursed to amount authorized: 0%.
Agency: Department of Labor;
Amount authorized (ceiling amount): $3,260,663;
Amount reimbursed (actual expenditures): 0;
Amount reimbursed to amount authorized: 0%.
Agency: Department of Agriculture;
Amount authorized (ceiling amount): $3,083,929;
Amount reimbursed (actual expenditures): $1,862,479;
Amount reimbursed to amount authorized: 60%.
Agency: Department of Justice;
Amount authorized (ceiling amount): $141,680;
Amount reimbursed (actual expenditures): 0;
Amount reimbursed to amount authorized: 0%.
Agency: National Transportation Safety Board;
Amount authorized (ceiling amount): $24,640;
Amount reimbursed (actual expenditures): 0;
Amount reimbursed to amount authorized: 0%.
Agency: National Security Agency;
Amount authorized (ceiling amount): $18,480;
Amount reimbursed (actual expenditures): 0;
Amount reimbursed to amount authorized: 0%.
Agency: Office of the Director of National Intelligence;
Amount authorized (ceiling amount): $12,320;
Amount reimbursed (actual expenditures): 0;
Amount reimbursed to amount authorized: 0%.
Agency: Total;
Amount authorized (ceiling amount): $477,719,119;
Amount reimbursed (actual expenditures): $219,277,637;
Amount reimbursed to amount authorized: 46%.
Source: GAO analysis of NPFC-provided information.
[A] The amount shown for states does include amounts for certain
localities that represent less than 1 percent of the total.
[End of table]
[End of section]
Appendix VIII: Comments from the Department of Homeland Security:
U.S. Department of Homeland Security:
October 12, 2011:
Susan Ragland:
Director, Financial Management and Assurance:
U.S. Government Accountability Office:
441 G Street, NW:
Washington, DC 20548:
Re: Draft Report GAO-12-86, "Deepwater Horizon Oil Spill: Actions
Needed to Reduce Evolving, But Uncertain Federal Financial Risks"
Dear Ms. Ragland:
Thank you for the opportunity to review and comment on this draft
report. The U.S. Department of Homeland Security (DITS) appreciates
the U.S. Government Accountability Office's (GAO's) work in planning
and conducting its review and issuing this report.
The Department is pleased to note the report's positive acknowledgment
that the United States Coast Guard (USCG) had effective internal
controls in place for Deepwater Horizon claims processing and cost
reimbursements. Specifically, controls related to documentation.
review, and adjudication of individual and business claims processed
and costs reimbursed following the Deepwater Horizon oil spill were
appropriate and properly documented. The report also recognizes USCGs
actions taken to address recommendations made in a previous GAO
report,[Footnote 1] related to issues discussed in this draft report.
The draft report contained one recommendation directed to DI IS. with
which the Department concurs. Specifically, GAO recommended that the
Secretary of Homeland Security direct the Director of the Coast
Guard's National Pollution Funds Center (NPFC) to:
Recommendation: Finalize the revisions its drafting to its Claims
Adjudication Division's Standard Operating Procedures to include
specific required steps for processing claims received in the event of
a spill of national significance incident.
Response: Concur. NPFC will finalize revisions to the Claims
Adjudication Division Standard Operating Procedures to include
specifically required steps for processing claims received in the
event of a spill of national significance by October 31. 2011.
Again, thank you for the opportunity to review and comment on this
draft report. Technical comments were provided under separate cover.
We look forward to working with you on future Homeland Security issues.
Sincerely,
Signed by:
Jim H. Crumpacker:
Director:
Departmental GAO-OIG Liaison Office:
Footnote:
[1] GAO, Deepwater Horizon Oil Spill: Preliminary Assessment of
Federal Financial Risks and Cost Reimbursement and Notification
Policies and Procedures, GAO-11-90R (Washington, DC.: Nov. 12, 2010).
