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GAO-11-90R: 

United States Government Accountability Office: 
Washington, DC 20548: 

November 12, 2010: 

Congressional Requesters: 

Subject: Deepwater Horizon Oil Spill: Preliminary Assessment of 
Federal Financial Risks and Cost Reimbursement and Notification 
Policies and Procedures: 

On April 20, 2010, an oil spill of national significance in the Gulf 
of Mexico followed an explosion on the mobile offshore drilling unit 
Deepwater Horizon (the Deepwater Horizon oil spill). The Deepwater 
Horizon was leased by BP America Production Company (BP) as part of 
the Macondo project.[Footnote 1] 152 days later, on September 19, 
2010, BP confirmed the completion of cementing operations to prevent 
further oil from spilling from the Macondo Prospect well to which the 
Deepwater Horizon was attached when it exploded. In order to 
coordinate the federal response to the Deepwater Horizon oil spill, 
the National Incident Commander established the Deepwater Integrated 
Services Team (IST) consisting of 18 federal agencies, including the 
U.S. Coast Guard and the Department of Justice (DOJ). 

The U.S. Coast Guard's National Pollution Funds Center (NPFC) 
designated two BP subsidiaries--BP Exploration and Production and its 
guarantor, BP Corporation North America, Inc.--and five other 
companies as "Responsible Parties" for Deepwater Horizon oil spill 
related claims. Shortly after the spill, at the direction of NPFC, BP 
established a facility to receive and process all claims against 
Responsible Parties. In June 2010, as part of an oral agreement 
between the administration and BP, BP established a new claims 
processing facility--the Gulf Coast Claims Facility (GCCF). GCCF began 
operations on August 23, 2010, and is responsible for handling claims 
from individuals and businesses for damages resulting from the 
Deepwater Horizon oil spill. BP also established an irrevocable trust 
(Trust), to which BP is to provide a total of $20 billion by 2014, 
primarily for the purpose of paying GCCF and other claims related to 
the Deepwater Horizon oil spill.[Footnote 2] (Enclosure IV provides a 
timeline of Deepwater Horizon oil spill events.) 

The total cost to clean up this massive and potentially unprecedented 
spill, the damage to the environment, as well as the potential impact 
to the livelihood and economic status of businesses and individuals in 
the region will undoubtedly be significant, with current estimates 
from BP and Oxford Economics in the tens of billions of dollars. 
[Footnote 3] However, the full extent of such costs and the extent to 
which they will ultimately be paid by the Responsible Parties or 
federal, state, and local governments is unknown at this time and 
depends on a variety of factors. 

The complex legal framework in place for oil spill liability and 
response funding will play an integral role in determining who is 
responsible and will ultimately pay the costs associated with the 
Deepwater Horizon oil spill. In this regard, the Oil Pollution Act of 
1990,[Footnote 4] as amended (OPA), which Congress enacted after the 
Exxon Valdez spill in 1989, authorized use of the Oil Spill Liability 
Trust Fund (Fund), which is administered by NPFC and is subject to 
certain caps on the amount of its expenditures. The Fund was 
established to pay for certain oil spill cleanup costs and damages 
using federal tax revenues for immediate response costs and when the 
Responsible Parties cannot be identified or do not pay. OPA also 
provided that the federal government may subsequently seek 
reimbursement for these costs from Responsible Parties.[Footnote 5] 
Since the Deepwater Horizon oil spill, a number of related legislative 
proposals have been introduced. For example, in May 2010, the 
administration made several proposals including increasing the caps on 
payments from the Fund and obtaining express authority to oversee 
Responsible Parties' claims processing. 

The objectives of this study were to provide a preliminary assessment 
of (1) financial risks and exposures to the Fund and the federal 
government as a result of the Deepwater Horizon oil spill, and (2) 
Coast Guard's NPFC cost reimbursement policies and procedures for 
Deepwater Horizon oil spill costs. In addition, we provide a 
description of the framework for federal monitoring and oversight 
efforts over the Responsible Parties for the Deepwater Horizon oil 
spill, including federal efforts to oversee BP's and GCCF's Deepwater 
Horizon oil spill claims payments. This product is the first of a 
planned body of work to evaluate and assess the federal risks and 
exposures resulting from the Deepwater Horizon oil spill. Our follow 
on work is to include assessing and testing NPFC Fund reimbursement 
policies and procedures and analyzing the framework for federal 
monitoring and oversight efforts over the Responsible Parties for the 
Deepwater Horizon oil spill. 

Scope and Methodology: 

To identify and provide a preliminary assessment of the financial 
risks to the Fund and the federal government as a result of the 
Deepwater Horizon oil spill, we identified and analyzed applicable 
laws and regulations and reviewed our previous work on the cost of oil 
spills to identify statutory and regulatory limitations on the 
liability of Responsible Parties that may pose financial risks to the 
Fund and federal government to the extent that Deepwater Horizon oil 
spill claims exceed such limits.[Footnote 6] 

To provide a preliminary assessment of the design of NPFC's 
reimbursement process, we interviewed NPFC officials, performed 
walkthroughs, and conducted a review of NPFC's documented policies and 
procedures. We also obtained invoices NPFC sent to the Responsible 
Parties to reimburse the Fund and analyzed Fund billings from federal 
and state agencies. Our assessment was preliminary in that we did not 
test the reimbursement invoices to determine their accuracy or 
eligibility under OPA. 

To provide an overview of the framework for federal monitoring and 
oversight of BP's claims payment process, we interviewed DOJ officials 
and other cognizant federal and state officials regarding coordination 
of federal government agencies efforts to monitor and oversee BP's 
claims process and payment activities. We did not evaluate the 
effectiveness of federal monitoring and oversight efforts over BP's 
claims process and the GCCF. (Enclosure II provides further details of 
our scope and methodology.) 

On November 9, 2010, we briefed your staff on the results of our work. 
This letter summarizes the information provided during the briefing. 
The briefing slides are provided in enclosure I. 

We conducted this performance audit from July 2010 to October 2010, 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. 

Summary of Results: 

Because the total costs of the Deepwater Horizon oil spill are still 
unknown, the federal government's financial exposure as a result of 
the oil spill is also unknown. Additionally, the fiscal exposure of 
the federal government resulting from the Deepwater Horizon oil spill 
could increase as Responsible Parties' capacity to cover oil spill-
related costs is reduced whether as a result of extensive oil spill 
liabilities, poor financial condition, or other factors. BP has 
voluntarily established a Trust to be funded incrementally up to $20 
billion, has paid other costs outside of the Trust, and has stated 
that it will continue to pay additional costs. BP's financial 
condition and its continuing resolve to stand behind its public 
commitments will be key factors if additional costs need to be paid. 

Certain statutory limits on the amount of federal funds available for 
response costs and damages are intended to mitigate the exposure. For 
example, OPA establishes caps on the amount of funds that can be 
expended on each oil spill. (Enclosure III discusses the statutory 
liability and response framework associated with oil spills.) 

NPFC has billed the Responsible Parties for the Deepwater Horizon oil 
spill $581 million for response activities performed by nine federal 
government agencies and various state government agencies. After NPFC 
authorizes reimbursement, the government agencies are paid from the 
Fund for actual expenditures. BP has paid NPFC $518.4 million as of 
October 12, 2010. The Fund is at risk of reaching the OPA-established 
$1 billion per incident cap on total expenditures in the relatively 
near future.[Footnote 7] Consequently, unless the statute is amended 
to exclude amounts reimbursed by Responsible Parties from the cap, the 
Fund may be unable to pay any OPA-compensable claims or other 
Deepwater Horizon oil spill-related costs above that limit.[Footnote 8] 

Our preliminary assessment of the design of Coast Guard's NPFC's 
policies and procedures for obtaining reimbursement for Deepwater 
Horizon oil spill costs found they did not always reflect current 
practices and were not sufficiently detailed to ensure they could be 
followed consistently. For example, NPFC's procedures for identifying 
and notifying Responsible Parties are dated 1996, when the Coast Guard 
was part of Department of Transportation, and are marked "draft." 
Also, in responding to the ongoing nature of the costs associated with 
the Deepwater Horizon oil spill, NPFC changed its practice of billing 
Responsible Parties from solely billing for federal agencies' 
expenditures to also including an amount reflecting a percentage of 
federal agencies' obligations.[Footnote 9] Although it began using 
this new billing practice in June 2010, as of October 4, 2010, NPFC 
had not yet updated its policies and procedures manual to reflect this 
new practice. Further, the Department of Defense (DOD) has been using 
Military Interdepartmental Purchase Requests (MIPR) to provide NPFC 
with its requests for cost reimbursement since 1990. As a matter of 
practice, NPFC has been accepting and processing DOD requests for 
Deepwater Horizon oil spill cost reimbursements using MIPRs. However, 
NPFC has not documented its practices for these requests in its 
current policies and procedures manual, which would help ensure these 
practices are fully and consistently followed. NPFC is at risk of 
these procedures being out of date and not reflecting management's 
current directives. In addition, existing procedures for implementing 
NPFC's policy requiring formal notification to Responsible Parties 
were not consistent. Consequently, we found that NPFC procedures 
followed in notifying the Deepwater Horizon oil spill Responsible 
Parties were not always effective. For example, a Deepwater Horizon 
oil spill Responsible Party stated during a July 2010 hearing that his 
company had not received notification of designation. 

The federal government has been involved in overseeing Responsible 
Parties' claims processing resulting from the Deepwater Horizon oil 
spill. Following the spill, DOJ, the Department of Homeland Security 
(DHS) and various other federal agencies have been overseeing the 
establishment of a claims process and monitoring claims processing 
activities by BP on behalf of the designated Responsible Parties. For 
example, DOJ encouraged BP to set aside substantial resources to 
protect federal interests related to Deepwater Horizon claims payment. 
Further, in September 2010, DOJ notified GCCF's administrator of its 
dissatisfaction regarding GCCF's pace of processing Deepwater Horizon 
oil spill claims, and urged GCCF to devote additional resources (or 
make administrative changes as necessary) to meet its own claims 
processing timeliness standards. In addition, DOJ is helping to 
coordinate investigations of fraudulent claims associated with the 
Deepwater Horizon oil spill. The DHS, through its component agencies-- 
the Coast Guard and the Federal Emergency Management Agency--was also 
engaged in various Deepwater Horizon oil spill-related claims 
processing oversight and monitoring activities. For example, the Coast 
Guard, in its capacity as the Federal On-Scene Coordinator for the 
Deepwater Horizon oil spill verified whether costs incurred for 
removal were consistent with the National Contingency Plan (NCP). 
[Footnote 10] 

In addition to DHS, over 15 federal agencies have been involved in 
overseeing Responsible Parties' efforts to address the effects of the 
Deepwater Horizon oil spill through their participation in the 
Deepwater IST. The Deepwater IST was established to, among other 
things, coordinate the federal government's oversight of BP's claims 
processing to avoid duplicate payments. However, as of September 30, 
2010, the Deepwater IST was to transfer ongoing oversight to 
appropriate federal agencies or workgroups. 

Conclusion: 

Financial risks exist for the federal government as a result of the 
Deepwater Horizon oil spill. Total costs associated with the oil spill 
are unknown, but estimates are in the tens of billions of dollars. BP 
has committed to paying costs from the Deepwater Horizon oil spill, 
even to the extent that such costs exceed the $20 billion it has 
agreed to set aside for such costs. OPA places limits on the liability 
of the Responsible Parties, but BP has stated that it will continue to 
pay costs above the limits applicable to the Deepwater Horizon oil 
spill. However, financial risks to the federal government exist if 
circumstances occur that adversely impact BP or other Responsible 
Parties' financial condition or ability to pay such claims. As such, 
it remains unclear whether the federal government will ultimately have 
to cover Deepwater Horizon oil spill-related costs, and if so, the 
potential amounts that could be involved. 

Consequently, in order to help minimize federal financial risks 
associated with the Deepwater Horizon oil spill, it will be imperative 
that the federal government take prompt action to ensure that its 
policies and procedures are up-to-date, clear, and sufficiently 
detailed. Further, going forward, sustained federal oversight and 
monitoring--including establishing mechanisms to ensure that policies 
and procedures are fully and effectively implemented--and enacting 
legislation concerning the $1 billion per incident cap will be 
essential. 

Matter for Congressional Consideration: 

Congress should consider amending OPA or enacting new legislation that 
eliminates the Fund's $1 billion per incident expenditure cap to the 
extent that it does not take into account reimbursements from 
Responsible Parties. In this regard, Congress may want to consider 
setting a Fund cap associated with an incident based upon net 
expenditures (expenditures less reimbursements). 

Recommendations for Executive Action: 

In order to help establish and maintain effective cost reimbursement 
policies and procedures for the Fund, we recommend that the Secretary 
of Homeland Security direct the Director of the U.S. Coast Guard's 
NPFC to update NPFC's policies and procedures to include: 

* current Fund reimbursement billing practices that reflect both a 
percentage of federal agencies' obligations as well as expenditures, 
and: 

* specific procedural guidance on processing DOD requests for 
reimbursement using MIPRs. 

