Coast Guard: Station Spending Requirements Met, but Better	 
Processes Needed to Track Designated Funds (28-MAY-04,		 
GAO-04-704).							 
                                                                 
The Coast Guard conducts homeland security and search and rescue 
operations from nearly 200 shoreside stations along the nation's 
coasts and waterways. After several rescue mishaps that resulted 
in the deaths of civilians and station personnel, Congress	 
recognized a need to improve performance at stations and	 
appropriated additional funds to increase stations' readiness	 
levels. For fiscal year 2003, the Coast Guard received designated
funds of $15.7 million specifically to increase spending for	 
stations' staffing, personal protection equipment (such as life  
vests and cold weather protection suits), personnel retention,	 
and training needs. Congress directed GAO to determine if the	 
Coast Guard's fiscal year 2003 outlays for stations increased by 
this amount over fiscal year 2002 expenditure levels. GAO also	 
assessed the adequacy of the processes used by the Coast Guard to
account for the expenditure of designated funds.		 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-04-704 					        
    ACCNO:   A10250						        
  TITLE:     Coast Guard: Station Spending Requirements Met, but      
Better Processes Needed to Track Designated Funds		 
     DATE:   05/28/2004 
  SUBJECT:   Appropriated funds 				 
	     Coastal zone management				 
	     Financial management				 
	     Performance measures				 
	     Budget outlays					 
	     Personnel management				 

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GAO-04-704

United States General Accounting Office

     GAO Report to the Subcommittees on Homeland Security, Senate and House
                          Committees on Appropriations

May 2004

COAST GUARD

    Station Spending Requirements Met, but Better Processes Needed to Track
                                Designated Funds

GAO-04-704

Highlights of GAO-04-704, a report to the Subcommittees on Homeland
Security, Senate and House Committees on Appropriations

The Coast Guard conducts homeland security and search and rescue
operations from nearly 200 shoreside stations along the nation's coasts
and waterways. After several rescue mishaps that resulted in the deaths of
civilians and station personnel, Congress recognized a need to improve
performance at stations and appropriated additional funds to increase
stations' readiness levels. For fiscal year 2003, the Coast Guard received
designated funds of $15.7 million specifically to increase spending for
stations' staffing, personal protection equipment (such as life vests and
cold weather protection suits), personnel retention, and training needs.
Congress directed GAO to determine if the Coast Guard's fiscal year 2003
outlays for stations increased by this amount over fiscal year 2002
expenditure levels. GAO also assessed the adequacy of the processes used
by the Coast Guard to account for the expenditure of designated funds.

To provide greater assurance that appropriated funds are spent as Congress
directs, GAO recommends that the Coast Guard develop processes to
accurately and completely account for the obligation and expenditure of
designated appropriations. The Coast Guard agreed with the need for such
processes and said it would examine ways to implement them.

www.gao.gov/cgi-bin/getrpt?GAO-04-704.

To view the full product, including the scope and methodology, click on
the link above. For more information, contact Margaret Wrightson at (415)
904-2200 or [email protected].

May 2004

COAST GUARD

Station Spending Requirements Met, But Better Processes Needed to Track
Designated Funds

According to our analyses of available data, and anecdotal and other
information, it appears that the Coast Guard spent at least $15.7 million
more to improve readiness at its multimission stations in fiscal year 2003
than it did the previous year. However, this statement cannot be made with
certainty, because the Coast Guard's databases do not fully identify
expenditures at the station level. GAO worked with the Coast Guard to
develop expenditure estimates for the stations, using budget plans and
available expenditure data, and this effort produced full or partial
estimates for three of the four categories-staffing, personal protection
equipment, and personnel retention efforts. For these three categories,
fiscal year 2003 expenditure estimates were at least $20.5 million more
than the previous year, or about $4.8 million more than the $15.7 million
designated appropriation. Although estimates could not be developed for
training expenditures, other available information indicates that training
levels increased in fiscal year 2003. Taken together, these results
suggest that the Coast Guard complied with Congress' direction to increase
spending for stations by $15.7 million.

Federal management guidelines and internal control standards call for
greater accountability for designated-earmarked-appropriations than was
provided by the processes the Coast Guard had in place to track these
funds. The purpose of an earmark is to ensure agencies spend a certain
amount of their appropriated funds for a specific purpose. Guidelines and
standards indicate that agencies should account for the obligation and
expenditure of earmarked appropriations-a step the Coast Guard thoroughly
implemented only for personal protection equipment. Coast Guard officials
developed a plan showing how they planned to spend the earmark, but such a
plan, while useful as an indication of an agency's intentions, is not
sufficient to show that the earmark was expended in accordance with
congressional direction.

Coast Guard Response Boat and a Multimission Station

Source: GAO. Source: Coast Guard.

Contents

     Letter                                                                 1 
                                    Results in Brief                        2 
                                       Background                           3 
               Expenditures for Stations Cannot Be Fully Determined, but   
                    Estimates Appear to Exceed the Required Increase        5 
                 Better Accountability of Expenditures Is Needed to Ensure 
                                                                      That 
                            Earmarks Are Appropriately Spent                9 
                                      Conclusions                          11 
                          Recommendation for Executive Action              11 
                           Agency Comments and Our Evaluation              12 
Appendix I                    Scope and Methodology                     

Appendix II Estimated Costs and Fiscal Year Differences for Stations

  by Earmark Category 17

Fiscal Year 2003 Station Estimated Expenditures by Category 17 Increases
in Levels of Effort from Fiscal Year 2002 to Fiscal Year 2003 Indicate
Earmark Compliance 22

  Appendix III GAO Contacts and Staff Acknowledgments 25

GAO Contacts 25 Staff Acknowledgments 25

  Tables

Table 1: Comparison of Levels of Effort at Stations, Fiscal Years 2002 and
2003 8 Table 2: Cost of Basic and Cold Weather PPE Used by Station
Personnel 19 Table 3: Examples of Indirect Retention Efforts by Stations
in Fiscal Year 2003 22 Table 4: Comparison of Number and Cost of Active
Duty Personnel Assigned to Stations, Fiscal Years 2002 and 2003 22