[End of section]
Appendix IX: GAO Contact and Staff Acknowledgments:
GAO Contact:
Susan Ragland, (202) 512-8486 or raglands@gao.gov:
Staff Acknowledgments:
In addition to the contact named above, Kim McGatlin (Assistant
Director); F. Abe Dymond (Assistant Director); James Ratzenberger
(Assistant Director); Hannah Laufe (Assistant General Counsel);
Katherine Lenane (Assistant General Counsel); Jacquelyn Hamilton
(Acting Assistant General Counsel); Jehan Abdel-Gawad; James Ashley;
Mark Cheung; Patrick Frey; Wilfred Holloway; Donald Holzinger; David
Hooper; Mark Kaufman; Jason Kelly; Matthew Latour; Chari Nash-
Cannaday; Donell Ries; and Doris Yanger made significant contributions
to this report.
[End of section]
Related GAO Products:
Deepwater Horizon Oil Spill: Update on Federal Financial Risks and
Claims Processing. [hyperlink,
http://www.gao.gov/products/GAO-11-397R]. Washington D.C.: April 18,
2011.
Deepwater Horizon Oil Spill: Preliminary Assessment of Federal
Financial Risks and Cost Reimbursement and Notification Policies and
Procedures. [hyperlink, http://www.gao.gov/products/GAO-11-90R].
Washington D.C.: November 12, 2010.
Oil Spills: Cost of Major Spills May Impact Viability of Oil Spill
Liability Trust Fund. [hyperlink,
http://www.gao.gov/products/GAO-10-795T]. Washington D.C.: June 16,
2010.
Maritime Transportation: Major Oil Spills Occur Infrequently, but
Risks Remain. [hyperlink, http://www.gao.gov/products/GAO-08-357T].
Washington D.C.: December 18, 2007.
Maritime Transportation: Major Oil Spills Occur Infrequently, but
Risks to the Federal Oil Spill Fund Remain. [hyperlink,
http://www.gao.gov/products/GAO-07-1085]. Washington D.C.: September
7, 2007.
U.S. Coast Guard National Pollution Funds Center: Improvements Are
Needed in Internal Control Over Disbursements. [hyperlink,
http://www.gao.gov/products/GAO-04-340R]. Washington D.C.: January 13,
2004.
U.S. Coast Guard National Pollution Funds Center: Claims Payment
Process Was Functioning Effectively, but Additional Controls Are
Needed to Reduce the Risk of Improper Payments. [hyperlink,
http://www.gao.gov/products/GAO-04-114R]. Washington D.C.: October 3,
2003.
[End of section]
Footnotes:
[1] BP America Production Company, a subsidiary of BP p.l.c., leased
the Deepwater Horizon from Transocean Holdings LLC, a subsidiary of
Transocean Limited. Transocean Limited is the world's largest offshore
drilling contractor comprising numerous subsidiaries and jointly
controlled entities and associates. Unless otherwise referring to
specific subsidiaries or affiliates, we refer to Transocean Limited
and its components separately or jointly as "Transocean." BP p.l.c. is
an international oil and gas company comprising numerous subsidiaries
and jointly controlled entities and associates. Unless otherwise
referring to specific subsidiaries or affiliates, we refer to BP
p.l.c. and its components separately or jointly as "BP." BP was
originally incorporated in 1909 in England and Wales as "British
Petroleum" and changed its name in 2001.
[2] Pub. L. No. 101-380, 104 Stat. 484 (Aug. 18, 1990).The Coast Guard
identified the following companies as responsible parties or
guarantors for the Deepwater Horizon oil spill: BP Exploration &
Production, Inc.; BP Corporation North America, Inc.; Anardarko, E&P
Company, LP; Anardarko Petroleum Corporation; MOEX Offshore 2007 LLC;
Transocean Holdings Incorporated; and QBE Underwriting, LTD.
[3] For any one oil pollution incident, the Fund may pay up to $1
billion. Fund expenditures for natural resource damage assessments and
claims in connection with a single incident are limited to $500
million of that $1 billion.
[4] BP established the trust under Delaware law, which generally
provides that the principal of the trust can be used only for the
purposes stated in the trust agreement and that the terms of the
agreement cannot be modified and are legally enforceable by the
trustees.
[5] GAO, Deepwater Horizon Oil Spill: Preliminary Assessment of
Federal Financial Risks and Cost Reimbursement and Notification
Policies and Procedures, [hyperlink,
http://www.gao.gov/products/GAO-11-90R] (Washington, D.C.: Nov. 12,
2010).
