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U.S. Coast Guard: Use of DOD Funds for National Security Functions (Letter Report, 04/15/98, GAO/NSIAD-98-110).

Pursuant to a legislative requirement, GAO reviewed the Coast Guard's
use of fiscal year (FY) 1997 funds transferred from the the Department
of Defense (DOD), focusing on whether the funds were used only for the
performance of national security functions in support of DOD.

GAO noted that: (1) the $300 million was transferred to the Coast Guard
in compliance with the statutorily required certification by the
Secretary of Transportation and the Secretary of Defense that those
funds would be used only for the performance of national security
functions; (2) the funds were transferred to the operating expense
account from which all the Coast Guard programs and activities are paid;
(3) since the Coast Guard's operating expense account was not set up to
distinguish between national security expenses and civilian expenses, it
is not possible to precisely identify how the transferred funds were
used; (4) the Coast Guard estimated that it would spend approximately
$324 million in FY 1997 for four selected national security functions in
support of DOD; (5) these functions included defense readiness, domestic
support of ports and waterways, specific functions spelled out in a
memorandum of agreement with DOD, and support of commanders in chief
operation plans; (6) these functions appear to be appropriately
designated as national security functions in support of DOD; (7) the
Coast Guard also identified other substantial national security expenses
in the areas of military personnel and assets that are not included in
their estimated expenses; (8) in addition, $320 million was planned for
drug interdiction, which the Coast Guard currently considers to be a
national security function in support of DOD; (9) in FY 1997, the Coast
Guard spent approximately $254 million of the $324 million budgeted for
the above four national security functions; (10) the Coast Guard stated
that it spent less than expected in the four categories because of a
shift in mission priorities to drug interdiction; (11) drug interdiction
expenses totalled $472 million for FY 1997, exceeding the $320 million
budgeted; and (12) combining the four national security functions with
drug interdiction yields $726 million, which was more than the $300
million received from DOD.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  NSIAD-98-110
     TITLE:  U.S. Coast Guard: Use of DOD Funds for National Security 
             Functions
      DATE:  04/15/98
   SUBJECT:  Funds management
             Coast Guard personnel
             National defense operations
             Defense appropriations
             Defense budgets
             Agency missions
             Budget outlays
             Drug trafficking

             
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Cover
================================================================ COVER


Report to Congressional Committees

April 1998

U.S.  COAST GUARD - USE OF DOD
FUNDS FOR NATIONAL SECURITY
FUNCTIONS

GAO/NSIAD-98-110

National Security Functions

(703204)


Abbreviations
=============================================================== ABBREV

  DOD -
  DOT -

Letter
=============================================================== LETTER


B-279369

April 15, 1998

Congressional Committees

The Fiscal Year 1997 Department of Defense (DOD) Appropriations Act
(P.L.  104-208) made $300 million available for transfer from DOD to
the Coast Guard.  The National Defense Authorization Act for Fiscal
Year 1997 (P.L.  104-201) required these transferred funds to be used
only for the Coast Guard's performance of national security functions
in support of DOD.  This authorization act required us to review the
use of the fiscal year 1997 transferred funds to verify that the
transferred funds were used only for the performance of national
security functions in support of DOD. 

We determined whether the transfer of the DOD funds to the Coast
Guard in fiscal year 1997 was made is in accordance with the
legislative provisions and examined the Coast Guard's expected use of
the transferred funds for fiscal year 1997 and the Coast Guard's
actual expenditure of them for national security functions in fiscal
year 1997. 


   RESULTS IN BRIEF
------------------------------------------------------------ Letter :1

The $300 million was transferred to the Coast Guard in compliance
with the statutorily required certification by the Secretary of
Transportation and the Secretary of Defense that those funds would be
used only for the performance of national security functions.  The
funds were transferred to the operating expense account from which
all Coast Guard programs and activities are paid.  Since the Coast
Guard's operating expense account is not set up to distinguish
between national security expenses and civilian expenses, it is not
possible to precisely identify how the transferred funds were used. 