In order to ensure that all 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: 

* update NPFC's current policies to reflect current organization and 
structure and managements' directives, and: 

* update NPFC's current procedures to provide detailed guidance and 
procedures for identifying and documenting all Responsible Party 
notifications. 

Agency Comments: 

We provided a draft of our slides to DHS, the Department of the 
Interior, and DOJ's management for comment. We received written 
comments from the Special Assistant, Office of the Chief Financial 
Officer, DHS, which are contained in enclosure V. We also received a 
subsequent email from DHS providing additional comments related to 
GAO's four recommendations. DOJ provided technical comments which we 
considered and incorporated as appropriate. The Department of the 
Interior did not provide any comments. 

In its written comments, DHS agreed with our matter for congressional 
consideration of revising the current $1 billion per incident cap and 
cited a May 2010 request to increase the per incident cap to $1.5 
billion. With respect to our recommendations, DHS stated that while 
its existing policies and procedures are sound to address many oil 
spills, the significance of the Deepwater Horizon spill highlights the 
need for adopting policy refinements. Accordingly, DHS agreed to 
update NPFC's current policies to reflect current organization and 
structure and stated it will further evaluate and analyze our 
recommendation to update NPFC's Fund reimbursement billing policies 
and procedures. 

However, DHS commented that no additional actions were needed with 
respect to two of our recommendations. We disagree. For our 
recommendation to provide specific procedural guidance on processing 
DOD requests for reimbursements using MIPRs, DHS stated that existing 
legally binding bilateral agreements with documented procedures are 
already in place. However, NPFC's User Reference Guide does not 
address procedures for processing MIPRs, nor does it provide specific 
examples on how to complete a MIPR or provide guidance on when a MIPR 
should be used. With respect to our recommendation to provide detailed 
guidance and procedures for identifying and documenting all 
Responsible Parties notifications, DHS viewed our recommendation as 
being directed toward using such formal notifications in determining 
Responsible Parties' liability. While we recognize that the purpose of 
the notice of designation is to help ensure Responsible Parties 
advertise the claims process as quickly as possible, we believe that 
failure to provide prompt formal notifications may result in 
confusion, hindering Responsible Parties' compliance with cost 
recovery processes. Consequently, we continue to believe that actions 
are needed to implement all four of our recommendations. 

DHS's comments also included a number of technical suggestions 
concerning our findings which we considered and incorporated as 
appropriate in finalizing our product. For example, we added 
clarification concerning DHS actions to deliver designation notices to 
all potential Responsible Parties. 

We are sending copies of this report to the appropriate congressional 
committees. We are also sending copies to the Secretary of Homeland 
Security, the Director of NPFC, the Attorney General of the United 
States, and to other interested parties. This report will also be 
available at no charge on our Web site at [hyperlink, 
http://www.gao.gov]. Should you or your staff have any questions 
concerning this report, please contact Susan Ragland at (202) 512-9095 
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 enclosure VI. 

Signed by: 

Susan Ragland:
Director:
Financial Management and Assurance: 

Enclosures - 6: 

List of Requesters: 

The Honorable John Conyers, Jr.
Chairman:
Committee on the Judiciary:
House of Representatives: 

The Honorable Nick J. Rahall, II:
Chairman:
Committee on Natural Resources:
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 Michael C. Burgess:
Ranking Member:
Subcommittee on Oversight and Investigations:
Committee on Energy and Commerce:
House of Representatives: 

[End of section] 

Deepwater Horizon Oil Spill: Preliminary Assessment of Federal 
Financial Risks and Cost Reimbursement and Notification Policies and 
Procedures: 

Briefing for Congressional Requesters: 

November 9, 2010: 

Overview: 

* Background: 

* Objectives: 

* Scope and Methodology: 

* Results: 

- The Fund and Federal Government Face a Variety of Financial Risks as 
a Result of the Deepwater Horizon Oil Spill: 

- Federal Policies and Procedures Not Current, Clear, and Sufficiently 
Detailed: 

- Federal Government Efforts to Monitor and Oversee Responsible 
Parties' Claims Processing: 

* Conclusions: 

* Matter for Congressional Consideration: 

* Recommendations for Executive Action: 

* Agency Comments and Our Evaluation: 

Background: 

On April 20, 2010, an oil spill of national significance followed an 
explosion on the Deepwater Horizon mobile offshore drilling unit 
located in the Gulf of Mexico.[Footnote 11] Cementing operations to 
prevent further oil from spilling from the Macondo Prospect well was 
completed on September 19, 2010. (See enclosure IV for a timeline of 
Deepwater Horizon oil spill events.) 

A complex landscape of laws and regulations governs the liability for 
oil spill costs of different parties. 

* Injuries and damages that arise from an oil spill incident are 
governed by federal statutes and common law, federal securities laws, 
and various state laws. 

* For example, the Oil Pollution Act of 1990 (OPA), as amended, 
[Footnote 12] places the primary liability for the cost of the oil 
spills--up to certain limits--on the Responsible Party or Parties and 
establishes the limits on liability of Responsible Parties for removal 
costs and damages specified in OPA (referred to as OPA compensable 
damages).[Footnote 13] 

The U.S. Coast Guard's National Pollution Funds Center (NPFC) 
administers the Oil Spill Liability Trust Fund (Fund) by disbursing 
funds for federal cleanup and natural resource restoration, monitoring 
the sources and uses of the Funds, adjudicating claims submitted to 
the Fund for payment, and pursuing reimbursements from Responsible 
Parties for costs and damages paid by the Fund and certain other 
recoverable costs. 

Under OPA, the authorized limit on expenditures to be paid by the Fund 
is currently $1 billion in total expenditures per incident, with a 
concurrent limit of $500 million per incident for natural resource 
damage assessments and claims. According to the Department of Homeland 
Security, federal agencies may separately incur costs and fund them 
with agency appropriations, if available for that purpose. 

Background - Oil Spill Liability Trust Fund: 

The Fund's current revenue sources include: 

* a per barrel tax of 8 cents on petroleum products either produced in 
the United States or imported from other countries, 

* recoveries from Responsible Parties for costs of removal and damages, 

* fines and penalties paid pursuant to various statutes, and: 

* interest earned on U.S. Treasury investments. 

As shown in figure 1, the Fund's balance has varied over the years. 

* For fiscal years 2003 through 2007, its balance was less than the $1 
billion limit on expenditures for the response to a single spill. This 
was in part because the Fund's per barrel tax on U.S. produced and 
imported oil was not collected for most of 1995 through 2006, because 
the barrel tax had expired in December 1994. The Energy Policy Act of 
2005 reinstituted the 5 cents per barrel tax on produced and imported 
oil in April 2006, which the Energy Improvement and Extension Act of 
2008 subsequently increased to 8 cents per barrel.[Footnote 14] On 
September 30, 2010, the unaudited Fund balance was $1.69 billion. 

Figure 1: Oil Spill Liability Trust Fund Balance, 1993-2010 
(Unaudited): 

[Refer to PDF for image: vertical bar graph] 

Year: 1993; 
Oil Spill Liability Trust Fund Balance: $1.038 billion. 

Year: 1994; 
Oil Spill Liability Trust Fund Balance: $975 million. 

Year: 1995; 
Oil Spill Liability Trust Fund Balance: $1.138 billion. 

Year: 1996; 
Oil Spill Liability Trust Fund Balance: $1.140 billion. 

Year: 1997; 
Oil Spill Liability Trust Fund Balance: $1.122 billion. 

Year: 1998; 
Oil Spill Liability Trust Fund Balance: $1.084 billion. 

Year: 1999; 
Oil Spill Liability Trust Fund Balance: $1.028 billion. 

Year: 2000; 
Oil Spill Liability Trust Fund Balance: $1.164 billion. 

Year: 2001; 
Oil Spill Liability Trust Fund Balance: $1.129 billion. 

Year: 2002; 
Oil Spill Liability Trust Fund Balance: $1.008 billion. 

Year: 2003; 
Oil Spill Liability Trust Fund Balance: $969 million. 

Year: 2004; 
Oil Spill Liability Trust Fund Balance: $843 million. 

Year: 2005; 
Oil Spill Liability Trust Fund Balance: $740 million. 

Year: 2006; 
Oil Spill Liability Trust Fund Balance: $604 million. 

Year: 2007; 
Oil Spill Liability Trust Fund Balance: $943 million. 

Year: 2008; 
Oil Spill Liability Trust Fund Balance: $1.182 billion. 

Year: 2009; 
Oil Spill Liability Trust Fund Balance: $1.449 billion. 

Year: 2010; 
Oil Spill Liability Trust Fund Balance: $1.694 billion. 

Note: The Fund balance increase in 2000 was largely because of a 
transfer of $181.8 million from the Trans-Alaska Pipeline Liability 
Fund. 

[End of figure] 

Background - Federal Agencies' Roles: 

Responding to oil spills involves a coordinated effort by various 
parties, including (1) Coast Guard or Environmental Protection Agency 
(EPA) as the Federal On-Scene Coordinator;[Footnote 15] (2) federal, 
state, local, and Indian tribal government agencies; (3) private 
companies that specialize in oil spill clean up;[Footnote 16] and (4) 
the Responsible Parties, their guarantors (i.e., insurers), and 
qualified individuals designated by responsible parties to respond to 
oil spills. 

To fund government agencies' oil spill removal costs, the Federal On- 
Scene Coordinators: 

* issue Pollution Removal Funding Authorizations (federal 
authorizations) or Military Interdepartmental Purchase Requests (MIPR) 
[Footnote 17] to quickly obtain services and assistance from 
government agencies, 

* verify that the services or goods were received and consistent with 
the National Contingency Plan and certify the supporting cost 
documentation, and: 

* send the cost documentation to NPFC, which authorizes the Coast 
Guard's Finance Center to pay the government agencies. 

Background - Trust and Gulf Coast Claims Facility: 

The Coast Guard, without in any way relieving other Responsible 
Parties of liability, directed BP to establish a single claims 
facility for all Responsible Parties to centralize claims processing 
for claimants.[Footnote 18] 

On June 16, 2010, BP announced that it would create a $20 billion 
escrow account to satisfy claims resolved by the Gulf Coast Claims 
Facility (GCCF) and certain other claims, including natural resource 
damages. 

BP established an irrevocable Trust (for the announced escrow account) 
on August 6, 2010, designating three trustees[Footnote 19] with 
fiduciary responsibility to collect promised contributions from BP and 
make disbursements to permitted categories of beneficiaries. It 
committed BP to fund the Trust on a quarterly basis over 3-1/2 years 
for a total of $20 billion to be paid into the Trust as of 2014 (as 
shown in figure 2).[Footnote 20] The Trust is to pay some OPA- 
compensable claims and some other claims for personal injuries that 
are not OPA-compensable, but for which BP would be liable under other 
federal or state laws, such as the Jones Act or state oil pollution 
acts.[Footnote 21] 

BP established the GCCF to provide a mechanism for individuals and 
businesses to file claims for costs and damages incurred as a result 
of the Deepwater Horizon oil spill. The GCCF began operations and 
started accepting claim forms on August 23, 2010. The GCCF, 
administered by Kenneth R. Feinberg, draws funds from the Trust to pay 
claims. 

Background - The Trust: 

Figure 2: The Trust's $20 Billion Funding Time Frame: 

[Refer to PDF for image: line graph] 

Date: August 6, 2010; 
Fund: Trust agreement finalized. 

Date: August 9, 2010: 
Fund: $3.0 billion (BP makes initial deposit into escrow account). 

BP is to make subsequent $1.25 billion payments on March 31, June 30, 
September 30, and December 31 for each tear through 2013. 

Date: December 31, 2010; 
Fund: $5.0 billion. 

Date: March 31, 2011; 
Fund: $6.25 billion. 

Date: June 30, 2011; 
Fund: $7.5 billion. 

Date: September 30, 2011; 
Fund: $8.75 billion. 

Date: December 31, 2011; 
Fund: $10 billion. 

Date: March 31, 2012; 
Fund: $11.25 billion. 

Date: June 30, 2012; 
Fund: $12.5 billion. 

Date: September 30, 2012; 
Fund: $13.75 billion. 

Date: December 31, 2012; 
Fund: $15 billion. 

Date: March 31, 2013; 
Fund: $16.25 billion. 

Date: June 30, 2013; 
Fund: $17.5 billion. 

Date: September 30, 2013; 
Fund: $18.87 billion. 

Date: December 31, 2013; 
Fund: $20 billion. 

Source: GAO analysis of an August 9, 2010, BP press release on the 
funding of the $20 billion account. 

[End of figure] 

Background - Gulf Coast Claims Facility: 

The GCCF Administrator has established the following principles for 
GCCF's operations: 

* GCCF officials are to evaluate all claims in a prompt and fair 
manner guided by applicable law, 

* The establishment of the GCCF does not diminish any right of any 
individual or business that existed prior to the GCCF's creation, and: 

* The GCCF claims process has been structured to comply with OPA and 
apply the standards of OPA. In addition, it will consider some non-OPA-
compensable claims, such as those for physical injuries, that are 
based on applicable federal or state laws. 

