United States Coast Guard: Implementation of the Inflation	 
Adjustment Act (01-NOV-02, GAO-03-221R).			 
                                                                 
Earlier this year, GAO began a governmentwide review of the	 
implementation of the Federal Civil Penalties Inflation 	 
Adjustment Act of 1990. The act requires each federal agency to  
issue a regulation adjusting its covered maximum and minimum	 
civil monetary penalties for inflation by October 23, 1996, and  
requires them to make necessary adjustments at least once every 4
years thereafter. During the review, GAO determined that the	 
United States Coast Guard published its first round of penalty	 
adjustments in 1997, but has not published a second round of	 
adjustment for 56 eligible penalties.				 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-03-221R					        
    ACCNO:   A05480						        
  TITLE:     United States Coast Guard: Implementation of the	      
Inflation Adjustment Act					 
     DATE:   11/01/2002 
  SUBJECT:   Inflation						 
	     Federal law					 
	     Fines (penalties)					 
	     Noncompliance					 

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GAO-03-221R

GAO- 03- 221R Coast Guard Penalty Adjustments

United States General Accounting Office Washington, DC 20548

November 1, 2002 The Honorable Norman Y. Mineta The Secretary of
Transportation

Subject: United States Coast Guard: Implementation of the Inflation
Adjustment Act

Dear Mr. Secretary: Earlier this year, we initiated a governmentwide
review of the implementation of the Federal Civil Penalties Inflation
Adjustment Act of 1990, as amended (Inflation Adjustment Act). 1

The Inflation Adjustment Act required each federal agency to issue a
regulation adjusting its covered maximum and minimum civil monetary
penalties for inflation by October 23, 1996, and requires them to make
necessary adjustments at least once every 4 years thereafter. During our
review, we determined that the United States Coast Guard published its
first round of penalty adjustments in 1997, but has not published a second
round of adjustments for 56 eligible penalties. This report is intended to
bring this matter to your attention and to recommend corrective action.

The Coast Guard Has Not Published a Second Round of Adjustments for
Eligible Penalties

Under the Inflation Adjustment Act, the Coast Guard (like other covered
federal agencies) was required to publish a regulation by October 23,
1996, adjusting its maximum civil penalties for inflation. The act
requires those inflation adjustments to be based on changes in the
Consumer Price Index (CPI) from June of the calendar year in which the
penalties were last set or adjusted through June of the year prior to the
adjustment. The statute also includes precise rules for rounding penalty
increases. For example, the statute provides that penalty increases must
be rounded to the nearest *multiple of $1,000 in the case of penalties
greater than $1,000 but less than or equal to $10,000.* The statute
limited the first adjustments of an agency*s penalties to 10 percent of
the penalty amounts. It also requires agencies to examine their penalties
at least once every 4 years and, if necessary, make additional inflation
adjustments.

1 The Inflation Adjustment Act is codified at 28 U. S. C. 2461 note. The
1990 act was amended in 1996 by the Debt Collection Improvement Act, which
added the requirement for agencies to adjust their civil penalties by
regulation (Pub. L. 104- 134, Sec. 31001, 110 Stat. 1321- 373).

GAO- 03- 221R Coast Guard Penalty Adjustments Page 2 On April 8, 1997, the
Coast Guard published a final rule making its first penalty

adjustments under the Inflation Adjustment Act. 2 The agency subsequently
published two rule corrections to address *errors which may prove to be
misleading and are in need of correction or clarification,* with the final
publication taking effect on July 1, 1997. 3 In the last rule, the agency
identified 127 covered civil penalties and adjusted 122 of them for
inflation. 4 As table 1 shows, the 122 penalties after the 1997
adjustments were at 16 different penalty amounts ranging from $22 to
$137,500. The table also shows that the amount of inflation needed to
trigger another penalty increase ranges from 3.6 percent to 45.5 percent,
depending on the size of the penalty and the applicable rule for rounding
penalty increases.

Table 1: The Coast Guard Can Readjust Nearly Half of the Civil Penalties
That Were Initially Adjusted in 1997

Penalty amount (in dollars) after 1997 adjustments

Number of penalties at this penalty amount that were adjusted in 1997

Percentage increase in inflation needed to trigger another adjustment

Were penalties at this amount eligible for adjustment in 2001?