The Coast Guard estimated that it would spend approximately $324
million in fiscal year 1997 for four selected national security
functions in support of DOD.  These functions included defense
readiness, domestic support of ports and waterways, specific
functions spelled out in a memorandum of agreement with DOD, and
support of commanders in chief operation plans.  These functions
appear to be appropriately designated as national security functions
in support of DOD.  The Coast Guard also identified other substantial
national security expenses in the areas of military personnel and
assets that are not included in their estimated expenses.  In
addition, $320 million was planned for drug interdiction, which the
Coast Guard currently considers to be a national security function in
support of DOD. 

In fiscal year 1997, the Coast Guard spent approximately $254 million
of the $324 million budgeted for the above four national security
functions.  The Coast Guard stated that it spent less than expected
in the four categories because of a shift in mission priorities to
drug interdiction.  Drug interdiction expenses totaled $472 million
for fiscal year 1997, exceeding the $320 million budgeted.  Combining
the four national security functions with drug interdiction yields
$726 million, which is more than the $300 million received from DOD. 


   BACKGROUND
------------------------------------------------------------ Letter :2

The Coast Guard, as established by title 14 of the U.S.  Code, is a
branch of the U.S.  armed forces.  The Coast Guard is a service in
the Department of Transportation (DOT), except when operating as a
service in the Navy.  The Coast Guard's role as a service in the Navy
is limited to wartime or by presidential direction.  Coast Guard
personnel are trained as military personnel.  For example, Coast
Guard pilots attend the Naval Flight School at Pensacola, Florida. 
The Coast Guard's normal maritime missions include conducting search
and rescue operations; providing port security; protecting the marine
environment; enforcing fisheries, immigration, and drug laws;
facilitating the safe navigation of vessels through U.S.  waters; and
maintaining defense readiness.  Some of these functions have both
civilian and defense implications. 

The Coast Guard considers that its national security functions
include training and participating in exercises with DOD components
to achieve defense readiness, providing domestic support in the form
of repairing and maintaining aids to navigation on strategic
waterways and providing port safety and security at strategic ports,
supporting the theater commanders in chief operation plans, and
participating in drug interdiction efforts. 

The Navy and the Coast Guard Board was formed in 1980 to provide
high-level coordination and make recommendations on major policy
issues, such as naval warfare capabilities, doctrine, and objectives. 
In 1992, a formal working group was chartered by the Board to define
Coast Guard national defense roles, missions, and functions.  This
group recommended that maritime interception operations,
deployed/foreign port control, and environmental defense operations
be added to the above Coast Guard's national security functions.  An
October 3, 1995, Memorandum of Agreement signed by representatives of
DOD and DOT formalized the working group's recommendation. 

In addition, the Senate Committee on Armed Services report on the
National Defense Authorization Act of 1997 includes drug interdiction
as a national security function.  That report stated that the DOD
transfer payment should be used for "the national security functions
of the Coast Guard, including its support of the DOD
counter-narcotics program."


   DOD TRANSFER PAYMENT
------------------------------------------------------------ Letter :3

Since fiscal year 1982, Congress has annually authorized DOD funds to
be transferred to the Coast Guard to help fund defense activities.\1
The fiscal year 1997 DOD Appropriations Act made $300 million of
DOD's funds available for transfer to the Coast Guard.  For the first
time, language in the authorization act (P.L.  104-201) attached
specific conditions and limitations to the use of these funds. 
Section 1007(a) of the act required these transferred funds to be
used only for the performance of national security functions in
support of DOD.  In addition, the funds were not to be transferred
until the Secretary of Defense and the Secretary of Transportation
jointly certified that the funds would be used only in accordance
with this limitation. 

The Secretary of Transportation and the Secretary of Defense made the
required certification to the President of the Senate and the Speaker
of the House on December 13, 1996.  The transfer of funds was
authorized on February 14, 1997, and the funds were transferred to
the Coast Guard's operating expense account,\2 from which all its
programs and activities are paid.  Coast Guard officials responsible
for managing the operating expense account stated that once the funds
become an indistinguishable part of this account, expenses likewise
are not able to be tracked by civilian or military purpose.  Thus, it
is not possible to precisely identify how the specific $300 million
was used. 