As of August 2010, GCCF has established the following types of 
payments: 

* Emergency Advance Payments. Payments available to individuals and 
businesses that are experiencing financial hardship resulting from 
damages incurred from the Deepwater Horizon oil spill. According to 
GCCF Emergency Advance Payment protocols, claims for Emergency Advance 
Payments can be submitted through November 23, 2010. 

* Final Payments. Payments, over and above any emergency advance 
payments, to individuals and businesses for total losses incurred 
because of the Deepwater Horizon oil spill. According to the 
Frequently Asked Questions on GCCF's Web site,[Footnote 22] the GCCF 
will be accepting claims for Final Payments that are submitted through 
August 23, 2013. 

* These payments are intended to provide compensation for both OPA- 
compensable and non-OPA-compensable claims. 

[End of section] 

Objectives: 

Our objectives for this briefing are to: 

* provide a preliminary assessment of financial risks to the Fund and 
the federal government as a result of the Deepwater Horizon oil spill; 

* provide a preliminary assessment of the Coast Guard's NPFC cost 
reimbursement policies and procedures for Deepwater Horizon oil spill 
costs; and: 

* describe the framework for federal monitoring and oversight efforts 
over the Responsible Parties for the Deepwater Horizon oil spill, 
including federal efforts to oversee BP's and GCCF's Deepwater Horizon 
oil spill claims payments. 

[End of section] 

Scope and Methodology: 

To address these objectives, we: 

* identified and analyzed applicable laws and regulations and our 
previous work[Footnote 23] to identify statutory and regulatory 
limitations on the liability of Responsible Parties that may pose 
risks to the Fund and federal government; 

* interviewed Fund officials, performed walkthroughs, reviewed and 
summarized invoices sent to the Responsible Parties for reimbursement, 
and reviewed relevant policies and procedures to make a preliminary 
assessment of the Fund's cost reimbursement policies and procedures; 
and: 

* interviewed Department of Justice (DOJ) and Deepwater Integrated 
Services Team (IST) officials and reviewed relevant coordination and 
status updates to obtain an understanding of federal monitoring and 
oversight of BP's claims payment activities. 

This product is the first of a planned body of work to evaluate and 
assess the federal risks and exposures resulting from the Deepwater 
Horizon oil spill. Our follow on work is to include assessing and 
testing NPFC Fund reimbursement policies and procedures and analyzing 
the framework for federal monitoring and oversight efforts over the 
Responsible Parties for the Deepwater Horizon oil spill. 

We conducted this performance audit from July 2010 to October 2010, 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] 

Results: 

The Fund and Federal Government Face a Variety of Financial Risks as a 
Result of the Deepwater Horizon Oil Spill: 

According to BP's second quarter 2010 projections, the Deepwater 
Horizon oil spill is projected to result in tens of billions of 
dollars in cleanup, restoration, loss of income, property damage, and 
other costs.[Footnote 24] 

BP stated publicly and in filings in federal district court that it 
will pay all costs related to the Deepwater Horizon oil spill, even if 
costs exceed the statutory limit on its liability for costs of oil 
spilled from the Macondo Prospect Well (removal costs plus $75 
million).[Footnote 25] 

As of October 15, 2010, NPFC had sent seven bills to the Deepwater 
Horizon Responsible Parties for a cumulative total of $581 million. 
These bills are primarily to reimburse federal government costs, but 
also include some other costs, such as the National Guard. BP has 
stated its intent to recover some of these costs from the other 
Responsible Parties under the provisions of OPA or applicable 
contractual agreements. 

NPFC officials told us that they expect the Fund to reach the $1 
billion per incident cap at some point for the Deepwater Horizon oil 
spill, but the timeframe for this is uncertain.[Footnote 26] 

Federal agencies incurring removal and certain other costs related to 
the Deepwater Horizon oil spill face risks as costs increase. If the 
agencies incur OPA-compensable costs that collectively exceed the $1 
billion per incident cap on total expenditures from the Fund, the 
statute would need to be amended to exclude from the cap amounts 
recovered from the Responsible Parties in order to obtain 
reimbursements from the Fund for their costs incurred.[Footnote 27] 
Additionally, federal agencies may need to use their annual 
appropriations or other agency budgetary resources to cover non- 
reimbursable costs. 

The $581 million billed to the Responsible Parties includes $323.3 
million for Pollution Removal Funding Authorizations (Federal 
Authorizations) and MIPRs and $44.0 million for Coast Guard direct 
costs, such as those for purchases, contractors, and travel. The 
amounts billed also include $213.7 million for Coast Guard 
recoverable, or indirect, costs, such as personnel and equipment. 

The $581 million billed to the Responsible Parties does not 
necessarily reflect expenditures from the Fund. 

- For example, although NPFC bills the Responsible Parties for 75 
percent of the Federal Authorization and MIPR ceilings, agencies are 
reimbursed by the Fund for actual expenditures incurred. The agencies 
submit cost reimbursement packages with costs incurred to NPFC for 
approval for reimbursement from the Fund. Not all of the agencies that 
have incurred costs have submitted cost reimbursement packages to 
NPFC. According to information provided by NPFC, as of October 19, 
2010, NPFC has authorized for reimbursement, approximately $125.5 
million, or 38.8 percent of the amount billed to the Responsible 
Parties for Federal Authorizations and MIPRs. 

- Additionally, the Coast Guard recoverable costs are funded through 
the agency's annual operating expenses appropriation, and the Coast 
Guard has not sought reimbursement for these costs from the Fund. 
[Footnote 28] Therefore, the $213.7 million is not applied to the $1 
billion statutory limit, although the Fund benefits from 
reimbursements from Responsible Parties.[Footnote 29] 

- The $581 million does not include any amounts for natural resource 
damage assessment initiation costs, although NPFC has an interagency 
agreement with the Department of the Interior for about $22.4 million 
for the initiation assessment.[Footnote 30] 

Further, since the total cost of the Deepwater Horizon oil spill has 
yet to be determined, the federal government remains at risk of having 
to pay relevant costs above the $20 billion planned to fund the Trust 
if circumstances change. BP's financial condition and its continuing 
resolve to stand behind its public commitments will be key factors if 
additional costs need to be paid. 

* BP faces a large number of lawsuits, which potentially could result 
in final judgments or settlements to be paid from the Trust. 

* As of October 21, 2010, according to BP's Web site,[Footnote 31] it 
paid a total of $3,198.5 million to reimburse costs incurred by 
federal and state governments and pay claims to individuals and 
businesses associated with the Deepwater Horizon oil spill.[Footnote 
32] (See table 1.) 

* The extent of natural resource damages has yet to be determined, 
which could result in significant additional costs. To provide a frame 
of reference, the Exxon Valdez's natural resource damages were at 
least $1 billion. The Fund has a $500 million statutory limit on 
natural resource damage assessments and claims. 

Table 1: Claims and Government Payments as of October 21, 2010 
(Dollars in Millions): 

Type: Individuals and businesses; 
BP direct: $395.6 million; 
Trust: $1.482 billion; 
Total: $1.877 billion. 

Type: Fund for real estate brokers and agents; 
BP direct: [Empty]; 
Trust: $34.5 million; 
Total: $34.5 million. 

Type: Federal government - response and removal; 
BP direct: $518.4 million; 
Trust: [Empty]; 
Total: $518.4 million. 

Type: Federal government - other; 
BP direct: $63.4 million; 
Trust: [Empty]; 
Total: $63.4 million. 

Type: States and other; 
BP direct: $564.7 million; 
Trust: $140.1 million; 
Total: $704.8 million. 

Total Paid: 
BP direct: $1.542 billion; 
Trust: $1.656 billion; 
Total: $3.199 billion. 

Source: Unaudited data from BP's Web site. 

[End of table] 

Federal Policies and Procedures Not Current, Clear and Sufficiently 
Detailed: 

Our preliminary assessment of the design of NPFC policies and 
procedures over the billings to Responsible Parties noted instances 
where NPFC had not updated its documented policies and procedures to 
reflect current NPFC practices in the following areas: 

* its practices for billing the Responsible Parties for this incident, 

* procedures for identifying and notifying Responsible Parties (its 
Technical Operating Procedures for Designation of Source), and: 

* the specific steps required for the proper processing of MIPRs, 
which NPFC has been using since 1990 to reimburse the Department of 
Defense (DOD) for costs incurred with spills and that NPFC stated it 
has refined as a result of the Deepwater Horizon oil spill. 

Because of the ongoing nature of the Deepwater Horizon oil spill, NPFC 
determined that it was necessary to change its practices for billing 
the Responsible Parties for this incident. 

NPFC developed and implemented a new practice for billing the 
Responsible Parties for the costs incurred by the Fund. However, NPFC 
has not updated its policies and procedures to reflect these new 
practices. 

* Prior to the Deepwater Horizon oil spill, NPFC's policy was to bill 
Responsible Parties for actual expenditures associated with a spill. 

* NPFC developed a new practice for billing the Deepwater Horizon oil 
spill Responsible Parties based on a combination of obligations and 
actual expenditures.[Footnote 33] 

* As of October 2010, NPFC had not yet incorporated its new billing 
practices in its Case Management Standard Operating Procedures or 
other policy manuals.[Footnote 34] 

NPFC's documented procedures for identifying and notifying Responsible 
Parties (i.e., its Technical Operating Procedures for Designation of 
Source) are dated 1996 and marked "draft." 

* NPFC's Technical Operating Procedures were drafted in 1996 when the 
Coast Guard was part of the Department of Transportation. Since the 
procedures were drafted, multiple organizational changes have occurred 
including Coast Guard becoming part of the Department of Homeland 
Security in 2003 and the establishment of the Department of Interior's 
Bureau of Ocean Energy Management, Regulation and Enforcement in June 
2010.[Footnote 35] 

* Since NPFC's Technical Operating Procedures were drafted in 1996, it 
is important that NPFC update them to ensure that they reflect the 
current organization and structure as well as management's current 
directives. 

NPFC did not follow its Technical Operating Procedures in notifying 
the Deepwater Horizon oil spill Responsible Parties. 

* On April 28, 2010, NPFC sent formal Notices of Designation (advising 
the companies of BP's and Transocean's[Footnote 36] obligation to 
advertise for claims for the Deepwater Horizon oil spill) to (1) BP 
Exploration & Production; (BP), (2) BP's guarantor, BP Corporation 
North America, Inc.; (3) Transocean Holdings Incorporated 
(Transocean); and (4) Transocean's guarantor, QBE Underwriting, LTD. 

* However, NPFC officials told us that in the case of the Deepwater 
Horizon oil spill, as of October 2010, NPFC had identified seven 
Responsible Parties, but had notified three of the Responsible Parties 
identified--(1) Anadarko E&P Company, LP, (2) Anadarko Petroleum 
Corporation and (3) MOEX Offshore 2007 LLC--only through invoices sent 
to recover costs. 

* NPFC Technical Operating Procedures provide that Responsible Parties 
and their guarantors are to be identified and formally notified of 
their oil spill-related responsibilities through a Notice of 
Designation.[Footnote 37] The Notice of Designation states that if the 
Responsible Party does not deny the designation, then the Responsible 
Party is required to advertise the procedures by which persons may 
submit claims. 

* Because multiple parties were involved in the Deepwater Horizon oil 
spill, it is important that NPFC appropriately identify, document, and 
notify the Responsible Parties involved to ensure that the appropriate 
Responsible Parties are held responsible for advertising. 

NPFC officials view the Responsible Party designation process as 
applicable only to the assignment of claims advertising 
responsibilities under OPA and not as a determination of liability, 
and the liability of any particular entity will be addressed through 
investigation and possible litigation. However, NPFC policies and 
procedures require an assessment of liability in its designation 
process and NPFC uses responses to its designations in its cost 
reimbursement process. The failure to follow documented notification 
procedures creates risks of confusion and breakdowns in the claims 
management and cost reimbursement process. 

NPFC's current policy and procedures manual does not address the 
specific steps required for the proper processing of MIPRs, which NPFC 
has been using since 1990 to reimburse DOD for costs incurred 
responding to oil spills. 

* NPFC's User Reference Guide, which contains NPFC's policies and 
procedures, 

- provides specific examples of Federal Authorizations and when 
Pollution Removal Funding Authorizations should be used, 

- does not mention MIPRs, and thus does not provide specific examples 
on how to complete an MIPR or discuss when an MIPR should be used, and: 

- provides no information regarding invoicing and reimbursing MIPRs. 

As the result of the Deepwater Horizon oil spill, NPFC stated that it 
has refined its process related to MIPRs and the agency stated that it 
will be formally documenting and promulgating these refinements. 

Our Standards for Internal Control in the Federal Government[Footnote 
38] provide that internal control and all transactions and other 
significant events need to be clearly documented and readily available 
for examination. The documentation should appear in management 
directives, administrative policies, or operating manuals. All 
documentation and records should be properly managed and maintained. 