Are penalties at this amount eligible for adjustment in 2002?

$ 22 1 22.8 No No 55 2 9. 1 No Yes

110 9 45.5 No No 185 1 27.1 No No 220 7 22.8 No No 550 15 9.1 No Yes

1,100 18 45.5 No No 2,200 2 22.8 No No 3,300 1 15.2 No No 5,500 22 9. 1 No
Yes

11,000 23 22.8 No No 22,000 4 11.4 No No 27,500 13 9. 1 No Yes

55,000 1 4.6 Yes Yes

110,000 1 4. 6 Yes Yes

137,500 2 3. 7 Yes Yes Total 122 4 eligible 56 eligible

Note: The penalty that the Coast Guard adjusted to $185 in 1997 was
increased more than the 10 percent permitted by the Inflation Adjustment
Act for first- round adjustments (from $150), and therefore should have
only increased to $165. Source: GAO analysis of Coast Guard data.

2 See 62 Fed. Reg. 16695. 3 See 62 Fed. Reg. 31339 (June 9, 1997) and 62
Fed. Reg. 35385 (July 1, 1997). 4 The Coast Guard did not adjust four
penalties because, under the rounding rules, they did not qualify

for adjustment: (1) a $2, 000 penalty (codified at 46 U. S. C. 3318( j)(
1)) that was last set in 1990, (2) a $3, 000 penalty (codified at 14 U. S.
C. 645( i)) that was last set in 1992, (3) a $25,000 penalty (codified at
46 U. S. C. 8906) that was last set in 1996, and (4) a $1, 000 penalty
that was set in 1996 (codified at 46 U. S. C. 2115) and that was adjusted
in 1998 to $5, 000 by Public Law 105- 383. The Coast Guard also did not
adjust a $2,500 penalty (codified at 33 U. S. C. 1236( d)) that should
have been adjusted to $2, 750. Therefore, it is currently eligible for a
10- percent increase.

GAO- 03- 221R Coast Guard Penalty Adjustments Page 3 By July 2001 (4 years
after the first round of adjustments took effect), the Coast

Guard should have examined its civil penalties and adjusted those eligible
under the statute. For those penalties initially adjusted in 1997, the
Coast Guard should have used the percentage change in the CPI that
occurred from June 1997 through June 2000 (about 7.5 percent) to calculate
the size of the unrounded increase. As table 1 shows, 4 of the 122 Coast
Guard penalties that were adjusted in 1997 were eligible for a second
adjustment by July 2001. However, as of the date of this letter, the Coast
Guard has not readjusted these penalties.

By January 2002, the Coast Guard could have used the amount of inflation
that occurred from June 1997 through June 2001 (about 11 percent) to
determine which of its penalties adjusted in 1997 were eligible for
adjustment under the Inflation Adjustment Act. As table 1 shows, 56 of the
122 penalties adjusted in 1997 were eligible (and are currently eligible)
for a second adjustment. Coast Guard officials told us during our review
that the agency had not yet made a second round of penalty adjustments
because of personnel turnover, staffing reductions, and reorganizations.

Recommendation for Executive Action

We recommend that the Secretary of Transportation direct the Commandant of
the Coast Guard to initiate a regulatory action as soon as possible to
adjust eligible civil penalties in a manner consistent with the
requirements of the Inflation Adjustment Act.

Agency Comments and Our Evaluation

On October 22, 2002, we provided a draft of this report to the Secretary
of Transportation for his review and comment. We did not receive any
formal comments on the draft report from either the Department of
Transportation or the Coast Guard. However, Coast Guard officials told us
that the agency would begin developing new civil penalty regulations in
January 2003.

- - - - We are sending copies of this report to the Commandant of the
Coast Guard and to appropriate congressional committees. It will also be
available at no charge on GAO*s Web site at http:// www. gao. gov. If you
or your staff have any questions on the matters discussed in this letter,
you may contact Curtis Copeland or me at (202) 512- 6806. John Tavares was
a major contributor to this report.

Sincerely, Victor S. Rezendes Managing Director Strategic Issues

(450163)
*** End of document. ***