  Figures

Figure 1: Station Crew Member Wearing Cold Weather PPE 20

Abbreviations

DHS Department of Homeland Security
OIG Office of Inspector General, Department of Transportation
PPE Personal Protection Equipment

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United States General Accounting Office Washington, DC 20548

May 28, 2004

The Honorable Thad Cochran
Chairman
The Honorable Robert C. Byrd
Ranking Minority Member
Subcommittee on Homeland Security
Committee on Appropriations
United States Senate

The Honorable Harold Rogers
Chairman
The Honorable Martin Olav Sabo
Ranking Minority Member
Subcommittee on Homeland Security
Committee on Appropriations
House of Representatives

The nearly 200 Coast Guard multimission stations that dot the nation's
coastline and interior waterways play an important role in two main Coast
Guard missions-finding and rescuing mariners in danger on the water
and protecting the nation's coastline as part of the overall homeland
security effort. In 2001, a review conducted after a series of search and
rescue mishaps found that readiness at these stations was decreasing.1 In
response, Congress began a multiyear funding effort designed to increase
staffing, training, and equipment levels at the stations. As part of this
effort, Congress provided a $15.7 million earmark2 in the Coast Guard's
fiscal year 2003 appropriation specifically to support multimission
station
operations. In doing so, Congress also directed us to review Coast Guard
expenditures to determine if fiscal year 2003 outlays (levels of effort)
for
stations had increased compared with fiscal year 2002 levels by this

1Office of Inspector General, Department of Transportation, Audit of the
Small Boat Station Search and Rescue Program, MH-2001-094 (Washington,
D.C.: September 14, 2001) and June 13, 2001, Testimony by the Honorable
Kenneth M. Mead, Inspector General, U.S. Department of Transportation,
CC-2001-184.

2An earmark refers to funds set aside within an appropriation for a
specified purpose. In addition to setting aside funds, the earmark might
also provide spending floors by stating that not less than a certain
amount must be used for the specified project.

amount.3 This report discusses the results of our analysis of Coast Guard
spending in four categories of station activity-staffing,4 personal
protection equipment,5 personnel retention efforts, and training. It also
provides our assessment of the adequacy of the processes used by the Coast
Guard to account for earmarked expenditures. This report is the first of
two reviews looking at multimission station operations. The second, which
focuses on station readiness issues, will be issued in the summer of 2004.

Our work is based on an analysis of Coast Guard budget and expenditure
data, including special data runs prepared by the Coast Guard, surveys of
field units, and verification of supporting information from a selected
sample of multimission stations. As discussed below, the resulting data
were limited in a number of respects. However, we did determine that,
where available, the data were sufficiently reliable for the purpose of
providing general estimates of expenditures. Appendix I explains in more
detail the scope of our work, the methodology we used, and the ways in
which we went about assessing the reliability of the data. We conducted
our work from August 2003 to April 2004 and did so in accordance with
generally accepted government auditing standards.

Based on our analysis of available quantifiable data-actual and
estimated-as well as anecdotal and other qualitative information we were
able to obtain, it appears that the Coast Guard spent at least $15.7
million

3P.L. 108-7, Division 1, Title 1 (Consolidated Appropriation Resolution,
2003). The specific language for the appropriation reads as follows: "Not
less than $15,686,000 shall be used solely to increase staffing at search
and rescue stations, surf stations and command centers; increase the
training and experience level of individuals serving in said stations
through targeted retention efforts; revise personnel policies and expand
training programs; and to modernize and improve the quantity and quality
of personal safety equipment, including survival suits, for personnel
assigned to said stations." The specific language for our review reads as
follows: "The Comptroller General of the United States shall audit and
certify to the House and Senate Committees on Appropriations that the
funding described in the preceding proviso is being used solely to
supplement and not supplant the Coast Guard's level of effort in this area
in fiscal year 2002."

4Staffing costs include estimated salary, travel, medical, training, and
administrative expenses.

5Coast Guard personnel use personal protection equipment to protect
against various dangers, such as inclement weather and cold water
exposure. Personal protection equipment includes items such as life vests,
helmets, goggles, gloves, cold weather protection suits, thermal
underwear, and electronic location devices.

  Results in Brief

more to improve readiness at its multimission stations in fiscal year 2003
than it did the previous year. However, this statement cannot be made with
certainty, because the Coast Guard's databases do not fully identify
expenditure data at the station level. Lacking such data, we worked with
the Coast Guard to develop expenditure estimates through the use of budget
plans and available estimated and actual expenditure information. This
effort produced full or partial estimates for three of the four
categories-staffing, personal protection equipment, and personnel
retention efforts. A comparison of these estimates for fiscal years 2002
and 2003 indicated that the fiscal year 2003 total was at least $20.5
million more than the total for the previous year, or about $4.8 million
more than the $15.7 million earmark. The Coast Guard was not able to
develop estimates for the fourth category-training-despite extensive
efforts to do so. However, available anecdotal information indicates that
the amount of training provided to station personnel in fiscal year 2003
increased. Taken together, these results suggest-but do not clearly
demonstrate- that the Coast Guard complied with the mandate.

Federal management guidelines and internal control standards call for
greater accountability for earmarked appropriations than was demonstrated
by the Coast Guard. These guidelines and standards indicate that agencies
should account for the obligation and expenditure of earmarked
appropriations both as a sound accounting practice and to demonstrate
compliance in the event of an audit. Although the Coast Guard had taken
steps to account for personal protection equipment expenditures, it did
not have adequate processes in place to account for earmarked funds spent
on station staffing and training. Coast Guard officials had also developed
a plan to show how they intended to spend the earmark, but such a plan,
while useful as an indicator of Coast Guard intentions, is not sufficient
to show that the earmark was expended in accordance with congressional
direction.

We are recommending that the Secretary of the Department of Homeland
Security direct the Commandant of the Coast Guard to develop, in
accordance with fiscal year 2004 departmental guidelines, processes to
accurately and completely account for the obligation and expenditure of
earmarked appropriations. In commenting on a draft of this report, Coast
Guard officials generally agreed with this recommendation.

Background 	Multimission stations, formerly referred to as small boat
stations, are involved in all Coast Guard missions, including search and
rescue, recreational and commercial fishing vessel safety, marine
environmental response, and law enforcement activities such as drug and
migrant

interdiction. Search and rescue has traditionally been the stations' top
priority. However, after the terrorist attacks of September 11, 2001, the
Coast Guard elevated the maritime homeland security mission to a level
commensurate with the search and rescue mission.