Without clearly documented policies and procedures for dealing with 
the new and current practices established in response to the Deepwater 
Horizon oil spill, NPFC is at risk of its billing practices not being 
efficient and effective. 

Federal Government Efforts to Monitor and Oversee Responsible Parties' 
Claims Processing: 

Federal agencies, including DOJ and the Coast Guard and the Federal 
Emergency Management Agency (FEMA) within DHS, have participated in 
monitoring and overseeing the claims and cost reimbursement process 
for the Deepwater Horizon oil spill. In addition, the federal 
government established the Deepwater IST to lead the government's 
efforts. The following is additional detail on the roles of the 
federal agencies: 

* DOJ: 

- Encouraged BP to establish the Trust and the GCCF.[Footnote 39] 

- Reviewed and provided written comments on GCCF's Protocol for 
Emergency Advance Payment. 

- Is monitoring GCCF's claims process to determine if it is 
independent, fair, and efficient. 

- Is coordinating investigations of fraudulent claims and has also 
begun receiving allegations through its National Center for Disaster 
Fraud. 

* Coast Guard: 

- Acts as the Federal On-Scene Coordinator for the Deepwater Horizon 
oil spill and provides oversight of the response activities. 

- Verifies whether a particular cost was incurred for removal and was 
consistent with the National Contingency Plan. 

* NPFC: 

- Designated Responsible Parties and sent Notices of Designation. 

- Generated and sent invoices to Responsible Parties to recover costs. 

- Monitors the actions of Responsible Parties to meet their legal 
obligations. 

- Notifies Responsible Parties of claims it receives. 

* Deepwater IST (see figure 3): 

- Led by DHS's FEMA. 

- Was established on June 4, 2010, to coordinate efforts of federal 
departments and agencies to provide support services and monitor 
claims in response to the Deepwater Horizon oil spill. 

Since established, coordinated interagency and intergovernmental 
efforts to monitor the status of claims submitted to BP and the 
effectiveness and efficiency of BP's claims process. Took steps to 
raise awareness of concerns related to payment policy clarity for 
claimants, data access and reporting, and coordination of 
federal/state benefits and services to avoid duplicate payments. 

* According to the IST Transition Plan, is to stand down the majority 
of activities by September 30, 2010, with objectives and priorities 
either completed or transitioned to the appropriate workgroup or 
agency for longer-term follow-up.[Footnote 40] 

* As of early September 2010, according to its status report, was 
expected to have met its general mission by late September. 

Figure 3: Participants in the Deepwater IST: 

[Refer to PDF for image: illustration] 

Deepwater Integrated Services Team (IST): 
National-level IST; 
Field-based OST. 

Participants: 

Department of Veterans Affairs; 
Corporation for National and Community Service; 
Department of Health and Human Services; 
Small Business Administration; 
Social Security Administration; 
Department of Energy; 
Environmental Protection Agency; 
Federal Mediation and Conciliation Service; 
Department of Education; 
Department of Commerce; 
Department of Homeland Security (Lead); 
Department of the Interior; 
Department of Labor; 
Department of Housing and Urban Development; 
Executive Office of the President; 
Department of the Treasury; 
Department of Justice; 
Department of Agriculture. 

Source: Deepwater IST. 

[End of figure] 

[End of section] 

Conclusions: 

Financial risks exist for the federal government as a result of the 
Deepwater Horizon oil spill. Total costs associated with the oil spill 
are unknown, but estimates are in the tens of billions of dollars. 
Further, BP has committed to paying costs of the Deepwater Horizon oil 
spill, even to the extent such costs exceed the $20 billion it has 
agreed to set aside for such costs. However, circumstances may occur 
that adversely impact BP or other Responsible Parties' financial 
condition or ability to pay such claims. OPA places conditional limits 
on the liability of the Responsible Parties, but BP has stated that it 
will continue to pay costs above the limits applicable to the 
Deepwater Horizon oil spill. Any applicable limits have not been 
definitively determined through investigation or litigation. As such, 
it remains unclear whether the federal government will ultimately have 
to cover any Deepwater Horizon oil spill-related costs, and if so, the 
potential amounts that could be involved. 

Consequently, in order to help minimize federal financial risks 
associated with the Deepwater Horizon oil spill, it will be imperative 
that the federal government take prompt action to ensure that its 
policies and procedures are up-to-date, clear, and sufficiently 
detailed. Further, going forward, sustained federal oversight and 
monitoring--including establishing mechanisms to ensure that 
established policies and procedures are fully and effectively 
implemented--and enacting legislation concerning the $1 billion per 
incident cap will be essential. 

[End of section] 

Matter for Congressional Consideration: 

Congress should consider amending OPA or enacting new legislation that 
eliminates the Fund's $1 billion per incident expenditure cap to the 
extent that it does not take into account reimbursements from 
Responsible Parties. In this regard, Congress may want to consider 
setting a Fund cap associated with an incident based upon net 
expenditures (expenditures less reimbursements). 

Recommendations for Executive Action: 

In order to help establish and maintain effective cost reimbursement 
policies and procedures for the Fund, we recommend that the Secretary 
of Homeland Security direct the Director of the Coast Guard's NPFC to 
update NPFC's policies and procedures to include: 

* current Fund reimbursement billing practices that reflect both a 
percentage of federal agencies' obligations as well as expenditures, 
and: 

* specific procedural guidance on processing DOD requests for 
reimbursement using Military Interdepartmental Purchase Requests. 

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: 

* update NPFC's current policies to reflect current organization and 
structure and management's directives, and: 

* update NPFC's current procedures to provide detailed guidance and 
procedures for identifying and documenting Responsible Party 
notifications. 

Agency Comments and Our Evaluation: 

We provided a draft of our slides to DHS, the Department of Interior, 
and DOJ's management for comment. We received written comments from 
the Special Assistant, Office of the Chief Financial Officer, DHS. 
(See enclosure V.) We also received an email from DHS providing 
additional comments related to GAO's four recommendations. DHS's 
comments also included a number of technical suggestions concerning 
our findings which we considered and incorporated as appropriate in 
finalizing our product. DOJ also provided technical comments which we 
considered and incorporated as appropriate. The Department of the 
Interior did not provide any comments. 

In its written comments, DHS agreed with our matter for congressional 
consideration of revising the current $1 billion per incident cap and 
cited a May 2010 request to increase the per incident cap to $1.5 
billion. 

With respect to our recommendations, DHS said that while its existing 
policies and procedures are sound to address many oil spills, the 
significance of the Deepwater Horizon spill highlights the need for 
adopting policy refinements. Accordingly, DHS agreed to update NPFC's 
current policies to reflect current organization and structure and 
stated it will further evaluate and analyze our recommendation to 
update NPFC's Fund reimbursement billing policies and procedures. 

DHS commented that no additional actions were needed with respect to 
two of our recommendations. We disagree. 

* For our recommendation to provide specific procedural guidance on 
processing DOD requests for reimbursements using MIPRs, DHS stated 
that existing legally binding bilateral agreements with documented 
procedures are already in place. However, NPFC's User Reference Guide 
does not address procedures for MIPRs. 

* With respect to our recommendation to provide detailed guidance and 
procedures for identifying and documenting all Responsible Party 
notifications, DHS viewed our recommendation as being directed toward 
using such formal notifications in determining Responsible Parties' 
liability. While we recognize that the purpose of the notice of 
designation is to help ensure Responsible Parties advertise the claims 
process as quickly as possible, we believe that failure to provide 
such prompt formal notifications may result in confusion, hindering 
Responsible Parties' compliance with cost recovery processes. 

[End of Enclosure I] 

Enclosure II: Scope and Methodology: 

To identify and analyze financial risks and exposures to the Oil Spill 
Liability Trust Fund (Fund) and federal government, we identified and 
analyzed applicable laws and regulations to identify statutory and 
regulatory limitations on the liability of Responsible Parties that 
may pose financial risks to the Fund and federal government to the 
extent that Deepwater Horizon oil spill claims exceed such limits. We 
also considered the risks and exposures identified in our previous 
work on the cost of oil spills in terms of their potential impact on 
the Fund.[Footnote 41] 

To provide a preliminary assessment of Coast Guard's National 
Pollution Funds Center's (NPFC) cost reimbursement process, we 
interviewed NPFC officials and performed walkthroughs of the cost 
reimbursement process with NPFC case officers to obtain an 
understanding of the process. We also observed NPFC's process for 
creating the fifth invoice that was sent to the Responsible Parties. 
Additionally, we performed a preliminary review of NPFC's policy and 
procedure manuals to determine the sufficiency of NPFC's documented 
policies and procedures. We also reviewed the Department of Homeland 
Security's (DHS) fiscal year 2009 agency financial report, including 
the independent auditor's report[Footnote 42] and DHS Office of 
Inspector General's (OIG) Information Technology Management Letter for 
the United States Coast Guard Component of the FY 2009 DHS Integrated 
Audit[Footnote 43] to determine the extent to which the independent 
public auditor and OIG identified weaknesses and deficiencies in the 
Coast Guard's cost reimbursement or payment processes. We also 
obtained the invoices that NPFC sent to the Responsible Parties. We 
checked the invoices for mathematical accuracy and reviewed and 
summarized the amounts by federal and state agencies; however, we did 
not test the amounts contained therein to determine their accuracy or 
eligibility under the Oil Pollution Act (OPA). During our future work, 
we plan on testing reimbursement invoices to determine their accuracy. 
We also obtained the Notices of Designation NPFC sent to Responsible 
Parties and interviewed NPFC officials about their methodology for 
identifying Responsible Parties and their procedures for notifying 
them. 

To describe federal monitoring and oversight efforts of BP America 
Production Company (BP) and the Gulf Coast Claims Facility (GCCF) 
claims process, we interviewed Department of Justice (DOJ) officials 
about their oversight activities of BP claims process, the 
establishment of the Trust, and the setup of the GCCF. We also 
reviewed DOJ's comments on draft GCCF Emergency Advanced Payment 
protocols and obtained and reviewed the trust agreement. Additionally, 
we interviewed Deepwater Integrated Services Team (IST) officials 
about their oversight activities of BP and GCCF claims process and 
social services coordination efforts. We reviewed the Deepwater IST's 
documents including its coordination plan, team updates, and 
transition plan. We did not evaluate the effectiveness of the 
monitoring and oversight efforts by DOJ and the Deepwater IST. 
Additionally, we interviewed officials at the Department of the 
Interior to obtain an understanding of the agency's response to the 
Deepwater Horizon oil spill and its process for billing for costs 
incurred. Furthermore, we reviewed publicly available claims reports 
from BP and GCCF for claims amounts paid. We did not test the claims 
data or amounts reported by BP or GCCF. 

We conducted this performance audit from July 2010 to October 2010 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 Enclosure II] 

[Enclosure III: Legal Framework: 

Liability for Costs Associated with Oil Spills: 

A complex landscape of laws and regulations governs liability for 
coastal oil spill costs. The application of different laws and 
regulations affects which parties ultimately are subject to the 
various liabilities and financial risks. 

In 1990, after the Exxon Valdez oil spill in the Prince William Sound 
in Alaska, Congress enacted the OPA which established a "polluter 
pays" system that generally places the primary liability for the cost 
of oil spills on the facility or vessel[Footnote 44] owner or operator 
or other "responsible party,"[Footnote 45] subject to certain 
limitations on the extent and amount of liability. Under this system, 
OPA allocates liability to the responsible party for certain spill 
costs, which include, up to specified limits where applicable, removal 
costs (cleaning up the spill) and damage claims (such as restoring the 
environment and payment of compensation to parties who were 
economically harmed by the spill) and which are sometimes referred to 
as "OPA-compensable costs." To pay specified costs above a liability 
limit, as well as to pay costs when a responsible party does not pay 
or cannot be identified, OPA authorizes use of the Fund. The Fund is 
not available for certain types of injuries or damages that may arise 
in an oil spill incident, such as personal injuries or death or 
financial losses associated with oil company investments by members of 
the public. Such damages and injuries may be governed by other federal 
statutes, common law, or various state laws. 