[6] GAO, Deepwater Horizon Oil Spill: Update on Federal Financial
Risks and Claims Processing, [hyperlink,
http://www.gao.gov/products/GAO-11-397R] (Washington, D.C.: Apr. 18,
2011).
[7] Natural resource damage assessments are conducted to evaluate the
nature and extent of injuries resulting from an oil spill, and to
determine restoration actions needed to bring injured natural
resources and services back to what they were prior to the incident.
[8] Contingent liabilities are potential liabilities that stem from an
existing condition, situation, or set of circumstances involving
uncertainty as to possible loss to an entity. The uncertainty will
ultimately be resolved when one or more future events occur or fail to
occur.
[9] Under OPA, a responsible party can also assert a defense to
liability if the oil spill was caused solely by, among other things,
an "act of God," an "act of war," the acts or omissions of an
independent third party (provided certain conditions are satisfied),
or any combination of these. 33 U.S.C. 2703. NPFC guidance
acknowledges that terrorism or other criminal acts may present a
defense to liability under OPA. NPFC, NPFC User Reference Guide
(eURG), Appendix B, Federal On-Scene Coordinator Funding Information
for Oil Spills and Hazardous Materials Releases (Washington, D.C.:
April 2003), available at [hyperlink,
http://uscg.mil/npfc/URG/default.asp].
[10] Removal costs are incurred by the federal government or any other
entity taking approved action to contain and clean up the spill.
[11] Users of offshore facilities on outer continental shelf lands
have similar requirements to those covering vessels. Under OPA, they
must submit evidence of an Oil Spill Financial Responsibility for an
offshore facility (that generally is capable of discharging more than
1,000 barrels of oil) to the Department of Interior (DOI) and receive
approval. DOI's regulations for the process are set out in 30 C.F.R.
part 253.
[12] See appendix III for NPFC's individual and business claims
process.
[13] 33 U.S.C. 2706.
[14] 15 C.F.R. 990.41; 15 C.F.R. 990.65.
[15] Affected areas may include both water and land resources, such as
waterways or beaches.
[16] Appendix IV discusses NPFC's cost reimbursement process.
[17] If a claim were paid by the Fund, the Fund could recover
administrative costs attributable to the claim under 33 U.S.C. 2715.
[18] 40 C.F.R. Part 300.
[19] Pub. L. No. 110-343, § 405, 122 Stat. 3765, 3860 (Oct. 3, 2008).
[20] The Federal On-Scene Coordinator has responsibility for
overseeing oil spill response efforts and determining that efforts
were conducted in accordance with the National Contingency Plan. To
pay government agencies' oil spill removal costs, the Federal On-Scene
Coordinator issues authorizations to quickly obtain services and
assistance from government agencies, verifies that the services or
goods were received and consistent with the National Contingency Plan,
certifies the supporting documentation, and sends the cost
documentation to NPFC, which authorizes the Coast Guard's Finance
Center to pay the government agencies.
[21] OPA provides for the designation of federal, state, and if
designated by the Governor of the state, local officials, to act on
behalf of the public as trustees for natural resources. In addition,
OPA provides for designations of Indian tribe and foreign officials to
act as trustees for natural resources on behalf of, respectively, the
tribe or its members and the foreign government.
[22] Pub. L. No. 107-295, § 323, 116 Stat. 2064, 2104 (Nov. 25, 2002).
[23] Pub. L. No. 111-191 § 1, 124 Stat. 1278 (June 15, 2010).
[24] Natural resource damage claims are claims for natural resource
damages arising out of oil spills and include costs to restore,
rehabilitate, replace, or acquire the equivalent of the injured
resource, any interim lost use or diminution in value of the injured
resource pending restoration, and the reasonable cost of assessing
those damages.
[25] On May 11, 2010, NPFC notified BP and Transocean Holdings
Incorporated that BP's advertisement of its claims process was
sufficient, and Transocean should not advertise and should coordinate
claims processing with BP. According to NPFC officials, they wanted to
avoid public confusion and have only one responsible party advertise
for claims.