--------------------
\1 Coast Guard activities are principally funded by annual
appropriations through DOT.  In fiscal
year 1997, this amounted to $3.4 billion.  Lesser amounts are
received from other sources, including user fees such as the Marine
Safety Program. 

\2 The $300 million transfer payment was offset by a charge of
$282,000, levied by section 8138 of the DOD Appropriation Act.  The
charge was the Coast Guard's cost for force protection from
terrorism.  The net sum of $299.718 million was the actual amount
transferred to the Coast Guard. 


   EXPECTED NATIONAL SECURITY
   EXPENSES OF THE COAST GUARD
   EXCEED $300 MILLION
------------------------------------------------------------ Letter :4

The Coast Guard planned specific expenditures totaling approximately
$324 million in four national security functions for fiscal year
1997: 

(1) Defense Readiness:  Maintaining and exercising readiness to
operate with DOD, including military training for operational units,
joint exercises with the DOD, 100 liaison positions with DOD, and
joint operations. 

(2) Domestic Support:  Maintaining aids to navigation and port safety
and security missions focusing on the 124 domestic waterways and 13
strategic ports designated as "militarily critical."

(3) Missions Specified in Memorandum of Agreement Annexes: 
Performing the missions of maritime interception operations in
support of sanctions against another nation or group of nations;
environmental defense operations where the Coast Guard responds to
environmental disasters overseas that could disrupt military actions;
and deployed port operations, security and defense in support of DOD
commanders in chief. 

(4) Support for Commanders in Chief Operation Plans:  Operating and
maintaining Coast Guard assets for use under DOD plans for two
regional conflicts that may occur simultaneously. 

These functions appear to be appropriately designated as national
security functions in support of DOD. 

Beyond the $324 million expected to be spent for the four functions
listed, $320 million was budgeted for drug interdiction.  The Senate
Committee on Armed Services Report on the Defense Authorization Act
for Fiscal
Year 1997 stated that the DOD transfer payment should be used for
"the national security functions of the Coast Guard, including its
support of the DOD counter-narcotics program." On the basis of the
senate report's language, the Coast Guard currently considers its
drug interdiction activities as a national security function in
support of DOD. 


   USE OF FUNDS IN FISCAL YEAR
   1997
------------------------------------------------------------ Letter :5

We reviewed total Coast Guard fiscal year 1997 operating expenditures
for the designated national security functions and determined that we
could not isolate all expenditures to support national security
functions.  Since some functions provide both national security and
civilian benefit, the Coast Guard had to estimate the amount of those
functions that could be attributed to national security.  For
example, since the militarily critical aids to navigation make up
about 22 percent of all the aids to navigation that the Coast Guard
maintains, 22 percent of the aids to navigation program is estimated
to be in support of DOD.  Likewise, the 13 strategic ports form 27
percent of all ports covered by the Coast Guard.  Thus, 27 percent of
the domestic port safety and security program is attributable to DOD
support costs. 

Using this methodology, the Coast Guard estimated that it spent $726
million for the designated national security functions in fiscal
year 1997 contrasted to $594 million in 1996 (see table 1).  The
fiscal
year 1997 expenditures include approximately $254 million for the
four designated categories outlined above and $472 million for drug
interdiction.  This is compared with $292 million and $302 million
for the four categories and drug interdiction in 1996. 



                                Table 1
                
                 Estimated Coast Guard Expenditures for
                    Operating Expenses in Support of
                National Security for Fiscal Years 1996
                                and 1997

                         (Dollars in millions)

                                          FY 1996              FY 1997
                                        expenditu   FY 1997  expenditu
National security function                    res  budgeted        res
--------------------------------------  ---------  --------  ---------
Defense readiness                         $68.186   $88.426    $34.813
Domestic support
Aids to navigation                       99.630\a   102.602   95.604\a
Port safety                              23.312\a    24.746  \\18.003\
                                                                     a
Port security                             0.869\a     2.406    2.307\a
DOD Memorandum of Agreement
Port security units                         2.036     6.330      4.834
Environmental defense strike teams         11.288    10.092     16.453
Maritime interception                   9.080\b 9    .344 2     .248\b
Support commanders in chief operation    77.535\b    80.309   79.946\b
 plans
======================================================================
Subtotal                                 $291.936  $324.255   $254.208
Drug interdiction                         302.298   319.737    471.741
======================================================================
Total                                    $594.234  $643.992   $725.949
----------------------------------------------------------------------
\a Estimates based on Coast Guard's allocation of expenses between
national security and civilian functions. 