The federal government's potential fiscal exposure increases as 
responsible parties' capacity to cover their exposures is reduced, 
whether as a result of extensive oil spill liabilities, poor financial 
condition of responsible parties, or other factors. OPA and other 
federal laws[Footnote 46] set out the federal process for oil spill 
response management, the liability of different parties in the event 
of an oil spill incident, and federal funding to cover certain oil 
spill costs that are not covered by private parties engaged in 
maritime activities.[Footnote 47] 

The National Contingency Plan (NCP), 40 C.F.R. part 300, generally 
sets out the organizational structure and procedures for preparing for 
and responding to discharges of oil and releases of hazardous 
substances, pollutants, and contaminants. This enclosure provides a 
summary of this framework as applied to oil spills in coastal waters. 
[Footnote 48] 

Oil Spill Response Management Process: 

The federal framework includes a coordinated response process 
involving private parties and all levels of government. In the event 
of the discharge of oil (or hazardous substances) in coastal waters, 
any person in charge of a vessel or facility must give notice to the 
National Response Center,[Footnote 49] which is administered by the 
Coast Guard as part of the NCP.[Footnote 50] Responses to large oil 
spills are typically a cooperative effort between the public and 
private sector, and there are numerous players who participate in 
responding to and paying for oil spills. To manage the response 
effort, the responsible party, the Coast Guard, EPA, and the pertinent 
state and local agencies form the unified command, also known as the 
National Response System, which implements and manages the spill 
response.[Footnote 51] Responses can include activities undertaken by 
federal agencies, states, tribal and local governments, responsible 
parties (e.g., owners and operators of vessels or facilities) and 
their guarantors (i.e., insurers), and nongovernmental participants, 
including qualified individuals[Footnote 52] and Oil Spill Response 
Organizations, which usually serve as contractors to the federal 
government or responsible parties to support response activities, such 
as skimming or disposing of oil. 

The lead federal authority, or Federal On-Scene Coordinator (FOSC), in 
conducting a spill response is usually the nearest Coast Guard Sector 
and is headed by the Coast Guard Captain of the Port.[Footnote 53] 
Under the NCP, when the Coast Guard designates an oil spill as a spill 
of national significance, the Coast Guard may appoint a National 
Incident Commander to provide strategic-level coordination among all 
public and private international and domestic parties.[Footnote 54] 
When notice of an oil spill is received by the Coast Guard, and as 
soon as the source is identified, NPFC must notify the responsible 
party or parties by telephone, telefax, or other means of NPFC's 
designation.[Footnote 55] 

According to NPFC guidance, "the [responsible party] has primary 
responsibility for response to a spill incident, including setting up 
the [Incident Command System] and joining with the FOSC and state on- 
scene coordinator (SOSC) in the [unified command]."[Footnote 56] 
However, as reflected in the NCP, NPFC guidance explains that, "even 
when the responsible party leads a reasonable response effort, the 
FOSC is always in ultimate command and may decide to direct specific 
action or, for whatever reason it is deemed necessary, actually take 
the lead role in the response." Under the Clean Water Act and the 
Comprehensive Environmental Liability and Compensation Act (CERCLA), 
and as set out in the NCP, the FOSC may issue administrative orders to 
protect the public health or welfare to responsible parties and other 
private parties directing them to take action to assist in a response. 
[Footnote 57] 

The FOSC directs response efforts at the scene of an oil spill. 
[Footnote 58] Additionally, to obtain assistance from other government 
agencies, the FOSC issues pollution removal funding authorizations--
commitments that the agency will receive reimbursement from the Fund 
for performing response activities--to obtain services and assistance 
from other government agencies. Other federal agencies may also be 
involved. For example, NOAA provides scientific support, monitors and 
predicts the movement of oil, and conducts environmental analyses of 
the affected area. The federal, state, and tribal trustees perform one 
or more natural resource damage assessments, as appropriate. 
Additionally, regional governmental entities that are affected by the 
spill--both state and local--as well as tribal government officials or 
representatives may participate in the unified command and contribute 
to the response effort, and they may be entitled to reimbursement from 
the responsible party or the Fund. 

Oil Spill Liability and Federal Funding: 

A complex landscape of laws and regulations governs the liability of 
various parties for coastal oil spill costs. The applicability of 
different laws and regulations affects which parties ultimately are 
subject to the various liabilities and financial risks. 

Overview of Liability for Oil Spills: 

OPA, which among other things amended the CWA, identifies the types of 
parties liable for costs and damages it covers, known as "responsible 
parties." OPA requires that, subject to certain exceptions, all 
nonfederal claims for OPA-compensable removal costs or damages be 
submitted first to the responsible party or the responsible party's 
guarantor.[Footnote 59] As discussed further below, federal agencies 
are authorized to use the Fund to cover their removal costs, and the 
federal government is entitled to reimbursement from responsible 
parties. Under OPA, responsible parties for vessels,[Footnote 60] are 
the owners, operators, or charterers.[Footnote 61] Responsible parties 
for offshore facilities are those parties that hold leases or permits 
for lands on the outer continental shelf.[Footnote 62] Independent 
third parties can be liable under OPA if they are the sole cause of 
the oil spill, and others who insure responsible parties (guarantors) 
are also liable jointly with the responsible parties (up to the amount 
of their guarantee).[Footnote 63] 

OPA addresses the discharge of oil from a facility or vessel as those 
terms are defined in the act.[Footnote 64] Responses and liability for 
hazardous substances not covered by OPA, which can occur in connection 
with an oil spill, are addressed under CERCLA.[Footnote 65] Also, OPA 
does not apply to oil spills from a public vessel, which OPA defines 
as "a vessel owned or bareboat chartered and operated by the United 
States, or by a State or political subdivision thereof, or by a 
foreign nation, except when the vessel is engaged in commerce." 
[Footnote 66] 

Congress expressly reserved for each state the authority for it to 
impose additional liability or requirements related to oil spills that 
occur within the state, including the state's coastal waters.[Footnote 
67] Finally, state oil pollution laws as well as other federal and 
state laws establish liability for a number of damages, injuries, 
costs, and fines and penalties not covered by OPA. For example, 
liability for physical and emotional harms resulting from an oil spill 
is established under federal maritime and state tort laws depending on 
various factors, such as where the incident or harm occurs. 

Table 2 lists a variety of damages, injuries, cleanup costs, and fines 
and penalties that can be incurred in relation to an oil spill 
incident in coastal waters and identifies the parties that generally 
are entitled to recover financially from responsible parties, assuming 
that relevant legal criteria have been met. Depending on the 
circumstances surrounding any particular oil spill incident, a party 
may incur liability for any combination of these damages, injuries, 
cleanup costs, and fines and penalties. 

Table 2: Possible Liability for an Oil Spill in Coastal Waters: 

Removal costs (or cleanup costs): 

Type of harm or penalty: Removal of oil or hazardous substances; 
Selected parties who may be entitled to recover: Federal 
government;[A] states; Indian tribes; and any person taking action 
consistent with the National Contingency Plan; 
Applicable laws: OPA, CERCLA, and state laws. 

Type of harm or penalty: Disposal; 
Selected parties who may be entitled to recover: Federal government; 
states; Indian tribes; and any person taking action consistent with 
the National Contingency Plan; 
Applicable laws: OPA, CERCLA, and state laws. 

Type of harm or penalty: Personnel; 
Selected parties who may be entitled to recover: Federal government; 
states; 
Applicable laws: OPA, CERCLA, and state laws. 

Type of harm or penalty: Prevention of further spills; 
Selected parties who may be entitled to recover: Federal government; 
states; Indian tribes; and any person taking action consistent with 
the National Contingency Plan; 
Applicable laws: OPA, CERCLA, and state laws. 

Damages: 

Type of harm or penalty: Natural resource damages; 
Selected parties who may be entitled to recover: Federal, state, and 
foreign governments and Indian tribes; 
Applicable laws: OPA, CERCLA, and state laws. 

Type of harm or penalty: Real or personal property damage; 
Selected parties who may be entitled to recover: Federal, state, local 
and foreign governments, Indian tribes, and private organizations and 
individuals; 
Applicable laws: OPA and state laws. 

Type of harm or penalty: Subsistence use damages; 
Selected parties who may be entitled to recover: Indian tribes, 
private organizations, individuals; 
Applicable laws: OPA and state laws. 

Type of harm or penalty: Loss of earning capacity; 
Selected parties who may be entitled to recover: Companies or 
individuals with loss of profits or income (One does not have to own 
the damaged property or resources to submit a claim under this 
category); 
Applicable laws: OPA and state laws. 

Type of harm or penalty: Loss of government revenues or profits; 
Selected parties who may be entitled to recover: Federal agencies; 
states; local governments; 
Applicable laws: OPA and state laws. 

Type of harm or penalty: Increased public service costs; 
Selected parties who may be entitled to recover: States and local 
governments; 
Applicable laws: OPA and state laws. 

Type of harm or penalty: Lost investments due to false or misleading 
statements about oil-related activities leading to share inflation by 
companies; 
Selected parties who may be entitled to recover: Shareholders; 
Applicable laws: Federal securities laws. 

Injuries to the person (including death): 

Type of harm or penalty: Physical injuries to or death of workers in 
the production, transportation, or storage of oil; 
Selected parties who may be entitled to recover: Depending upon 
applicable laws, the injured seaman, or personal representatives of 
the deceased in case of death; family members of the deceased; the 
injured maritime worker or family members of deceased; 
Applicable laws: Jones Act, Death on the High Seas Act (DOHSA), 
Longshore and Habor Workers Compensation Act (LHWCA), Outer 
Continental Shelf Lands Act (OCSLA).[B] 

Type of harm or penalty: Physical harm to or death of bystanders, 
including members of the public; Emotional distress; Pain and 
suffering; 
Selected parties who may be entitled to recover: Individuals suffering 
the injury; 
Applicable laws: Admiralty and maritime tort law; state tort laws. 

Criminal and Civil Fines and Penalties: 

Type of harm or penalty: Civil Damages or Civil Judicial Penalties; 
Selected parties who may be entitled to recover: Federal and state 
governments; 
Applicable laws: Clean Water Act (CWA), OCSLA and state laws. 

Type of harm or penalty: Criminal Fines and Penalties[C]; 
Selected parties who may be entitled to recover: Federal and state 
governments; 
Applicable laws: CWA, Endangered Species Act (ESA), Marine Mammal 
Protection Act (MMPA), Migratory Bird Treaty Act (MBTA), OCSLA, 
Occupational Safety, Health Act (OSHA), Refuse Act, and state laws. 

Type of harm or penalty: Civil Administrative Fines and Penalties; 
Selected parties who may be entitled to recover: Federal and state 
governments; 
Applicable laws: CWA, ESA, MMPA, OPA, OSHA, and state laws. 

[End of table] 

Source: GAO. 

[A] At least one U.S. district court has held that the federal 
government's right to recover cleanup costs is not unlimited under 
OPA. United States v. John Paul Jones, Jr., 267 F. Supp. 2d 1349, 1363-
64 (M.D. Ga. 2003). The court ruled that the federal government may 
take steps to recover its cleanup costs except to the extent that the 
responding party establishes that those costs were incurred in an 
arbitrary and capricious manner. The court explained that federal 
courts have the authority to review and set aside any government 
"action" in cleaning up the oil spill under the "arbitrary, 
capricious, an abuse of discretion, or otherwise not in accordance 
with law" standard in the Administrative Procedures Act, 5 U.S.C. § 
706(2)(A). 

[B] Applicable provisions of federal laws include: Jones Act, 46 
U.S.C. § 30104; Death on the High Seas Act (DOHSA), 46 U.S.C. App. § 
761; Longshore and Harbor Workers Compensation Act (LHWCA), 33 U.S.C. 
§ 901; Outer Continental Shelf Lands Act (OCSLA), 43 U.S.C. §§ 1331- 
1356a, as amended. 

[C] Miscellaneous Provisions of Title 18 of the U.S. Code (federal 
penal code) are often used in the prosecution of federal environmental 
crimes, such as Aiding and Abetting, 18 U.S.C. § 2; Conspiracy, 18 
U.S.C. § 371; False Statements, 18 U.S.C. § 1001; Mail Fraud, 18 
U.S.C. § 1341; Wire Fraud, 18 U.S.C. § 1343; Obstruction of Justice, 
18 U.S.C. § 1512; the Criminal Fine Improvements Act, 18 U.S.C. § 3571. 

[End of table] 

OPA requires that, subject to certain exceptions, all claims by 
individuals, businesses, states, and local and tribal governments for 
OPA-compensable removal costs or damages be submitted first to the 
responsible party or the responsible party's guarantor. Unless NPFC's 
designation of a responsible party for an oil spill is denied, or if 
the source of the oil spill is either a public vessel, or 
unidentifiable, NPFC will instruct the responsible party on the means 
of advertising the claims procedure to the public and other interested 
parties.[Footnote 68] If the responsible party denies a claim or does 
not settle it within 90 days, a claimant may commence action in court 
against the responsible party, or present the claim to the NPFC. 
Again, this process applies only to the costs and damages for which 
liability arises under OPA. 

Under OPA, certain parties must demonstrate financial responsibility 
before engaging in activities that may result in financial liability 
under the act. OPA requires the responsible parties for vessels and 
off-shore facilities to demonstrate the financial resources to respond 
to an oil spill up to the statutory limit of liability. Under various 
implementing regulations, the processes and applicable oversight by 
federal and state agencies for demonstrating financial responsibility 
vary according to the different facilities or vessels being used. 