Congress's actions to provide the Coast Guard with an additional $15.7
million for these stations in fiscal year 2003 was part of a
longer-standing effort to address readiness concerns. In 2001, Congress
directed the Department of Transportation's Office of Inspector General
(OIG)6 to conduct a thorough review of the operational readiness
capability of stations, following a series of accidents involving search
and rescue efforts initiated at these stations.7 The OIG reported that
readiness levels at stations had been deteriorating for more than 20 years
and were continuing to decline. In response, Congress provided an
earmarked appropriation in fiscal year 2002 and directed the Inspector
General to review the use of the earmarked funds.8 The OIG found that the
Coast Guard generally complied with the intent of the earmark but also
concluded that improving operational readiness at stations would require a
substantial and sustained investment. The OIG also recommended that to
improve congressional oversight of expenditures, the Coast Guard should
make improvements to its accounting system to allow for the tracking of
certain station expenditures.9

Since the additional funding efforts began, in fiscal year 2002, Coast
Guard officials told us they have, among other actions, added
approximately 1,100 personnel10 to stations, increased levels of personal
protection equipment for station personnel, and started to replace old and
nonstandard boats with new standard boats. In December 2002 the Coast

6The Coast Guard was located within the Department of Transportation until
it was transferred to the Department of Homeland Security on March 1,
2003.

7House of Representatives Conference Report 106-940, Department of
Transportation and Related Agencies Appropriations Act, 2001, (P.L.
106-346). At the time, the Coast Guard was a Department of Transportation
agency.

8P.L. 107-87, Title I, (Department of Transportation and Related Agencies
Appropriations Act, 2002).

9Office of Inspector General, Department of Transportation, Audit of the
Use of Fiscal Year 2002 Funds to Improve the Operational Readiness of
Small Boat Stations and Command Centers, MH-2003-028 (Washington, D.C.:
March 3, 2003).

10This figure reflects the number of active duty personnel assigned to
stations, rather than the number of authorized positions.

  Expenditures for Stations Cannot Be Fully Determined, but Estimates Appear to
  Exceed the Required Increase

Guard also developed, in response to a recommendation from the OIG in its
2001 report11 and at the direction of the Senate Appropriations
Committee,12 a draft strategic plan to guide the recruiting and hiring of
personnel. In its 2002 report, the OIG criticized the plan for being too
general in nature, specifically regarding how and when the Coast Guard
will increase staffing, training, equipment, and experience levels at
stations.

Because the Coast Guard's automated databases are not set up in such a way
that they can fully identify expenditure data at the station level, we
were unable to fully determine expenditures for all four categories.
However, through a combination of data runs and unit surveys performed at
our request, the Coast Guard was able to estimate staffing and personnel
retention expenditures, and develop actual expenditure data for personal
protection equipment (PPE). Within these three categories, the Coast Guard
estimates it spent at least $291 million in fiscal year 2003. The
information available by category was as follows:

o  	Staffing: The Coast Guard incurred estimated costs of $277.6 million13
for 5,474 active duty personnel14 assigned to stations during fiscal year
2003.

11OIG, MH-2001-094, p. iii.

12Senate Report 107-38, Senate Committee on Appropriations, in report
accompanying the Department of Transportation and Related Agencies
Appropriations Act, 2002 (P. L. 10787).

13This estimate was developed using a personnel cost formula, which the
Coast Guard uses to budget for future personnel costs. The formula
produces an average cost per person per pay grade.

This figure does not include costs for the 1,657 reserve personnel
assigned to stations, or an unknown number of auxiliary personnel.

o  PPE: Reported expenditures for this category totaled $7.5 million.15

o  	Personnel retention: Expenditure data for all aspects of this category
are not available. However, in one specific category-reenlistment
bonuses-the Coast Guard expended $5.9 million for bonuses to boatswain's
mates and machinists assigned to stations.

14This figure does not reflect the Coast Guard's authorized staffing level
for multimission stations, which is significantly lower (4,589 positions).
At the end of fiscal year 2003, the Coast Guard had assigned 885
personnel, or 16.2 percent of total personnel at the stations, without
placing them in authorized, permanent positions. We did not review the
impact of this personnel management practice on Coast Guard's overall
staffing structure. However, because the assignment of these personnel to
stations is potentially more temporary than that of other personnel, there
is no assurance that the Coast Guard will maintain staffing levels in the
future. The Coast Guard, in fact, could not assure us that the fiscal year
2003 staffing level of 5,474 would be maintained at stations. Although the
Coast Guard's goal is to have a one-to-one match between personnel and
positions, it has been necessary to assign a greater number of less
experienced staff to the stations, above authorized staffing levels, to
develop required numbers of senior staff (Coast Guard officials estimate
it takes three junior personnel to produce one senior crew member).
Officials told us the Coast Guard staffs stations above authorized levels
in order to (1) "grow" junior personnel into more senior positions by
providing "operational" on-the-job training opportunities, and (2)
compensate for staff attrition. Many of the less experienced staff will
eventually leave the agency or be reassigned. According to officials, the
Coast Guard is adding about 300 additional authorized positions to
stations in fiscal year 2004, and if staffing levels remain constant, this
action will reduce the number of personnel assigned without an authorized
position to approximately 585 personnel. In its 2002 report, the OIG
questioned this practice and noted that the temporary status of such
personnel makes it unclear whether they will continue to serve as
dedicated station resources. The Coast Guard agreed with this conclusion.
The Coast Guard could not assure us that the staffing level of 5,474
personnel would be maintained at stations.

15From a statistical perspective, this figure is best presented as an
estimate due to indications of minor errors in Coast Guard's recording of
PPE expenditure amounts for fiscal year 2003 (see appendix I).

o  	Training:16 Coast Guard officials attempted to identify estimated
costs of training station personnel at national training centers during
fiscal year 2003 but could not provide reliable data for this category.
Officials told us the Coast Guard has separate databases that track costs
incurred by the national training centers, but do not have a database that
can identify training costs expended on personnel after they have been
assigned to stations. Further, expenditures incurred by stations in
providing on-the-job training (a significant component of total training
provided to station personnel) were not available because the Coast Guard,
like many agencies, does not track time spent on this type of training.

