U.S. Coast Guard National Pollution Funds Center

The Oil Spill Liability Trust Fund (Fund) is a $1 billion fund authorized by the Oil Pollution Act of 1990 (OPA) to pay for (1) federal removal actions, (2) certain claims for uncompensated removal costs and damages,and (3) natural resource damage and restoration activities 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. In May 2002, our Office of General Counsel reported on legal issues and limitations of the Fund and concluded that certain administrative costs were inappropriately being paid out of the Fund. In light of this conclusion, we reviewed the internal controls over disbursements from the Fund. Specifically, we reviewed the Fund to determine whether (1) the design of internal controls over the claims process provides reasonable assurance that improper payments will not occur or will be detected in the normal course of business and (2) internal controls over the claims process are operating as designed to help ensure proper payment of claims.

The U.S. Coast Guard NPFC follows a systematic and effective process for payment of claims. However, there are some weaknesses in the design of internal controls over the claims process that expose the Fund to improper payments. The weaknesses in the design of controls include (1) ineffective access restrictions to the Authorization-to-Pay (ATP) form, (2) lack of segregation of duties between individuals preparing and approving ATPs for payment, (3) lack of procedures to verify the validity of ATPs prior to payment by the U.S. Coast Guard Finance Center, (4) lack of compliance with certain established policies and procedures in the claims process and the claims processing system, and (5) inadequate documentation of the originator of actions in the claims processing system. We found that existing internal controls related to the documentation and approval of claims were generally operating in accordance with established policies and procedures. Of the 88 statistically sampled paid claims for fiscal year 2002, all but 3 had adequate documentation. We found no exceptions with approvals for the 88 statistically sampled claims. We also found that all 88 claims met NPFC's 10 requirements for validity, as listed in appendix I of the attached slides. Through data mining, we selected a nonstatistical sample of 50 claim payments and 8 denied claims for fiscal years 1998 through 2002 and performed limited tests to determine if the claims payments were valid and if the denied claims were properly processed. While we found some documentation and approval issues, we found that the 50 claim payments were valid and that the 8 denied claims were properly processed.

Recommendations

Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.

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