[26] Legal Liability Issues Surrounding the Gulf Coast Oil Disaster:
Hearing Before the H. Comm. on the Judiciary, 111th Cong. 85-92 (2010)
(statement of Darryl Willis, Vice President, Resources, BP America).
[27] Under terms of the Trust, BP may be called upon to pay non-
economic damages as a result of litigation or other settlements.
[28] For example, 46 U.S.C. § 30104, (commonly known as the Jones
Act),establishes liability for injury or death of seamen incurred in
the course of their employment. For additional information regarding
the oil spill legal framework, see enclosure III in our November 2010
product (GAO-11-90R).
[29] On September 1, 2011, the GCCF closed 7 of the claims centers due
to reduced activity and need for the centers.
[30] GCCF,Gulf Coast Claims Facility Protocol for Interim and Final
Claims (Nov. 22, 2010).
[31] The current cap balance is calculated by NPFC and consists of the
actual expenditures from the Fund and amounts obligated by NPFC but
have yet to be expended from the Fund.
[32] BP has established collateral for the remaining portion of the
$20 billion yet to be funded.
[33] NPFC has billed the responsible parties based on a combination of
Coast Guard actual costs and a percentage of the amount NPFC has
obligated for agencies through PRFAs and MIPRs.
[34] The United States has not encountered a spill comparable to the
Deepwater Horizon oil spill since the 1989 Exxon Valdez spill, which
reported that its natural resource damages were at least $1 billion
(within the $1 billion cap the Fund has a $500 million statutory limit
on natural resource damage assessments and claims). The responsible
parties can pay natural resource damage assessment costs directly to
the relevant federal agencies.
[35] Enclosure III of our November 2010 report (GAO-11-90R) discusses
the legal framework of oil spills.
[36] The National Commission on BP Deepwater Horizon Oil Spill and
Offshore Drilling was established through Exec. Order No. 13,543 (May
21, 2010) to examine the relevant facts and circumstances concerning
the root causes of the Deepwater Horizon explosion and developed
options to guard against, and mitigate the impact of, any oil spills
associated with offshore drilling in the future. The Commission's
responsibilities include recommending improvements to federal laws,
regulations, and industry practices.
[37] 33 U.S.C. 1321(b) (6) and (7).
[38] [hyperlink, http://www.gao.gov/products/GAO-11-90R].
[39] As of May 31, 2011, all 570 individual and business claims
finalized by NPFC have been denied for reasons such as failure to
demonstrate that damages were the result of the spill and lack of
documentation.
[40] Pub. L. No. 110-343, div. B, tit. IV § 405(b), 122 Stat. 3765,
3861 (Oct. 3, 2008).
[41] In fiscal year 2010, the Fund received $475.9 million from the
per barrel tax, $518.4 million from payments related to Deepwater
Horizon, and $18.7 million from interest on investments.
[42] GAO, Maritime Transportation: Major Oil Spills Occur
Infrequently, but Risks to the Federal Oil Spill Fund Remain,
[hyperlink, http://www.gao.gov/products/GAO-07-1085] (Washington D.C.:
Sept. 7, 2007).
[43] The tax expired in December 1994 and was reinstated by the Energy
Policy Act of 2005 beginning April 2006.
[44] [hyperlink, http://www.gao.gov/products/GAO-07-1085].
[45] As of May 31, 2011, NPFC had finalized 570 claims. Our sample for
claims testing was selected from the 432 claims finalized as of April
30, 2011.
[46] According to 33 C.F.R. 136.115(c), if NPFC fails to make final
disposition of a claim within 6 months after it is filed, at the
option of the claimant any time thereafter, be deemed a final denial
of the claim.
[47] A request for reconsideration must be received by NPFC within 60
calendar days after the date the denial was mailed to the claimant or
within 30 days after receipt of the denial by the claimant, whichever
is earlier. 33 C.F.R. 136.115(d).
[48] The Coast Guard's Finance Center (FINCEN) is located in
Chesapeake, Va. and serves as the data center for finance and
procurement, central bill paying and financial accounting center for
the Coast Guard.
[49] U.S. Coast Guard, NPFC, Case Management Division Standard
Operating Procedures, CM SOP Appendix, NPFCINST M16451.23, April 2011.