Using fiscal year 2002 data derived through similar analyses, we
determined that estimated station expenditures for fiscal year 2003
exceeded fiscal year 2002 levels by at least $20.5 million-or $4.8 million
more than the $15.7 million earmarked appropriation. Table 1 shows the
differences in estimated expenditures (levels of effort) by fiscal year
for the three categories that had available data.17 Only partial data were
available on personnel retention, and no data were available on training
expenditures. Although expenditure data for all personnel retention
efforts were not available, the Coast Guard was able to provide annual
expenditure data for reenlistment bonuses offered to selected multimission
station personnel. Other information we gathered in discussions with Coast
Guard personnel indicates that the Coast Guard's levels of effort in
station training also increased during fiscal year 2003. In fiscal year
2003, the Coast Guard increased the number of instructors and classrooms
at two national training centers, which provide training to station and
other personnel, in order to increase the number of total students
graduated. Appendix I describes our methodology for developing these
estimates, and appendix II contains a more detailed description of the
data in each category.

16We focused on training completed by station personnel after they were
assigned to stations, which did not include basic training (boot camp).

17Because of data limitations, complete 2-year comparative cost estimates
are available only for staffing and PPE. Partial cost estimates are
available for personnel retention activities in the form of selected
reenlistment bonuses, and no estimated data are available on station
training costs.

Table 1: Comparison of Levels of Effort at Stations, Fiscal Years 2002 and 2003

Dollars in millions

                           Fiscal year 2002  Fiscal year 2003   
               Category     estimated costs   estimated costs      Difference 
               Staffing             $263.2a             $277.6a         $14.4 
                    PPE                2.5b                7.5c 
              Retention                4.8d                5.9d 
                  Total              $270.5              $291.0         $20.5 

Source: Coast Guard.

aData based on a personnel cost formula.

bData based on budget estimates.

cData based on survey of PPE expenditures by stations, groups, and
districts.

dPartial data-reflects amount of reenlistment bonus expenditures
distributed to station boatswain's mates and machinists.

Because complete comparative data could not be identified for all four
categories, we cannot say with certainty that Coast Guard expenditures for
multimission stations in fiscal year 2003 were at least $15.7 million
above fiscal year 2002 levels. However, we believe this is a reasonable
conclusion based on the following:

o  	Although the staffing data provided to us are based on budget cost
formulas, we determined that the data are sufficiently reliable for the
purpose of demonstrating increases in staffing levels between the two
years.

o  	Discussions with station officials indicate that station personnel
have sufficient levels of PPE. In its fiscal year 2002 audit, the OIG
reported that the Coast Guard did not provide PPE for 69 percent of the
personnel added to stations during fiscal year 2002. Our visits to a
limited number of stations-8 out of 188 stations-and discussions with
station personnel, indicated that all active and reserve personnel
assigned to these stations-even newly assigned personnel-had received what
they considered to be an appropriate level of PPE (basic and cold
weather).18

18Station officials told us that many of the auxiliary personnel who
volunteer at these stations have also received PPE.

  Better Accountability of Expenditures Is Needed to Ensure That Earmarks Are
  Appropriately Spent

o  	Although available quantitative data were limited for this category,
over the past few years the Coast Guard has implemented a variety of
financial incentives aimed at improving personnel retention.

o  	Training officers at the 8 stations we visited indicated that training
for station personnel did not decrease in fiscal year 2003 compared with
the prior year. In addition, in fiscal year 2003 the Coast Guard increased
training resources in two areas-the boatswain's mate training school
increased its training output by over a third, and unit training provided
by headquarters to station personnel also increased.

The Coast Guard did not have adequate processes in place to sufficiently
account for the expenditure of the entire $15.7 million earmarked fiscal
year 2003 appropriation or to provide assurance that these earmarked funds
were used appropriately, as set forth by federal management and internal
control guidelines. The purpose of an earmark is to direct an agency to
spend a certain amount of its appropriated funds for a specific purpose.
Federal guidelines and government internal control standards indicate that
agencies should account for the obligation and expenditure of earmarked
appropriations both as a sound accounting practice and to demonstrate
compliance in the event of an audit. The expectation that agencies will be
able to effectively demonstrate compliance in their use of earmarked funds
stems from the following:

o  	Office of Management and Budget Circulars:19 These circulars hold that
agencies' management controls should reasonably ensure that laws and
regulations are followed.

o  The Federal Managers' Financial Integrity Act:20 This act establishes

specific requirements regarding management controls and directs

agency heads to establish controls to reasonably ensure that obligations
and costs comply with applicable laws.

o  	Standards for Internal Control in the Federal Government:21 These
standards specify that internal controls should provide reasonable

19Office of Management and Budget Circular No. A-11, Section 150.3, and
Circular No. A123.

20P.L. 97-255.

21U.S. General Accounting Office, Standards for Internal Control in the
Federal Government, GAO/AIMD-00-21.3.1 (Washington, D.C.: November 1999).

assurance that an agency is in compliance with applicable laws and
regulations. They also direct that internal controls and transactions
should be clearly documented and the documentation should be readily
available for examination.

Further, the Department of Homeland Security (DHS), the parent agency for
the Coast Guard, recently issued budget execution guidance that encourages
component agencies to identify the obligation and expenditure of earmarked
funds separately from other appropriated funds.22 (This guidance was
issued in fiscal year 2004 after the Coast Guard had obligated the fiscal
year 2003 earmark.) In response to a recommendation made in our recent
report on the reprogramming of Federal Air Marshal Service funds,23 DHS
has agreed to make this a requirement.

The Coast Guard told us at the onset of our review that it did not have
adequate processes in place to collect data with respect to earmarked
expenditures. Although officials had taken steps to account for PPE
expenditures (because purchase receipts could be easily tracked),24 they
did not have adequate processes in place to account for earmarked funds
spent on staffing and training needs at the station level. Consequently,
the Coast Guard could not demonstrate conclusively that it was complying
with the earmark. Basically, the Coast Guard's databases were not designed
for this purpose and would have to be modified to provide actual
expenditure data for stations, according to Coast Guard officials. On the
basis of lessons learned from the OIG's audit in fiscal year 2002, which
faulted the Coast Guard for not having cost accounting systems in place to
allow for the tracking of certain multimission station expenditures, Coast
Guard officials developed a plan to show how various allocations would

22Department of Homeland Security, Budget Execution Guidance for Fiscal
Year 2004, p.