For example, before any vessel or mobile offshore drilling unit larger 
than 300 gross tons operates in United States waters or any vessel 
that transships or transfers oil in the Exclusive Economic Zone, the 
responsible parties for oil spills under OPA must first obtain a 
Certificate of Financial Responsibility (CoFR) from NPFC.[Footnote 69] 
To receive a CoFR, the responsible party must demonstrate adequate 
financial resources to cover the maximum potential liability for an 
oil spill from a vessel, up to the limits under OPA. Responsible 
parties may self-insure their financial responsibility requirements or 
they may purchase insurance from a guarantor, which NPFC must also 
certify as being contractually obligated to cover the responsible 
party's maximum potential OPA liability. Failure to comply with the 
CoFR requirements can result in denial of authority to operate in 
United States waters.[Footnote 70] 

Users of offshore facilities on outer continental shelf lands have 
similar requirements to those covering vessels. Under OPA, they must 
submit evidence of Oil Spill Financial Responsibility (OSFR) for an 
offshore facility (that generally is capable of discharging more than 
1,000 barrels of oil) to the Department of the Interior (Interior) and 
receive its approval.[Footnote 71] In implementing these requirements, 
Interior's Bureau of Ocean Energy Management, Regulation, and 
Enforcement (BOEMRE) requires potential operators of offshore 
facilities to obtain approval of their OSFR as a condition of engaging 
in oil exploration, drilling, or production.[Footnote 72] Under OPA, 
the holder of the permit for use of the outer continental shelf lands 
is a responsible party for liabilities related to oil spills from an 
offshore facility,[Footnote 73] but if the operator of the offshore 
facility is not the permit holder, BOEMRE requires the operator to 
contractually agree to joint liability. As with vessels, offshore 
facility operators or permit holders may self-insure their financial 
responsibility requirements or they may purchase insurance from a 
guarantor. 

These OPA requirements for demonstrating financial responsibility 
apply only to the statutory maximum amount of potential liability 
under OPA.[Footnote 74] It should be noted that OPA places limits on 
the amount of liability of responsible parties, 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 is unlimited.[Footnote 75] A 
limitation of liability also is not available where the responsible 
party fails or refuses to: report the incident as required by law, 
provide all reasonable cooperation and assistance requested by a 
responsible official regarding removal activities or without 
sufficient cause, to comply with an order issued under subsection (c) 
or (e) of 33 U.S.C. § 1321 of 33 U.S.C. § 1471. 

In general, liability limits under the OPA depend on the kind of 
vessel or facility from which a spill originates.[Footnote 76] For an 
offshore facility like the Macondo Prospect well, statutory liability 
is limited to all removal costs plus $75 million for damages. For tank 
vessels, liability limits are based on the vessel's tonnage and hull 
type, although a statutory division of liability for mobile offshore 
drilling units results in a range of possible liability limits. For 
spills on or above the surface of the water, mobile offshore drilling 
units are treated first as tank vessels up to the limit of liability 
for tank vessels and then as offshore facilities. The current 
liability limits under OPA are set out in Table 3. 

Table 3: Description of Vessels and Offshore Facilities and Current 
Limits of Liability: 

Vessels or Facilities: Oil tanker; 
Description: An oil tanker is a ship designed to carry oil in large 
tanks; 
Limit of liability: Single hull: Vessels greater than 3,000 gross 
tons: the greater of $3,200 per gross ton or $23,496,000; Vessels less 
than or equal to 3,000 gross tons: the greater of $3,200 per gross ton 
or $6,408,000; 
Double hull: Vessels greater than 3,000 gross tons: the greater of 
$2,000 per gross ton or $17,088,000; 
Vessels less than or equal to 3,000 gross tons: the greater of $2,000 
per gross on or $4,272,000. 

Vessels or Facilities: Tank barge; 
Description: A tank barge is a non-self-propelled vessel that carries 
liquid, solid, or gaseous cargos in bulk in tanks primarily through 
rivers and inland waterways; 
Limit of liability: Single hull: Vessels greater than 3,000 gross 
tons: the greater of $3,200 per gross ton or $23,496,000; Vessels less 
than or equal to 3,000 gross tons: the greater of $3,200 per gross ton 
or $6,408,000; 
Double hull: Vessels greater than 3,000 gross tons: the greater of 
$2,000 per gross ton or $17,088,000; 
Vessels less than or equal to 3,000 gross tons: the greater of $2,000 
per gross on or $4,272,000. 

Vessels or Facilities: Cargo ship or freighter; 
Description: A cargo ship or freighter is a vessel that transports non-
oil goods and materials; 
Limit of liability: The greater of $1,000 per gross ton or $854,400. 

Vessels or Facilities: Fishing vessel; 
Description: A fishing vessel is a ship that is used to catch fish for 
commercial use; 
Limit of liability: The greater of $1,000 per gross ton or $854,400. 

Vessels or Facilities: Offshore facility; 
Description: An offshore facility is any facility of any kind located 
in, on, or under any of the navigable waters of the U.S., and any 
facility of any kind that is subject to the jurisdiction of the U.S. 
and is located in, on, or under any other waters, other than a vessel 
or a public vessel; 
Limit of liability: All cleanup costs plus $75 million. 

Vessels or Facilities: Mobile offshore drilling unit (MODU); 
Description: A MODU is a vessel (other than a self-elevating lift 
vessel) capable of use as an offshore facility; 
Limit of liability: For a discharge on or above the surface of the 
water, a MODU is first treated as a tank vessel up to the limit of 
liability for tank vessels. For costs above the vessel liability 
limit, the MODU is treated as an offshore facility. 

Source: GAO. 

[End of table] 

OPA requires the Coast Guard to adjust the limits of liability not 
less often than every 3 years to reflect significant increases in the 
Consumer Price Index, but as GAO recently pointed out, further 
attention is needed to adjust the liability limits. See GAO-10-795T 
and GAO-07-1085. 

Oil Spill Liability Trust Fund: 

Congress created the Fund[Footnote 77] to finance the removal costs 
and damages covered by OPA and the CWA to the extent that responsible 
parties invoke defenses to or limits on their liability, are unable or 
unwilling to pay, or cannot be identified.[Footnote 78] OPA provides 
that the Fund is available to pay for OPA-compensable removal costs 
and damages, including federal agencies' costs.[Footnote 79] 
Accordingly, OPA requires the President to issue regulations governing 
how federal officials incur obligations for OPA-compensable costs. 
[Footnote 80] In general, the President charged the Coast Guard with 
administering the Fund, but also authorized federal agencies that 
incur oil spill response costs and related costs to establish their 
own policies and procedures for doing so.[Footnote 81] Further, a 
state may obligate up to $250,000 from the Fund for the costs of 
immediate removal of oil or the mitigation or prevention of a 
discharge, pursuant to a request approved by or a written agreement 
entered into with the federal government.[Footnote 82] 

Under NPFC policy, the FOSC controls the use of the Fund for removal 
costs. First, the FOSC coordinates with federal agencies involved in a 
response to charge certain costs directly against the Fund. Second, 
the FOSC authorizes federal agencies to incur response costs 
chargeable to the Fund under a Pollution Removal Funding Authorization 
(PRFA) or Military Interdepartmental Purchase Request (MIPR). Federal 
agencies coordinate with NPFC to document these removal costs. NPFC 
issues guidance to federal agencies on appropriate accounting and 
related procedures to support these costs.[Footnote 83] 

Under OPA, and pursuant to the Energy Policy Act of 2005 and the 
Energy Improvement and Extension Act of 2008, the Fund's revenue is 
generated by a per barrel tax of eight cents on petroleum products 
received at a United States refinery or imported from other countries. 
The barrel tax is set to expire in 2017 (after an increase to nine 
cents per barrel for that year). The fund also receives reimbursements 
from responsible parties for response costs and damage claims paid by 
the Fund. For example, as of October 19, 2010, BP had reimbursed the 
Fund for $518.4 million for Deepwater Horizon cleanup costs incurred 
by Federal agencies. Other funds that flow into the Fund are 
recoveries of penalties paid pursuant to various statutes, including 
the Clean Water Act and Deepwater Port Act; and interest earned on 
U.S. Treasury investments.[Footnote 84] 

OPA authorizes the use of the Fund for, among other specified 
purposes:[Footnote 85] 

* Removal costs and related monitoring activities that are consistent 
with the NCP; 

* Natural resource damages include the costs to assess the natural 
resources, and the costs to restore, rehabilitate, replace or acquire 
equivalent natural resources; 

* Payment of claims submitted by private claimants, and states, local, 
and Indian government claimants; and: 

* Payment of federal administrative, operational, and personnel costs 
and other expenses to implement OPA and the Clean Water Act, provided: 

- Not more than $25 million shall be available per fiscal year for 
"the operating expenses incurred by the Coast Guard;"[Footnote 86] and: 

- Not more than $27.25 million per year shall be available for oil 
pollution research.[Footnote 87] 

Expenditures may be made out of the Fund only pursuant to 
appropriations acts, except for the following:[Footnote 88] 

* Reimbursements for natural resource damages (33 U.S.C. § 2706(f)); 

* Payment of claims to claimants (33 U.S.C. § 2712(a)(4)); 

* Expenses related to the Oil Spill Recovery Institute (33 U.S.C. §§ 
2731-2736); 

* Natural resource damage assessments (33 U.S.C. § 2706); 

* Payment of up to $50 million per fiscal year for immediate oil spill 
removal costs under the Clean Water Act (33 U.S.C. §§ 1321(c), 
2752(b)); and: 

* Emergency advances for any oil spill, up to $100 million, or 
specifically for the Deepwater Horizon incident an unlimited amount 
(in increments of up to $100 million), subject to overall limitations 
on the use of the Fund (see below).[Footnote 89] 

The Fund is divided administratively into a Principal Fund and an 
Emergency Fund. The Emergency Fund accounts for all amounts designated 
for immediate oil spill removal costs (up to $50 million) and all 
emergency advances (increments up to $100 million) for an oil spill 
incident. All other amounts are accounted for in the Principal Fund. 
See Figure 4 for a depiction of the Fund's structure. 

OPA established limits on federal expenditures from the Fund, 
currently set at the lesser of either: 

* The balance of the Principal Fund, including reimbursements from 
responsible parties and up to $1 billion that may be borrowed from the 
general fund of the U.S. Treasury pursuant to an appropriation act 
(less a required $30 million minimum balance in the fund), or: 

* $1 billion in total expenditures per incident and $500 million for 
natural resource damage assessments and claims per incident.[Footnote 
90] 

Figure 4: Oil Spill Liability Trust Fund: 

[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: to Emergency fund: 
* $50 million annual authorization from principal fund to emergency 
fund and $100 million advance per incident; 
* Transfers in $100 million increments for Deepwater Horizon incident 
only. 

Emergency fund: 

Emergency fund expenditures: 
* Removal costs; 
* Natural Resource Damage Assessments. 

Sources: NPFC and OHS Coast Guard report on implementation of the Oil 
Pollution Act of 1990. 

[End of figure] 

Finally, the Fund cannot be used to pay for costs, damages, or 
injuries that are not covered by OPA and the Clean Water Act.[Footnote 
91] Certain response costs for discharges of hazardous substances that 
are covered by CERCLA are funded out of the Superfund.[Footnote 92] 
Likewise, certain response costs may be funded out of the Disaster 
Relief Fund if the President makes a disaster declaration. (Such a 
declaration was not made in response to the Deepwater Horizon 
incident.) 

Figure 5: Timeline of Deepwater Horizon Oil Spill Events: 

[Refer to PDF for image: timeline] 

April 20: 
Deepwater Horizon explodes. 

April 28: 
U.S. Coast Guard's National Pollution Funds Center (NPFC) sends Notice 
of Designation to BP and Transocean identifying them as Responsible 
Parties. 

April 29: 
DHS Secretary designates oil spill as a Spill of National Significance 
enabling the appointment of a National Incident Commander (NIC) to 
coordinate response resources at the national level. 

May 2: 
BP begins accepting claims resulting from the Gulf Coast oil spill. 

May 27: 
U.S. Coast Guard's NPFC sends first bill for $1.8 million to BP and 
other responsible parties for response and recovery operations. 

June 4: 
NIC establishes the Deepwater Integrated Services Team to lead the 
federal government's oversight of BP's claims process, assist with the 
coordination of interagency support services, and provide residents 
with access to available assistance programs. 

June 15: 
President signs legislation authorizing multiple advances (up to $100 
million each specific only to the Deepwater Horizon oil spill) from 
the Oil Spill Liability Trust Fund, with the total amount of all 
advances not to exceed the $1 billion incident cap under current law. 

June 16: 
BP agrees to set aside $20 billion in an escrow account to pay 
economic damage claims. Kenneth Feinberg is appointed the independent 
claims administrator. 

July 17: 
DOJ provides comments to Kenneth Feinberg on the proposed Gulf Coast 
Claims Facility (GCCF) claims protocols. 

August 4: 
NIC announces completion of the static kill procedure. 

August 6: 
BP establishes $20 billion trust. 

August 9: 
BP makes $3 billion initial deposit to the trust. 

August 23: 
GCCF takes over BP's claims process for individuals and businesses. 

September 19: 
BP confirms the completion of cementing operations to prevent further 
oil spill from the Macondo Prospect well. 

