GAO-12-86. On April 20, 2010, an explosion of the Deepwater Horizon
oil rig leased by BP America Production Company (BP) resulted in a
significant oil spill. GAO was requested to (1) identify the
financial risks to the federal government resulting from oil
spills, particularly Deepwater Horizon, (2) assess the Coast
Guard's internal controls for ensuring that processes and payments
for spill-related cost reimbursements and claims related to the
spill are appropriate, and (3) describe the extent to which the
federal government oversees the BP and Gulf Coast Claims Facility
cost reimbursement and claims processes. We issued status reports
in November 2010 and April 2011. This is the third and final report
related to these objectives. We obtained and analyzed data on costs
incurred from April 2010 through May 2011 and claims submitted and
processed from September 2010 through May 2011. We reviewed
relevant policies and procedures, interviewed officials and staff
at key federal departments and agencies, and tested a sample of
claims processed and cost reimbursements paid for compliance with
internal controls. Both the individual circumstances of the
Deepwater Horizon incident, as well as the overall framework for
how the federal government responds to oil spills, present a mix of
evolving, but as yet uncertain, financial risks to the federal
government and its Oil Spill Liability Trust Fund (Fund). The
extent of financial risks to the federal government from the
Deepwater Horizon is closely tied to BP and the other responsible
parties. BP established a $20 billion Trust to pay for individual
and business claims and other expenses. As of May 31, 2011, BP has
paid over $700 million of federal and state government costs for
oil spill cleanup. Federal agency cleanup and restoration
activities are under way and agencies continue to incur costs and
submit them for reimbursement. However, the full extent of these
costs, particularly those related to environmental cleanup, may not
be fully realized for some time. As cleanup costs continue to
mount, it is possible that expenditures from the Fund will reach
the $1 billion total expenditure per incident cap. Expenditures
were over $626 million on May 31, 2011. If these amounts reach the
total expenditure cap of $1 billion, the Fund can no longer be used
to make payments to reimburse agencies' costs (or to pay valid
individual or business claims if not paid by the responsible
parties). At that point, government agencies would no longer be
able to obtain reimbursement for their costs. In November 2010, GAO
suggested that Congress may want to consider setting a Fund per
incident cap based on net expenditures (expenditures less
reimbursement), rather than total expenditures. Finally, GAO found
the federal government's longer-term ability to provide financial
support in response to future oil spills is also at risk because
the Fund's primary source of revenue, a tax on petroleum products,
is scheduled to expire in 2017. GAO's testing of the Coast Guard's
internal controls over Deepwater Horizon claims processed and cost
reimbursements processed and paid showed that adjudicated claims
processed and costs reimbursed were appropriate and properly
documented. In November 2010, GAO made four recommendations
regarding establishing and maintaining effective cost reimbursement
policies and procedures for the Fund.
General
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