8.

23In our March 31, 2004, report we recommended that the Secretary of
Homeland Security require component agencies to separately identify
obligations and expenditures of earmarked funds, which they must be able
to report. In response, DHS stated that it agreed with "the essence of
GAO's suggestions regarding the tracking of earmarked funds with special
codes and will incorporate this into [the Department's] fiscal year 2005
Budget Execution guidance. In addition, [the Department is] taking this
requirement into consideration in the development of new financial
management systems." See U.S. General Accounting Office, Budget Issues:
Reprogramming of Federal Air Marshal Service Funds in Fiscal Year 2003,
GAO-04-577R (Washington, D.C.: March 31, 2004).

24The Coast Guard did request station personnel to retain receipts of PPE
expenditures for fiscal year 2003. However, because the data were not
stored in a centralized location, it required a special data call to
stations, at our request, to obtain the information.

add up to $15.7 million if expended. The plan, although useful as an
indicator of the Coast Guard's intentions, is not sufficient to show that
the Coast Guard had expended the earmarked appropriation as directed.
Coast Guard officials also told us that, in response to the OIG's 2002
recommendation to allow for the tracking of certain station expenditures,
they are assisting DHS in developing a new enterprise-wide financial
system called "electronically Managing enterprise resources for government
effectiveness and efficiency" (eMerge2). As part of the overall

2

system requirements, the Coast Guard expects that eMerge will be able to
identify, track, and report costs related to earmarked appropriations.
However, as of April 2004 the system was still in design25 and the Coast
Guard was unable to provide us with system specifications prior to the
issuance of this report.

Conclusions

Recommendation for Executive Action

On the basis of available data and other information, the Coast Guard
appears to have met the Congress's requirement to spend at least $15.7
million more on multimission stations in fiscal year 2003 than in fiscal
year 2002. However, the Coast Guard does not have adequate processes in
place to track actual expenditures related to earmarks. Rather, agency
officials could provide only estimates for much of the station
expenditures. Without the ability to accurately and completely account for
these expenditures, the Coast Guard cannot assure that it complied with
the earmark. Moreover, Congress's ability to hold the Coast Guard
accountable for future earmarks is seriously diminished. In light of our
recent recommendation to DHS on the need to track earmarks-and its
subsequent concurrence-we believe the Coast Guard should take immediate
steps to ensure that future accounting systems include the capability to
track earmarks.

To improve the Coast Guard's ability to respond to congressional oversight
and to provide greater assurance that earmarked funds are used
appropriately, we recommend that the Secretary of Homeland Security direct
the Commandant of the Coast Guard to develop, in accordance with the
fiscal year 2004 departmental guidelines, processes to accurately and

25Officials told us DHS expects to complete the design phase-during which
the component agencies will finalize their requirements-by the end of June
2004. Implementation of the system is scheduled for October 2004 through
2006.

completely account for the obligation and expenditure of earmarked
appropriations.

                                Agency Comments
                               and Our Evaluation

We requested comments on a draft of this report from the Secretary of
Homeland Security or his designee. On May 14, 2004, Coast Guard officials,
including the Chief, Office of Budget and Programs, provided us with oral
comments, with which the DHS GAO Liaison concurred. Coast Guard officials
generally agreed with the facts and our recommendation to better track
earmarked expenditures. We did not review the Coast Guard's financial
databases to determine if modifications to them would be necessary to
better track earmarked expenditures (obligations). Coast Guard officials,
however, expressed concern that developing better procedures to track some
station expenditures (obligations), such as those for staffing or
training, will prove challenging and could be costly due to the need to
significantly modify their financial systems. Officials stated that
accounts are centrally managed and specific expenditures would not be
easily tracked at the station level. The Coast Guard officials said they
plan to explore this issue more thoroughly and to examine how
organizations with comparable activities have overcome similar obstacles
to tracking earmarked funds. The officials also provided a number of
technical clarifications, which we incorporated where appropriate.

We will send copies of this report to interested congressional committees
and subcommittees. We will also make copies available to others on
request. In addition, the report will be available at no charge on GAO's
Web site at http://www.gao.gov.

If you or your staffs have any questions about this report or wish to
discuss the matter further, please contact me at (415) 904-2200 or Randall
B. Williamson at (206) 287-4860. Additional contacts and key contributors
to this report are listed in appendix III.

Margaret T. Wrightson Director, Homeland Security and Justice Issues

                       Appendix I: Scope and Methodology

We used a variety of approaches in our work to determine the amount of the
general appropriation the Coast Guard expended on multimission stations in
fiscal year 2003 across the four areas covered by the earmark- staffing,
personal protection equipment (PPE), personnel retention and training-and
whether this amount exceeded by $15.7 million the level of effort expended
in fiscal year 2002. Because Congress directed that we review the amount
of general appropriations expended on station readiness needs, we did not
review expenditures of funds received through supplemental appropriations.
We determined at the outset of our work that Coast Guard databases did not
contain information that would allow us to fully report on station
expenditures for the four earmark categories. To identify available
information and possible limitations of the information, we worked
extensively with Coast Guard headquarters officials from the Offices of
Budget and Programs; Financial Analysis; Boat Forces; Resource Management;
Workforce Management; Personnel Command; and Workforce Performance,
Training and Development. We also obtained documentation from
headquarters, stations, groups, and districts.

After reviewing the reliability of available data and the feasibility of
Coast Guard officials' proposals for gathering additional data, we agreed
on a combination of expenditure and allocation data, which would be
collected through special data runs, analyses, and unit surveys. Coast
Guard officials provided data for three of the four categories. Although
officials attempted to develop information on training costs, they were
not able to produce reliable data. Some of the information we needed was
obtained not at headquarters but at specific Coast Guard sites, which we
judgmentally selected according to size, location, and type.1

The specific data and analyses used to develop estimates on each of the
four categories, were as follows:

o  	Staffing: To determine the number and cost of personnel assigned to
multimission stations, we requested Coast Guard personnel expenditure data
for fiscal years 2002 and 2003, but we were told that expenditure data
were not available at the station level. To develop

1We conducted site visits to the following stations: Los Angeles-Long
Beach, San Francisco, Golden Gate, and Vallejo in California; Cape
Disappointment in Washington; Tillamook Bay in Oregon; New York City in
New York; and Sandy Hook in New Jersey. We also visited the following
groups: Los Angeles-Long Beach and San Francisco in California; Astoria in
Oregon; and Activities New York in New York.