[50] U.S. Coast Guard, NPFC, Standard Operating Procedures of the
Claims Adjudication Division, NPFCINST M16451.21 (April 2004).
[51] GAO, Standards for Internal Control in the Federal Government,
[hyperlink, http://www.gao.gov/products/GAO/AIMD-00-21.3.1]
(Washington, D.C.: November 1999).
[52] In response to the Deepwater Horizon oil spill, on May 2010 DHS's
Federal Emergency Management Agency (FEMA) was tasked as the
coordination lead for the Deepwater Integrated Services Team. The
focus of the IST was to monitor BP's claims process and coordinate the
delivery of federal programs that could provide social services and
small business assistance for individuals, families, and businesses,
as well as state and local government entities affected by the spill.
[53] OMB Memorandum M-10-29, Identifying and Documenting Costs of
Government Activities Related to the BP Deepwater Horizon Oil Spill
(July 1, 2010); OMB Management Procedures Memorandum No. 2010-35,
Reporting Costs of Government Activities Related to the BP Deepwater
Horizon Oil Spill (Oct. 5, 2010); OMB Memorandum M-11-09, Supplemental
Guidance on Reporting Costs of Government Activities Related to the BP
Deepwater Horizon Oil Spill (Jan. 12, 2011); and, OMB Memorandum M-11-
09 (revised), Supplemental Guidance on Reporting Costs of Government
Activities Related to the BP Deepwater Horizon Oil Spill (Jan. 13,
2011).
[54] Examples included NOAA serving as the lead science agency and
Department of Energy evaluating methods and risks to stem the flow of
oil.
[55] According to Justice officials, the $81.6 million payment will be
deposited into the U.S. Treasury.
[56] The National Center for Disaster Fraud was established by the
Criminal Division of the United States Department of Justice in the
fall of 2005 in the wake of Hurricane Katrina. The Center is located
in Baton Rouge, Louisiana. Its purpose is to receive and screen
reports from the public about possible fraud relating to disasters of
all types, and to refer those reports to the field offices of
appropriate federal law enforcement agencies.
[57] Numerous individuals, businesses, states, and the federal
government have begun various actions in a number of courts against
several companies, including BP, seeking damages or declaratory or
injunctive relief under several laws, including OPA. Many of these
pending cases have been consolidated in multidistrict litigation in
the U.S. District Court for the Eastern District of Louisiana. See
[hyperlink, http://www.laed.uscourts.gov/OilSpill/OilSpill.htm].
[58] If a claimant decides to commence litigation against the
responsible parties, NPFC will not review the same claim until the
litigation has concluded.
[59] [hyperlink, http://www.gao.gov/products/GAO-11-90R], 34.
[60] [hyperlink, http://www.gao.gov/products/GAO-11-90R].
[61] See GAO, Maritime Transportation: Major Oil Spills Occur
Infrequently, but Risks to the Federal Oil Spill Fund Remain,
[hyperlink, http://www.gao.gov/products/GAO-07-1085] (Washington,
D.C.: Sept. 7, 2007).
[62] GAO, Standards for Internal Control in the Federal Government,
[hyperlink, http://www.gao.gov/products/GAO/AIMD-00-21.3.1]
(Washington, D.C.: November 1999).
[63] FINCEN is located in Chesapeake, Va., and serves as the data
center for finance and procurement, central bill paying, and financial
accounting for the U.S. Coast Guard.
[64] The 954 Deepwater Horizon disbursements were identified by
retaining only transactions with the Deepwater Horizon Federal Project
Number (N10036), were expenditure-type transactions ("EXP") and had a
document ID identifying them as either a Military Interdepartmental
Purchase Request (MIPR) (doc ID "28") or Pollution Removal Funding
Authorization (PRFA) (doc ID "34") disbursement, and eliminating the
Treasury confirmations ("JE Category field"). Federal Project Numbers
are unique numbers assigned by NPFC to identify oil pollution
incidents.
[65] NPFC's Claims Processing System is a work flow system that
supports the initial receipt, administrative processing, and
subsequent routing and payment of claims for NPFC.