October 12: 
NPFC sends the seventh bill (bringing total amount invoiced to $581.0 
million) to BP and other responsible parties for response and recovery 
operations. 

Source; GAO analysis of key events for the Deepwater Horizon Oil Spill. 

[End of figure] 

[End of Enclosure IV] 

Enclosure V: Comments from the Department of Homeland Security: 

USCG Comments on GAO Deepwater Horizon Oil Spill Preliminary
Assessment dated November 8, 2010: 

General Comments: 

The Coast Guard’s authorities and policies in response to the many oil 
spills that occur in the United States on a day-to-day basis are 
fundamentally sound and effective. Deepwater Horizon (DWH), the first 
ever Spill of National Significance (SONS), is highlighting certain 
authority and policy refinements the National Pollution Fund Center
should consider adopting for use in a SONS or other extraordinary 
events. The Oil Spill Liability Trust Fund is available only to the 
extent that costs are allowed by the Oil Pollution Act. Not all costs 
resulting from the Deepwater Horizon oil spill are OPA related costs. 

Billing Process: 

Since 1991, Standard Operating Procedure to fund the interagency cost 
to an OPA event involves access to the OSLTF using interagency 
agreements (PRFA and MIPR) that result in obligations. Agency 
participation culminates in submission of all cost documentation 
supporting agency expenditures and a request for reimbursement. NPFC
reimbursement becomes the actual expenditure and basis of any cost 
recovery against the RP. NPFC’s standard billing process requires 
completion of response activities and a full reconciliation of all 
related costs. 

Due to the unprecedented nature of the Deepwater Horizon response, the 
NPFC, the federal agencies involved in the DWH response, and BP 
collectively agreed to a billing procedure in which the NPFC would 
provide BP a bill consolidating major Federal and state government 
response obligations on a periodic basis. The consolidated periodic bill
requested BP remit 75% of the major Federal and state obligations 
listed. In return, BP agreed to remit the 75% of the obligated amount 
immediately to allow the government agencies to continue their part of 
the response efforts. The utility and need for the billing strategy in 
use for DWH will be evaluated as part of the lessons learned from this 
event for use in future catastrophic incidents. 

The Federal Agencies’ completion of response operations necessarily 
follows in time after the initial obligation of funds, as does the 
collection and submission of costs to support reimbursement. DHS/CG 
Chief Financial Officers (CFOs) are working closely with other Federal 
Agency CFOs to expedite this reimbursement process. 

We have no reason to believe actual costs will vary substantially from 
these estimates. The fact that 38.8% of the amounts obligated by 
Federal Agencies were reimbursed from the OSLTF as 9/30/2010 is in 
large part due to the fact that the bills accounted for obligations – 
rather than past expenses. Agencies continue to submit paperwork to
support reimbursement on a rolling basis. For all activities that were 
approved in a MIPR or a PRFA, agencies are reimbursed out of the OSLTF 
at the time when they submit the paperwork, as would be standard for 
any reimbursable agency expense. DHS/CG Chief Financial Officers 
(CFOs) are working closely with other Federal Agency CFOs to help them 
expedite the reimbursement process. 

The Per Incident Cap: 

In respect to GAO draft conclusions regarding the $1 billion per 
incident cap on Fund payments, we agree that enacting new legislation 
concerning the cap will be essential to ensuring established policies 
and procedures are fully and effectively implemented. In May 2010, the 
Administration asked Congress to increase the per-incident limit to $1.5
billion. We appreciate GAO’s input and look forward to working with 
Congress to address this important issue. 

Gulf Coast Claims Facility: 

Designation was accepted and BP, one of the responsible parties (RPs), 
initially established and advertised a claims process. Subsequently, 
the Administration and BP mutually agreed that Kenneth Feinberg would 
run an independent claims process. Feinberg established the Gulf Coast 
Claims Facility, which took over claims operations on August 23, 2010. 
Claims previously filed with the BP claims process were transitioned 
to the GCCF for review, evaluation, and determination. Claimants have
subsequently filed new claims with the GCCF. If an RP or the GCCF does 
not satisfy a claimant within 90 days of submission or if they deny 
the claim, that claimant may elect to pursue the claim in court or to 
submit the claim to NPFC for consideration of reimbursement from the 
OSLTF. The NPFC claims process applies the requirements of OPA and the 
implementing claims regulations in independently arrive at their own
determination of compensability of claims. Reimbursement from RPs 
would be pursued for any claims compensated from the OSLTF. 

BP also agreed to establish a $20 billion trust to ensure that funds 
would be available for, among other things, claims designated for 
payment by the GCCF. The trust is administered by independent trustees. 

Integrated Services Team: 

The Integrated Services Team (IST) was established as a part of the 
National Incident Command (NIC) on June 4, 2010 to coordinate the 
efforts of Federal Departments and Agencies on issues related to 
supportive services to individuals and local governments as well as 
claims monitoring. The IST had field-based teams stationed in each 
affected state to coordinate the IST’s work in support of the State. 
Federal Resource Coordinators (FRC's) assigned to each state ensured 
coordination of information, issue resolution, and service delivery to 
those impacted by the spill. 

The IST did not focus on the response and cleanup efforts being 
directed by the NIC. The IST coordinated interagency and 
intergovernmental efforts to independently monitor the status of 
claims submitted to the RPs and, once it was established, the GCCF, 
and the effectiveness and efficiency of their claims processes. The 
team took steps to raise awareness of concerns related to payment 
policy clarity for claimants, process efficiency and effectiveness, 
improved communication with claimants, data access and reporting, and 
coordination of federal/state benefits and services to avoid duplicate 
payments. The IST also hosted conference calls to facilitate dialogue 
and information sharing between GCCF, BP and federal, state and local 
government officials. In conjunction with the stand-down of the NIC on 
September 30, IST capability has been scaled back, with reduced IST 
capability expected to continue through December 2010 for claims
monitoring and coordination. Eventually, responsibility for 
coordination will be transitioned to other federal agencies under 
inherent authorities as appropriate. Formal claims monitoring 
functions will not go to the USCG National Pollution Funds Center. 

Notice of Designation: 

There is confusion about the purpose and impact of a notice of 
designation. A RP is liable if he owns or operates a facility or 
vessel from which oil discharges or poses a substantial threat of 
discharge to waters of the U.S. Whether the RP accepts or denies
designation does not affect ultimate liability. The purpose of 
designation is to get the RP to advertise the claims process as 
quickly as possible. If the RP denies designation the NPFC will 
advertise and will continue to pursue any RP for removal costs and 
damages subject to any OPA defense or limit of liability. 

[End of Enclosure V] 

Enclosure VI: GAO Contact and Staff Acknowledgments: 

GAO Contact: 

Susan Ragland, (202) 512-9095 or raglands@gao.gov: 

Staff Acknowledgments: 

In addition to the contact named above, staff members who made key 
contributions to this report include Kim McGatlin, Assistant Director; 
James Ratzenberger, Assistant Director; F. Abe Dymond, Assistant 
General Counsel; Hannah Laufe, Assistant General Counsel; Jehan Abdel-
Gawad; Mark Cheung; Donald Holzinger; David Hooper; Mark Kaufman; 
Jason Kelly; Matthew Latour; Chari Nash-Cannaday; Donell Ries; and 
Doris Yanger. 

[End of Enclosure VI] 

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] 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 trust 
agreement cannot be modified and are legally enforceable by the 
trustees. 

[3] BP, BP p.l.c. Group results, second quarter and half year 2010, 
London, July 27, 2010 and Oxford Economics, Potential Impact of the 
Gulf Oil Spill on Tourism, July 22, 2010. 

[4] Pub. L. No. 101-380, 104 Stat. 489 (1990). 

[5] The Fund also pays for the costs of certain federal agency 
operations. 

[6] This work focused on the Deepwater Horizon oil spill. Our past 
work identified a number of other risks and vulnerabilities to the 
fund. For example, the Fund is at risk from claims resulting from 
spills that significantly exceed responsible parties' liability 
limits. 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). 

[7] The $1 billion per incident cap applies concurrently with a $500 
million per incident cap for natural resource damages and related 
assessment costs. The administration submitted a legislative proposal 
to Congress in May 2010 to increase the caps to $1.5 billion and $750 
million per incident, respectively, to address the effects of 
inflation since the caps were enacted in 1990. 

[8] If, as for the Deepwater Horizon oil spill, the Fund is being 
fully reimbursed and net expenditures are zero, the cap still applies. 

[9] An obligation is a commitment, such as a contract, that creates a 
legal liability for the payment of goods and services ordered or 
received. 

[10] The NCP is a national plan maintained by the Environmental 
Protection Agency (EPA) that provides the organizational structure and 
procedures for preparing for and responding to discharges of oil and 
releases of hazardous substances, pollutants, and contaminants. 
Appendix E to the NCP provides the organizational structure and 
procedures to prepare for and respond to oil spills. 

[11] An oil spill is deemed to be of national significance if "due to 
its severity, size, location, actual or potential impact on the public 
health and welfare or the environment, or the necessary response 
effort, is so complex that it requires extraordinary coordination of 
federal, state, local, and responsible party resources to contain and 
clean up the discharge." 

[12] Pub. L. No. 101-380, 104 Stat. 489 (1990). 

[13] Enclosure III presents the liability limits. 

[14] In 2017, the per barrel tax increases to 9 cents; however, the 
tax is scheduled to expire at the end of 2017. 

[15] The Coast Guard has responsibility for removal actions in the 
coastal zone, while EPA has responsibility in the inland zone. Because 
the Deepwater Horizon oil spill occurred in the Gulf of Mexico, the 
Coast Guard is the Federal On-Scene Coordinator for the incident. 

[16] Oil Spill Response Organizations (OSROs) are companies that 
specialize in cleaning up oil spills. They often serve as contractors 
or subcontractors for spill response efforts. 

[17] Federal authorizations authorize reimbursement of federal and 
nonfederal government agencies from the Fund for oil response and 
removal activities. NPFC uses MIPRs rather than federal authorizations 
for the Department of Defense, to authorize reimbursement. 

[18] On May 11, 2010, NPFC notified BP and Transocean Holdings 
Incorporated that BP's advertising and claims processing were 
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. 

[19] The three trustees are Citigroup Trust-Delaware, N.A., which 
serves as the corporate trustee, and John S. Martin, Jr. and Kent D. 
Syverud, who serve as the individual trustees. 

[20] The funding schedule for the escrow account agreed to by the 
administration and BP was for contributions by BP of $5 billon a year 
for 4 years. BP later confirmed that the funding schedule would 
include an initial deposit of $3 billion, which was made on August 9, 
2010, with an additional deposit of $2 billion in the fourth quarter 
of 2010 and $1.25 billion a quarter until the entire $20 billion has 
been deposited. 

[21] The Jones Act 46 U.S.C. § 30104, establishes liability for injury 
or death of seamen incurred in the course of their employment. 

[22] See [hyperlink, http://www.gulfcoastclaimsfacility.com/] (as of 
October 4, 2010, GCCF had not yet issued protocols for final claim 
payments). 

[23] 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). 

[24] BP, BP p.l.c. Group results, second quarter and half year 2010, 
London, July 27, 2010. 

[25] Whether the Deepwater Horizon oil spill arose as the result of 
gross negligence, willful misconduct, or a violation of federal 
operation, safety, or construction regulations remains subject to 
investigation and potential litigation. 

[26] The cap is for total expenditures. If, as for the Deepwater 
Horizon oil spill, the Fund is being fully reimbursed and net 
expenditures are zero, the cap still applies. 

[27] The $1 billion cap is concurrent with a $500 million cap on 
expenditures for natural resource damages and related assessments. It 
is not just the federal government that is at risk as a result of the 
cap. In addition, no claims may be paid for private parties' or 
states' damages and removal costs. 

[28] 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. 

[29] Amounts recovered from the Responsible Parties for Coast Guard 
recoverable costs are deposited into the Fund. 

[30] According to NPFC officials, any amounts paid to the Natural 
Resource Trustee will be billed to the Responsible Parties. 

[31] See [hyperlink, http://www.bp.com]. 

[32] According to GCCF's Web site, emergency payments are payments 
available to individuals and businesses that are experiencing 
financial hardship resulting from damages incurred by the Deepwater 
Horizon oil spill. Final payments will be issued for claims that 
individuals and business have filed for income, damages, and other 
losses associated with the Deepwater Horizon oil spill. 

[33] An obligation is a commitment, such as a contract, that creates a 
legal liability for the payment of goods and services ordered or 
received. 

[34] The process, prior to the Deepwater Horizon oil spill, was to 
bill the responsible party based only on actual costs. 

[35] NPFC uses Department of Interior's Bureau of Ocean Energy 
Management, Regulation and Enforcement's leases to identify some 
Responsible Parties. 

[36] NPFC sent the notice to Transocean Holdings Incorporated, but 
Transocean replied that the correct entity is Transocean Holdings LLC. 
Further, Transocean asserted to NPFC that it was a responsible party 
solely for purposes of any oil that was discharged from the mobile 
offshore drilling unit Deepwater Horizon and not from the Macondo 
Prospect well. 