Appendix I: Scope and Methodology

estimated staffing costs, Coast Guard officials merged information from
personnel and position databases to identify the number of personnel
assigned to stations2 and then applied a personnel cost formula3 to arrive
at total estimated costs. Developing estimates was complicated because the
fiscal year 2002 data were developed from a different database than the
fiscal year 2003 data, and because the Coast Guard has more personnel
assigned to stations than actual authorized (or funded) positions, a
variance that requires periodic adjustment of the databases. However,
after discussing these factors at length with Coast Guard officials, we
determined that the data developed by the Coast Guard were sufficiently
reliable for the purpose of providing estimates of expenditures for fiscal
years 2002 and 2003. The methodology and process for developing the data
were contributed to by the following Coast Guard offices: Budget and
Programs, Resource Management, Workforce Management, and Personnel
Command.

o  	PPE: To obtain fiscal year 2003 expenditure data for this category, we
asked the Coast Guard to survey all 188 stations and their oversight
units. Each station and unit was asked to provide the total amount of
fiscal year 2003 funds spent on PPE for personnel assigned to the station
during the year. These totals included expenditures made for station
personnel at the group and district levels as well. To verify the accuracy
of these data, we reviewed original expenditure documentation for a
judgmentally selected sample of 29 stations.4 On the basis of this
documentation, we independently quantified PPE

2This was necessary because no single Coast Guard database could identify
(1) where personnel were located (for example, at a station or at
headquarters), (2) the number of positions funded through general
appropriations, and (3) the number of new and upgraded station positions
actually filled. The Coast Guard is pursuing efforts to merge its data
systems by fiscal year 2005 to allow data regarding location of personnel,
position, and associated costs to be obtained with one query.

3The personnel cost formula produces estimates that are an aggregate of
the average costs incurred by individuals within a pay grade. The formula
averages each of the costs (salary, travel, medical, training, and
administrative) necessary to support an individual in a position at a
specific pay grade. The average cost figure for each pay grade includes a
range of actual costs that vary depending on individuals' length of
service, time in grade, etc.

4At the beginning of fiscal year 2003 Coast Guard headquarters officials
directed all stations to retain receipts of PPE purchases in the event of
a GAO audit. We requested that each of the 29 stations selected submit
supporting documentation for all fiscal year 2003 PPE purchases (we did
not ask for supporting documentation for purchases made for these stations
by their group or district). Our criteria for selecting the 29 stations
were based on number of personnel, location (for example, cold or warm
weather station), and operation hours expended per mission.

Appendix I: Scope and Methodology

expenditures for each station. Our count of total PPE purchases at the 29
stations was 9 percent higher than the total provided by the Coast Guard
(our count was 4 percent less than the Coast Guard's after removing
expenditures for one outlier station). Coast Guard officials attributed
the difference to errors made by station personnel when compiling the
expenditure data. As a result of these differences, however, we refer to
the total expenditure for fiscal year 2003 as an estimate. Because Coast
Guard officials considered gathering expenditure data for fiscal year 2002
as too labor intensive for station personnel, given their current
workloads, we used the Coast Guard's data on planned PPE expenditures for
fiscal year 2002. After reviewing possible limitations in the PPE data
provided, we determined that the data provided were sufficiently reliable
for the purpose of providing estimates of expenditures. The PPE planning
data were provided to us by the Offices of Boat Forces and Budget and
Programs.

o  	Personnel retention: We were not able to determine total retention
expenditures because the Coast Guard does not specifically track these
costs, and retention efforts encompass a diverse array of direct and
indirect activities. We were able to identify certain direct activities-
selective reenlistment bonus expenditures for multimission stations and
various financial incentives available to Coast Guard personnel- and some
indirect incentives. After reviewing how data provided by the Personnel
Services Center on selective reenlistment bonus expenditures were
collected and maintained, we determined that the data were sufficiently
reliable for the purposes of this report. The personnel retention
expenditure data were provided to us by the Office of Budget and Programs.

o  	Training: The Coast Guard was unable to provide actual or estimated
expenditure data for training multimission station personnel in fiscal
years 2002 and 2003. Officials from the Office of Budget and Programs and
the Office of Workforce Performance, Training, and Development told us at
the outset of our review that they would not be able to identify total
training costs because the Coast Guard does not track the amount of time
station personnel devote to on-the-job training (which accounts for a
significant amount of total training). Headquarters officials attempted to
obtain data on the estimated annual costs for training station staff at
the Coast Guard's national training centers by cross-referencing data from
multiple databases and applying a cost formula. However, Coast Guard
officials identified a number of serious anomalies in the data and
concluded the data were too unreliable to be used.

Appendix I: Scope and Methodology

To determine whether the Coast Guard had adequate processes in place to
account for the expenditure of the $15.7 million earmarked appropriation,
we interviewed and obtained documentation from stations, groups, and
districts. We also interviewed and obtained documentation from officials
in the following headquarters offices: Boat Forces, Budget and Programs,
and Financial Analysis. Further, we studied the Coast Guard's funding
plan, which showed how the earmark was intended to be spent. We also
reviewed federal management guidelines and government internal control
standards to identify earmark accountability requirements that apply to
agencies.

                  Appendix II: Estimated Costs and Fiscal Year
                  Differences for Stations by Earmark Category

The $15.7 million earmark presented to the Coast Guard in its fiscal year
2003 appropriation called for funds to be spent across four categories of
multimission station needs-staffing, PPE, personnel retention, and
training. In determining the amount of funds spent by the Coast Guard in
2003 on station needs and whether this amount exceeded the fiscal year
2002 level of effort by $15.7 million, we also developed cost information
for three of the four categories. Coast Guard officials attempted but were
unable to develop reliable data on the cost of training station personnel
during fiscal years 2002 and 2003. This appendix has two main sections.
The first presents additional information about estimated station
expenditures in the areas of staffing, PPE, and personnel retention in
fiscal year 2003, and the second contains additional information about the
changes that occurred between fiscal years 2002 and 2003.

