Summary: The Oil Spill Liability Trust Fund (Fund) is a $1 billion fund that has two major components: the Emergency Fund and the Principal Fund. The Emergency Fund is used for paying for federal removal actions and the initiation of natural resource damage assessments by designated federal, state, or Indian tribe officials, resulting from oil spills or the substantial threat of oil spills to the waters or shorelines of the United States. The Principal Fund is used for paying certain claims for uncompensated removal costs and damages resulting from oil spills or the substantial threat of oil spills to the waters or shorelines of the United States. The Fund is administered by the National Pollution Funds Center (NPFC) of the U.S. Coast Guard (USCG). In May 2002, we issued a legal opinion related to the uses and limitations of the Fund and concluded that the Fund is not available to pay employee salaries and other operating expenses. The USCG reported that from fiscal years 1998 through 2002, $32.8 million from the Fund was used to pay costs associated with processing claims, including salaries and other operating expenses. In April 2003, the USCG returned the $32.8 million to the Fund. In light of our conclusion regarding the appropriate use of these funds, Congress asked that we review the control over disbursements from the Fund and assess the propriety of these disbursements. We reviewed disbursements for operating expenses and removal costs to determine whether (1) the design of existing internal control provided reasonable assurance that improper payments would not occur or would be detected in the normal course of business, (2) they were made in accordance with established USCG and NPFC policies and procedures, and (3) they were made in accordance with the uses specified in the Oil Pollution Act of 1990 (OPA) and other federal laws and regulations, and represented a proper use of government funds.
The USCG and NPFC have established a system of internal control over operating expenses and Emergency Fund disbursement processes. However, we found some weaknesses in the design and operation of internal control over operating expenses and disbursements from the Fund that increase the risk of improper payments. Weaknesses in the design of control included a lack of documented reconciliations of the amounts included in removal cost reports with those recorded in USCG's accounting system. We found additional internal control weaknesses in that USCG/NPFC did not always follow established policies and procedures that are intended to help ensure the validity of disbursements. Of the nonstatistical selection of 467 disbursements obtained through data mining for fiscal years 1998 through 2002, we found that 33, or 7 percent of these disbursements, totaling $43,425, lacked adequate supporting documentation. Of the 33 disbursements, 9 transactions lacked purchase receipts such as invoices, 10 additional transactions lacked purchase request forms, and 14 lacked both purchase receipts and purchase request forms. We also found that 25, or 5 percent of the 467 disbursements, totaling $26,182, lacked proper approvals. Specifically, 3 transactions lacked proof of approval from supervisors, 18 additional transactions lacked proof of approval from fund certifying officers before purchases were made, and 4 lacked proof of approval from supervisors and fund certifying officers. Another 39 transactions totaling $155,994 for payments to contractors and other government agencies, and reimbursements to employees and others lacked documentation of supervisory review and approval before payments were made. In addition, equipment purchases totaling $62,700 were not recorded in the property tracking system. We also used the nonstatistical selection of disbursements obtained through data mining to determine whether these disbursements complied with certain federal laws and regulations and represented a proper use of government funds. We found that (1) NPFC did not properly document their justification for using federal funds to reimburse $14,481 in travel expenses for 11 nonfederal potential claimants to attend natural resource damage (NRD) seminars, (2) the USCG Finance Center (FINCEN) incurred a total $24,546 in late payment fees and lost discounts, and (3) the validity of 17 disbursements tested totaling $6,589 was questionable because adequate supporting documentation was missing. The weaknesses we identified in the design and operation of internal control over the disbursement processes, if left uncorrected, increase the Fund's vulnerability to future improper payments. In addition, during fiscal year 2003, NPFC continued to improperly use the Fund to pay about $645,000 in operating expenses and obligated another $151,000 against the Fund. NPFC officials told us that they are in the process of transferring these transactions from the Fund into a newly established account created for recording NPFC operating expenses. As with the $32.8 million previously returned, this transfer will not compensate the Fund for lost interest. NPFC's continued improper use of the Fund to pay for operating expenses is a violation of federal law. Not only does this practice expose the Fund to misuse, but we estimate that the Fund may have lost as much as $1.6 million in interest as a result.