[37] 33 U.S.C. § 2714(a). Coast Guard regulations authorize NPFC to 
notify Responsible Parties of their designation through any means, but 
all designations will be confirmed via written Notice of Designation. 
33 C.F.R. § 136.305(a). 

[38] 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). 

[39] According to White House and BP press releases, the President of 
the United States and BP "mutually agreed that Mr. Kenneth Feinberg 
will run the GCCF." According to BP, Mr. Feinberg was jointly 
appointed by the President and BP to serve as an independent 
contractor to BP. 

[40] Our future work will look at the stand-down and transition to 
workgroup and agencies in order to understand the longer-term 
activities. 

[41] 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). 

[42] Department of Homeland Security, Fiscal Year 2009 Annual 
Financial Report (Washington, D.C., Nov. 16, 2009). 

[43] Department of Homeland Security Office of Inspector General, 
Information Technology Management Letter for the United States Coast 
Guard Component of the FY 2009 DHS Integrated Audit, OIG-10-77 
(Washington, D.C., Apr. 9, 2010). 

[44] OPA contains provisions dealing with facilities, including 
offshore facilities, onshore facilities, pipelines, and deepwater 
ports, as well as vessels, including mobile offshore drilling units, 
tank vessels, barges, and cargo, fishing, and other ships. For 
definitions of these terms, see 33 U.S.C. § 2701. 

[45] For example, for an offshore facility, the responsible party is 
the permittee or lessee of the area in which the facility is located. 

[46] For example, a parallel and similar framework exists for costs 
associated with the release of hazardous substances, which can occur 
in connection with an oil spill. The Comprehensive Environmental 
Response and Compensation Act of 1980, as amended (CERCLA), 42 U.S.C. 
ch. 103, contains liability, discharge response management, and 
funding provisions similar to and generally integrated with those 
described in this enclosure for oil spills. 

[47] Federal laws and regulations also provide for advance oil spill 
prevention and response planning. This is generally reflected in the 
National Oil and Hazardous Substances Pollution Contingency Plan 
(known as the National Contingency Plan), 40 C.F.R. pt. 300, the 
National Response Framework, available at [hyperlink, 
http://www.fema.gov/emergency/nrf, and the Integrated Contingency 
Plan, 61 Fed. Reg. 28642 (June 5, 1996). 

[48] Other laws may also apply and different risks may also arise in 
oil spills that occur in inland waters, including state and private 
water, and on land. Although the areas of federal and state government 
jurisdiction over inland and ocean waters varies by federal and state 
law, in this enclosure, in general, federal waters include all coastal 
waters extending seaward 200 nautical miles and all inland navigable 
waters (i.e., waters over which the federal government has 
jurisdiction to regulate), and state waters include all waters within 
or adjoining a state and up to 3 nautical miles from the coastline, 
although certain states and territories own and can regulate waters up 
to 9 nautical miles from the coastline. For a description of the 
nature of federal and state jurisdiction over ocean waters and 
ownership of the related submerged lands, see An Ocean Blueprint for 
the 21ST Century, U.S. Commission on Ocean Policy (Wash., D.C.: Sep. 
20, 2004), available at [hyperlink, http://oceancommission.gov/] (last 
visited Nov. 2, 2010). 

[49] 33 C.F.R. § 153.203; 40 C.F.R. §§ 110.6, 300.125, and 302.6. The 
primary function of the National Response Center is to serve as the 
sole national point of contact for reporting all oil, chemical, 
radiological, biological, and other discharges into the environment 
anywhere in the United States and its territories. 

[50] The NCP establishes the top priority of an oil spill response as 
saving human life and the next priority as stabilizing the situation 
to preclude it from worsening, including the prevention of further 
spilling that would require additional removal actions and to minimize 
adverse impact to the environment. 40 C.F.R. § 300.317. 

[51] The Incident Command System (ICS) is a standardized response 
management system that is part of the National Interagency Incident 
Management System. The ICS is organizationally flexible so that it can 
expand and contract to accommodate spill responses of various sizes. 
The ICS typically consists of four sections: operations, planning, 
logistics, and finance/administration. 

[52] As part of vessel oil spill response plans, vessels must 
designate a "qualified individual" who acts with full authority to 
obligate private funds required to carry out response activities. The 
qualified individual acts as a liaison with the lead federal authority 
and is responsible for activating the incident response plan. 

[53] For coastal oil spills, the Coast Guard generally serves as the 
FOSC and for inland oil spills the Environmental Protection Agency 
generally serves as the FOSC. 

[54] 40 C.F.R. § 300.323(c). Coast Guard Admiral Thad Allen was 
designated as the National Incident Commander for the Deepwater 
Horizon incident. 

[55] 33 U.S.C. § 2714(a); 33 C.F.R. § 136.305(a). A written notice of 
designation confirms any designation. 

[56] NPFC, NPFC User Reference Guide (eURG), Appendix B, FOSC Funding 
Information for Oil Spills and Hazardous Materials Releases (Wash., 
D.C.: April 2003), available at [hyperlink, 
http://uscg.mil/npfc/URG/default.asp] (accessed Nov. 4, 2010). 

[57] See 40 C.F.R. § 300.130 for applicable procedures and 
requirements. 

[58] On May 22, 2010, the President established a National Commission 
on the BP Deepwater Horizon Oil Spill and Offshore Drilling to examine 
the root causes of the Deepwater Horizon incident and options for 
guarding against, and mitigating the impact of, oil spills associated 
with offshore drilling. The Commission is evaluating the effectiveness 
of the NCP response in the Deepwater Horizon incident. See [hyperlink, 
http://www.oilspillcommission.gov]. 

[59] 33 U.S.C. § 2713(a). 

[60] A mobile offshore drilling unit such as Deepwater Horizon is a 
vessel capable of use as an offshore facility. 

[61] 33 U.S.C. § 2701(32)(A). 

[62] 33 U.S.C. § 2701(32)(C). 

[63] 33 U.S.C. §§ 2702(d), 2716. 

[64] Oil spills governed by OPA are discharges of oil into coastal 
federal and state waters (in addition to inland navigable waters, 
which are not addressed in this enclosure). A "discharge" of oil 
covered by OPA includes "any emission (other than natural seepage), 
intentional or unintentional, and includes, but is not limited to, 
spilling, leaking, pumping, pouring, emitting, emptying, or dumping." 
33 U.S.C. § 2701(7). 

[65] See section 101(14) of CERCLA, 42 U.S.C. § 9601. 

[66] 33 U.S.C. § 2701(29). 

[67] 33 U.S.C. § 2718(a) and (b). 

[68] 33 U.S.C. § 2714; 33 C.F.R. §§ 136.309, 136.311, and 136.313. 

[69] The Coast Guard regulations for CoFR process are set out at 33 
C.F.R. part 138. 

[70] 33 U.S.C. § 2716(b). A state may enforce these financial 
responsibility requirements. 33 U.S.C. § 2719. 

[71] Interior regulations for the OSFR process are set out in 30 
C.F.R. part 253. Interior's Bureau of Ocean Energy Management, 
Regulation, and Enforcement (BOEMRE), formerly the Minerals Management 
Service (MMS), administers this process in conjunction with its 
authority to lease outercontinental shelf lands and oversee oil 
exploration and production. See, generally, 43 U.S.C. §§ 1331-1356a 
and 30 C.F.R. parts 250 and 260. GAO and the Department of the 
Interior Office of Inspector General have issued several reports 
identifying problems in MMS's oil and gas program leasing and revenue 
collection programs. See [hyperlink, 
http://www.gao.gov/products/GAO-10-888T], Oil and Gas Management: Past 
Work Offers Insights to Consider in Restructuring Interior's Oversight 
(Wash., D.C.: July 22, 2010) for a discussion of this work. 

[72] 30 C.F.R. § 253.11. The procedures for obtaining permits to 
operate a deepwater port, a specialized facility under OPA, are 
established by the Department of Transportation under the Deepwater 
Port Act of 1974, as amended, 33 U.S.C. § 1501, et seq., in 33 C.F.R. 
part 148. Guidance on this process, including demonstrations of 
financial responsibility under OPA, is available on the websites of 
the Maritime Administration and the United States Coast Guard, 
[hyperlink, 
http://www.marad.dot.gov/ports_landing_page/deepwater_port_licensing/dee
pwater_port_licensing.htm] and [hyperlink, 
http://www.uscg.mil/hq/cg5/cg522/cg5225], respectively. The President 
delegated the authority to issue regulations governing the 
demonstration of financial responsibility to Interior for offshore 
facilities and Transportation for deepwater ports in Executive Order 
No. 12777, Oct. 22, 1991, as amended by Executive Order No. 13286, 
Feb. 28, 2003. 

[73] 33 U.S.C. § 2701(32)(C). 

[74] As noted above, states may impose additional liability and 
requirements related to oil spills in state waters. 

[75] 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, FOSC Funding Information for Oil Spills and 
Hazardous Materials Releases (Wash., D.C.: April 2003), available at 
[hyperlink, http://uscg.mil/npfc/URG/default.asp]. 

[76] 33 U.S.C. § 2704. 

[77] Congress created the Fund in 1986, but not until the Exxon Valdez 
grounding and the passage of OPA in 1990, did it authorize use of the 
Fund. 

[78] If the responsible party denies the NPFC designation or cannot 
pay or if NPFC cannot identify the source or if the source is a public 
vessel, OPA requires NPFC to advertise the claims process. 33 U.S.C. § 
2714(c). 

[79] 33 U.S.C. § 2712 and 26 U.S.C. § 9509(e)(1). OPA consolidated the 
liability and compensation provisions of four prior federal oil 
pollution initiatives and their respective trust funds into the Oil 
Spill Liability Trust Fund and authorized the collection of revenue 
and the use of the money, with certain limitations, with regard to 
expenditures. The prior federal laws regarding oil pollution were the 
Federal Water Pollution Control Act, the Deepwater Port Act, the Trans-
Alaska Pipeline System Authorization Act, and the Outer Continental 
Shelf Lands Act Amendments of 1978. 

[80] 33 U.S.C. §§ 2712(c), (e). 

[81] Executive Order No. 12777, as amended by Executive Order 13286. 

[82] 33 U.S.C. § 2712(d). 

[83] On July 1, 2010, the Office of Management and Budget issued 
guidance to federal agencies outlining "sound practices" for tracking 
all costs incurred in responding to the Deepwater Horizon incident, 
including their direct costs and indirect costs, but specifically 
stated that it did not supersede NPFC's guidance on identifying and 
documenting reimbursable removal costs. OMB Memorandum No. M-10-29, 
Identifying and Documenting Costs of Government Activities Related to 
the BP Deepwater Horizon Oil Spill, July 1, 2010. 

[84] 26 U.S.C. § 9509(b). The fund may also borrow up to $1 billion 
from the general fund of the U.S. Treasury, as may be provided in 
appropriations acts. 26 U.S.C. § 9509(d). 

[85] 26 U.S.C. § 9509(c); 33 U.S.C. § 2712(a). 

[86] 33 U.S.C. § 2712(a)(5)(A). 

[87] 33 U.S.C. § 2712(a)(5)(C). 

[88] 26 U.S.C. § 9509(c); 33 U.S.C. § 2752(a). See B-255979, Oct. 30, 
1995. 

[89] Congress provided these authorities in the Maritime 
Transportation Security Act of 2002, Pub. L. No. 107-295, § 323, 116 
Stat. 2064, 2104 (2002) and in June and July 2010, in Public Laws 111-
191, (Pub. L. No. 111-191, § 1, 124 Stat. 1278 (2010) and 111-212, 
(Pub. L. No. 111-212, § 2001, 124 Stat. 2302, 2337 (2010), 
respectively. The Coast Guard must notify Congress of each emergency 
advance. 

[90] 26 U.S.C. § 9509(c)(2). The Department of Homeland Security 
General Counsel told us that individual federal agencies may receive 
and use separate appropriations for their response costs and that such 
costs count toward the Fund's statutory expenditure limits only if and 
when the Fund reimburses an agency's appropriation. The NCP provides 
that agencies incurring costs other than oil spill response costs may 
use their appropriations to the extent that they are available for the 
specific agency action, such as scientific investigations related to 
an oil spill. 40 C.F.R. § 300.335(d). Further, the NCP states that the 
Department of Defense uses certain of its appropriations for specific 
response activities, such as removal of sunken vessels or other 
obstructions of navigation. 40 C.F.R. § 300.335(f)(1)(i). 

[91] See NPFC, NPFC User Reference Guide (eURG), Appendix B, FOSC 
Funding Information for Oil Spills and Hazardous Materials Releases 
(Wash., D.C.: April 2003), available at [hyperlink, 
http://uscg.mil/npfc/URG/default.asp]. 

[92] See 26 U.S.C. § 9507; 42 U.S.C. § 9611. 

[End of Section] 

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