U.S. Coast Guard National Pollution Funds Center:

Claims Payment Process Was Functioning Effectively, but Additional Controls Are Needed to Reduce the Risk of Improper Payments

GAO-04-114R: Published: Oct 3, 2003. Publicly Released: Oct 3, 2003.

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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 for Executive Action

  1. Status: Closed - Implemented

    Comments: NPFC has modified the claims processing system to identify the originator of all actions on user screens.

    Recommendation: To improve the design of internal controls over the claims process, the Commandant of the U.S. Coast Guard should direct the Director of the National Pollution Funds Center to modify the claims processing system to consistently identify the originator of all actions on user screens.

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

  2. Status: Closed - Implemented

    Comments: NPFC implemented procedures requiring receipt of the release form before a control number can be established and a claim form can be prepared and processed.

    Recommendation: To improve the design of internal controls over the claims process, the Commandant of the U.S. Coast Guard should direct the Director of the National Pollution Funds Center to establish and implement controls to ensure that a release form is received from a claimant before a claim can be approved for payment.

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

  3. Status: Closed - Implemented

    Comments: NPFC now requires a checklist to be filled out that states whether a legal review is required and if so, that the legal review has been completed before a claim payment can be made.

    Recommendation: To improve the design of internal controls over the claims process, the Commandant of the U.S. Coast Guard should direct the Director of the National Pollution Funds Center to establish and implement controls so that any required legal reviews of claims are completed before they are approved for payment.

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

  4. Status: Closed - Implemented

    Comments: NPFC's Financial Management Division now authenticates the information on every ATP and faxes the ATPs to the U.S. Coast Guard Finance Center.

    Recommendation: To improve the design of internal controls over the claims process, the Commandant of the U.S. Coast Guard should direct the Director of the National Pollution Funds Center to establish procedures requiring the National Pollution Funds Center to authenticate ATP forms prior to submitting them to the U.S. Coast Guard Finance Center for payment.

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

  5. Status: Closed - Implemented

    Comments: NPFC policies now require both the preparer and approver signatures on each ATP, and this policy has been implemented.

    Recommendation: To improve the design of internal controls over the claims process, the Commandant of the U.S. Coast Guard should direct the Director of the National Pollution Funds Center to require two signatures on each ATP form, one for the preparer and one for the approver.

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

  6. Status: Closed - Implemented

    Comments: NPFC established one lead person in each of the two claim divisions to establish ATP control numbers. The person that establishes control numbers in one claim division is the backup for establishing control numbers for the other claim division.

    Recommendation: To improve the design of internal controls over the claims process, the Commandant of the U.S. Coast Guard should direct the Director of the National Pollution Funds Center to limit access to the ATP form control numbers to one individual and an alternate in each claims division.

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

  7. Status: Closed - Implemented

    Comments: NPFC now has a mechanism that establishes control numbers in a systematic fashion. Control Numbers are established manually by one of two people and are added to the authorization to pay claim forms (ATPs). These control numbers and other information are reviewed by NPFC Financial Management Division personnel using the control log, to which they have read only access.

    Recommendation: To improve the design of internal controls over the claims process, the Commandant of the U.S. Coast Guard should direct the Director of the National Pollution Funds Center to require automatic control numbers for each ATP form.

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

  8. Status: Closed - Implemented

    Comments: The U.S. Coast Guard Finance Center now verifies that the signatures on the ATPs are authorized and that the ATPs have been received from the National Pollution Fund Center's Financial Management Division.

    Recommendation: The Commandant of the U.S. Coast Guard should direct the Chief Financial Officer of the U.S. Coast Guard to require that the Finance Center verify the validity of ATP forms prior to processing claim payments.

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

 

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