Using a combination of estimated and actual expenditure data, we
determined that estimated fiscal year 2003 costs for staffing, PPE, and
personnel retention efforts at stations amounted to at least $291 million.

  Fiscal Year 2003 Station Estimated Expenditures by Category

    Staffing

The Coast Guard could not provide us with the actual amount of fiscal year
2003 appropriation funds spent on station staffing because the agency's
automated databases do not fully identify personnel expenditures at the
station level.1 However, using a combination of budget and personnel data,
officials were able to estimate that in fiscal year 2003 the Coast Guard
incurred costs of $277.6 million2 to support 5,474 active duty station
personnel.3 This estimate does not include costs for the 1,657

1No one Coast Guard database can provide data on general appropriation
amounts spent for personnel assigned to stations.

2This figure includes only funds expended from Coast Guard's fiscal year
2003 general appropriation; it does not include expenditures from other
funding sources, such as homeland security appropriations. According to
Coast Guard officials, fiscal year 2002 general appropriations were not
available in fiscal year 2003 because Coast Guard expends virtually all
appropriation funds in the first year.

3This figure reflects the number of personnel assigned to stations; as of
September 30, 2003, 4,589 positions were authorized for stations.

Appendix II: Estimated Costs and Fiscal Year Differences for Stations by Earmark
                                    Category

reserve personnel4 assigned to stations in fiscal year 2003, nor does it
include the costs of volunteer auxiliary personnel who assisted in station
operations during the year.5 The Coast Guard did not calculate estimated
expenditures for reservists because of the complex and labor-intensive
nature of the analysis.

    Personal Protection Equipment

Coast Guard officials determined that the agency spent approximately $7.5
million in fiscal year 2003 on PPE for station personnel. As shown in
table 2, the cost of a total basic PPE outfit in fiscal year 2003 was
$1,296. The cost of a cold weather PPE outfit, which is used by personnel
working at stations where the outdoor temperature falls below 50 degrees
Fahrenheit, was $1,431. (Figure 1 shows a station crew member in cold
weather PPE.) A May 2002 Coast Guard Commandant directive emphasized the
importance of proper supplies and use of PPE as one of the top priorities
of Coast Guard management. In this directive, the Commandant cited an
internal research report that attributed 20 percent of the total risk
facing boat personnel to exposure to extreme weather conditions. The
directive also states that the use of appropriately maintained PPE could
improve Coast Guard's operational capability.

4As of September 30, 2003, reserve personnel at multimission stations made
up approximately 23 percent of the stations' workforce.

5Approximately 36,000 auxiliary personnel Coast Guard-wide participate in
activities ranging from search and rescue to boating safety education.
Coast Guard officials could not identify the total number of auxiliary
personnel who assist at stations because of the dynamic and fluid nature
of this volunteer group.

Appendix II: Estimated Costs and Fiscal Year Differences for Stations by
Earmark Category

Table 2: Cost of Basic and Cold Weather PPE Used by Station Personnel

                                   Item Cost

Basic PPE

                        Electronic location device $285

                             Anti-exposure suit 232

                            Protective footwear 139

                                 Life vest 125

                                 Rain gear 120

Strobe light

Survival vest

Helmet

Sunglasses

Deck shoes

Parachute bag

Goggles

Work gloves

Survival knife

Personal marker light

Signal mirror 8

Whistle 5

Subtotal $1,296

Cold weather PPEa

Dry suit $750

Thermal underwear 480

Glove system 89

Thermal socks 35

Insulated footwear 31

Neoprene hoodb 28 c

Balaclava 18 Subtotal $1,431

Total $2,727

Source: Coast Guard.

aAccording to the Coast Guard, personnel at 135 (72 percent) of the 188
multimission stations require cold weather PPE in addition to basic PPE.

bWorn by crewmembers when entering water that is 50 degrees Fahrenheit or
lower.

cFleece or polypropylene head covering worn by crewmembers when additional
thermal protection is required.

Note: Costs are for fiscal year 2003.

Appendix II: Estimated Costs and Fiscal Year Differences for Stations by
Earmark Category

             Figure 1: Station Crew Member Wearing Cold Weather PPE

                              Source: Coast Guard.

                              Personnel Retention

The Coast Guard provided data demonstrating how it promotes personnel
retention through a variety of direct and indirect incentives. Direct
incentives include financial benefits that personally benefit the
individual, while indirect incentives include projects, such as facility
improvements, that may indirectly contribute to retention by increasing
staff morale. Coast Guard officials provided expenditure data for selected
direct incentives provided to station personnel in fiscal year 2003
because officials could not quantify the total amount of funds expended on
direct incentives. Likewise, the total amount expended on indirect
incentives cannot be readily identified because of the numerous and varied
nature of the efforts.

Coast Guard's direct financial incentives include selective reenlistment
bonuses. During fiscal year 2003, the Coast Guard spent $5.9 million on
312 selective reenlistment bonuses for station personnel-$4.2 million of
this went to boatswain's mates while the remaining $1.7 million went to
machinery technicians. A variety of other financial benefit improvements
were also recently implemented:

o  	Between fiscal year 2003 and fiscal year 2004 the Coast Guard
increased the surfman6 pay premium by 33 percent.

6A surfman is a coxswain-boat driver-who is qualified to pilot boats in
heavy weather and high surf conditions.