[66] When information of an oil spill is received, the source or
sources of the discharge or threat are designated where possible and
appropriate. If the designated source is a vessel or facility, the
responsible party and the guarantor, if known, are notified by
telephone, telefax, or other rapid means of that designation. The
designation will be confirmed by a written Notice of Designation.
[67] As of May 31, 2011, Justice had sent one bill in the amount of
$81.6 million for cost recovery from the responsible parties.
[68] To facilitate providing states with funds quickly for their oil
spill response costs, NPFC has developed an expedited claims procedure
for state governments.
[69] Date of completion of all removal actions is defined as the
actual date of completion of all removal actions for the incident or
the date the Federal On-Scene Coordinator determines that the removal
actions which form the basis for the costs being claimed are
completed, whichever is earlier.
[70] Letters of Federal Interest are issued by the Federal On-Scene
Coordinator to assert the need for positive responsible party action.
[71] NPFC's Case Management Division is responsible for providing
access to the Emergency Fund for Federal removal costs and for
accurate cost documentation to support cost recovery. NPFC's Claims
Adjudication Division is responsible for providing assistance to the
victims of oil spills by receiving, processing, adjudicating,
settling, and approving the payment of OPA claims. It is also
responsible for advertising for claims if the responsible party does
not.
[72] To begin the claims process, 33 U.S.C. 2714 provides that once an
incident becomes known, the source or sources of a discharge or threat
shall be designated where possible and appropriate. And, if the
designated source is a vessel or a facility, the responsible party and
the guarantor, if known, shall be immediately notified of the
designation. "Designation" is an OPA term used in connection with the
initiation of the claims process and is aimed at the advertisement of
responsible party responsibility to potential claimants.
[73] U.S. Coast Guard, NPFC, Standard Operating Procedures of the
Claims Adjudication Division, NPFCINST M16451.21 (April 2004).
[74] NPFC's Natural Resource Damage Claims Division adjudicates claims
for natural resource damages arising out of oil spills (or the
substantial threat of a spill) to the navigable waters of the United
States. Those damages may include the cost to restore, rehabilitate,
replace, or acquire the equivalent of the injured resource; any
interim lost use or diminution in value of the injured resource
pending restoration; and, the reasonable cost of assessing those
damages.
[75] A major difference between NPFC's Natural Resource Damage Claims
Division and its Claims Adjudication Division is that the Natural
Resource Damage Claims Division establishes Interagency Agreements
between NPFC and the Federal Natural Resource Damage Trustees to fund
initiation of natural resource damage assessments, whereas the Claims
Adjudication Division does not.
[76] Private companies, contractors, and other nongovernmental
entities may also be part of a coordinated spill response. Contractors
performing response or removal actions on behalf of the Federal On-
Scene Coordinator are eligible to receive reimbursement from the Fund.
However, since the Deepwater Horizon response efforts predominantly
have involved federal and state governmental entities, this cost
reimbursement appendix will focus on the process for reimbursing
government agencies.
[77] The National Response Center, located at U.S. Coast Guard
Headquarters, is the national communications center, continuously
manned for handling activities related to response actions. The Center
acts as the single point of contact for all pollution incident
reporting.
[78] The National Contingency Plan requires that oil releases are
reported to the National Response Center, which is staffed by the
Coast Guard.
[79] DOD uses MIPRs in order to obtain and provide services to
agencies.
[80] FINCEN is located in Chesapeake, Va., and serves as the data
center for finance and procurement, central bill paying, and financial
accounting for the U.S. Coast Guard.
[81] Department of Commerce Inspector General, Final Memorandum No.
OIG-11-016-M Survey of National Oceanic and Atmospheric
Administration's (NOAA) System and Processes for Tracking Oil Spill
Costs (December 2010).
[82] The seven federal agencies that have been reimbursed from the
Fund are the Departments of Defense, Interior, Commerce, Homeland
Security, Energy, Agriculture, and the Environmental Protection Agency.
[83] The six federal agencies that have intergovernmental agreements
in place, but have not been paid from the Fund, are the Departments of
Health and Human Services, Labor, Justice, the National Transportation
Safety Board, National Security Agency, and the Office of the Director
of National Intelligence.
[End of section]
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