Appendix II: Estimated Costs and Fiscal Year Differences for Stations by Earmark
                                    Category

o  	Since fiscal year 2000 the average portion of housing costs paid by
personnel has decreased annually, going from 18.3 percent in fiscal year
2000 to 3.5 percent in 2004; in 2005 this expense will be reduced to zero.

o  	Since fiscal year 2002 enlisted personnel have been entitled to a
basic allowance for food. Before fiscal year 2002 they received no funds
for food purchased outside of a Coast Guard galley (kitchen).

o  	Since fiscal year 2002 first-term enlisted personnel have received a
"dislocation allowance" that provides funds for rental deposits and other
incidentals that may occur when personnel are required to move.

o  	Since fiscal year 2003 junior personnel have been able to ship greater
weights of household goods when transferring stations.

o  	During fiscal year 2004 the death gratuity issued to assist survivors
of deceased Coast Guard active personnel doubled.7

Multiple indirect Coast Guard efforts also serve as personnel retention
tools by improving staff morale. At our request, Coast Guard officials
asked 29 (15 percent) of the 188 multimission stations to provide data on
estimated expenditures incurred for projects that indirectly contributed
to staff retention. For the 24 stations that responded, infrastructure and
lifestyle improvements totaled over $350,000 in fiscal year 2003.
Improvements cited by multimission stations include such items as new
furniture, sports equipment, televisions, satellite TV service, and
entertainment systems. According to a Coast Guard official, the source of
funds for these improvements can be station, group, or district operating
budgets or donations by Coast Guard support groups. Table 3 shows examples
of some of the projects cited by the 24 survey respondents.

7National Defense Authorization Act of Fiscal Year 2004 (P.L. 108-136).

Appendix II: Estimated Costs and Fiscal Year Differences for Stations by Earmark
                                    Category

Table 3: Examples of Indirect Retention Efforts by Stations in Fiscal Year
2003

                           Stationsa Improvement Cost

          A Barbecue grill; sports equipment; and galley, foyer and   
            barracks                                                  
                                                            furniture $62,691 
          B New barbecue, television and entertainment system,        
            learning                                                  
                                           center computer, furniture $10,003 
          C Fitness center memberships, cable television service,     
            carpeting                                                 
                      and radio for weight room, common room computer  $6,422 
          D                                Physical fitness equipment  $2,656 

  Increases in Levels of Effort from Fiscal Year 2002 to Fiscal Year 2003
  Indicate Earmark Compliance

Source: Coast Guard.

aStations are assigned pseudonyms A - D.

While we could not determine with certainty the difference in estimated
expenditures (levels of effort) expended on stations between fiscal years
2002 and 2003 because of financial system limitations, the information
available suggests that the difference amounted to at least $20.5 million.
The following discusses estimated differences in fiscal year 2002 and 2003
staffing, PPE, and personnel retention costs for multimission stations.

Staffing 	As shown in Table 4, the Coast Guard increased staffing at
multimission stations by an estimated 466 personnel (9.3 percent) in
fiscal year 2003. The estimated cost of this staffing increase was $14.4
million above the level of effort expended for staffing in fiscal year
2002.

Table 4: Comparison of Number and Cost of Active Duty Personnel Assigned
to Stations, Fiscal Years 2002 and 2003

                              Dollars in millions

                  Fiscal year 2002 Fiscal year 2003 Difference

                      Number of personnel 5,008 5,474 466

                    Estimated total cost $263.2 $277.6 $14.4

                              Source: Coast Guard.

Personal Protection According to the Coast Guard, the agency estimates it
spent approximately

Equipment 	$5 million more for PPE than it planned to spend during fiscal
year 2002. We used fiscal year 2002 planned allocation data for this
expenditure

Appendix II: Estimated Costs and Fiscal Year Differences for Stations by Earmark
                                    Category

comparison because Coast Guard officials considered a survey of stations
to collect fiscal year 2002 expenditure data-similar to the survey
conducted for the fiscal year 2003 expenditure data-too burdensome for
station personnel, given their current workload.

Coast Guard officials told us that historically the amount of funds
allocated for station PPE at the beginning of a fiscal year is not enough
to fund PPE for all station personnel estimated to need it during the
year. The Coast Guard's method for allocating PPE funds to stations uses
the number of positions authorized to stations as a primary factor in
determining the amount of funds allocated to individual stations. Because
Coast Guard stations have more personnel assigned to them than authorized
positions, in the past personnel not assigned to an authorized position
were typically not included in PPE allocation calculations. To address
this shortfall, the Coast Guard initially planned to allocate $3 million
of the earmarked funds in fiscal year 2003. During 2003 the Coast Guard
had added another $2.6 million of the earmarked funds, bringing the total
to $5.6 million.

Personnel Retention 	Reenlistment bonuses issued to boatswain's mates and
machinery technicians assigned to stations increased by $1.1 million from
fiscal year 2002 to fiscal year 2003. During fiscal year 2002, the Coast
Guard issued $4.8 million in bonuses to the two classes of station
personnel; the amount issued in fiscal year 2003 rose to $5.9 million.
Expenditures for other, more indirect, forms of retention activities, such
as station infrastructure improvements, are not tracked annually and
therefore are not available for comparative purposes.

Training	The Coast Guard was not able to identify training costs for
multimission station personnel for fiscal year 2002 or fiscal year 2003
despite extensive efforts. Officials told us the Coast Guard has separate
databases in place to track training costs by national training center,
but it does not have a database that identifies costs for station
personnel. The Coast Guard conducted several queries from available
databases but the resulting data

Appendix II: Estimated Costs and Fiscal Year Differences for Stations by
Earmark Category

were not accurate.8 The lack of available training cost data precluded us
from making a comparison of annual expenditure data in this area. However,
some information indicates that levels of effort expended on training
station personnel increased in fiscal year 2003. For example, Coast
Guard's boatswain's mate training school increased its training output by
over a third in fiscal year 2003.

8Coast Guard officials told us that their Yorktown Training Center (which
provides training for boatswain's mates and boat drivers) is developing a
pilot model that will identify costs for training students according to
unit, asset, and mission. This model may serve as a template for future
accounting systems used by training centers at Petaluma (which provides
administrative support training) and Cape May (which provides basic
training to new personnel).

Appendix III: GAO Contacts and Staff Acknowledgments

GAO Contacts

  Staff Acknowledgments

(440231)

Margaret T. Wrightson (415) 904-2200 Randall B. Williamson (206) 287-4860

In addition to those named above, Cathleen A. Berrick, Barbara A. Guffy,
Dorian R. Dunbar, Ben Atwater, Joel Aldape, Marisela Perez,
Stan G. Stenersen, Michele C. Fejfar, Casey L. Keplinger,
Denise M. Fantone, and Shirley A. Jones made key contributions to this
report.

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