\b Amounts estimated because not all assets are cost centers in the
Coast Guard's accounting system. 

Source:  U.S.  Coast Guard. 

The Coast Guard states that it has taken a conservative approach in
defining the preceding categories as national security related. 
Although not included in the table, Coast Guard officials believe
that some portion of other budget items, such as military personnel
costs and the cost of operating and maintaining aircraft and cutters
(its "ready force in being"), should also be considered as national
security related. 


   AGENCY COMMENTS
------------------------------------------------------------ Letter :6

We provided a draft of this report for review to the Coast Guard,
DOT, and DOD, and they had no comments. 


   SCOPE AND METHODOLOGY
------------------------------------------------------------ Letter :7

To identify the amount of fiscal year 1997 funds that DOD transferred
to the Coast Guard for use in national security functions, we
interviewed Coast Guard and DOD officials and reviewed financial
documents.  To identify the limitations placed upon the Coast Guard
and DOD concerning the availability and use of the funds, we reviewed
the appropriations and authorization legislation and interviewed
Coast Guard and DOD officials.  To analyze how the Coast Guard
budgeted and spent fiscal year 1997 funds for support of national
security functions, we examined the Coast Guard's budget and
financial documents and verified the allocation methods.  Since the
expenditures that the Coast Guard provided are a combination of
actual and allocations of actual costs, figures representing total
costs are not precise. 

We conducted this review from June 1997 to February 1998 in
accordance with generally accepted government auditing standards. 


---------------------------------------------------------- Letter :7.1

We are sending copies of this report to the Secretaries of Defense
and Transportation, the Commandant of the Coast Guard, the Director
of the Office of Management and Budget, and other appropriate
congressional committees.  We will make copies available to others
upon request. 

If you should have any questions, please contact me on (202) 512-5140
or my Assistant Director, Mr.  William Meredith, on (202) 512-4275. 
Other major contributors to this report are listed in appendix I. 

Mark E.  Gebicke
Director, Military Operations
 and Capabilities Issues

List of Congressional Committees

The Honorable Strom Thurmond
Chairman
The Honorable Carl Levin
Ranking Minority Member
Committee on Armed Services
United States Senate

The Honorable John McCain
Chairman
The Honorable Ernest Hollings
Ranking Minority Member
Committee on Commerce, Science, and Transportation
United States Senate

The Honorable Ted Stevens
Chairman
The Honorable Daniel K.  Inouye
Ranking Minority Member
Subcommittee on Defense
Committee on Appropriations
United States Senate

The Honorable Richard C.  Shelby
Chairman
The Honorable Frank R.  Lautenberg
Ranking Minority Member
Subcommittee on Transportation
Committee on Appropriations
United States Senate

The Honorable Floyd C.  Spence
Chairman
The Honorable Ike Skelton
Ranking Minority Member
Committee on National Security
House of Representatives


The Honorable Bud Shuster
Chairman
The Honorable James L.  Oberstar
Ranking Minority Member
Committee on Transportation and Infrastructure
House of Representatives

The Honorable C.  W.  Bill Young
Chairman
The Honorable John P.  Murtha
Ranking Minority Member
Subcommittee on National Security
Committee on Appropriations
House of Representatives

The Honorable Frank R.  Wolf
Chairman
The Honorable Martin Olav Sabo
Ranking Minority Member
Subcommittee on Transportation and Related Agencies
Committee on Appropriations
House of Representatives


MAJOR CONTRIBUTORS TO THIS REPORT
=========================================================== Appendix I


   NATIONAL SECURITY AND
   INTERNATIONAL AFFAIRS DIVISION,
   WASHINGTON, D.C. 
--------------------------------------------------------- Appendix I:1

Carol Schuster
William Meredith
Jane Trahan
Mae Jones
Jay Willer


   OFFICE OF THE GENERAL COUNSEL
--------------------------------------------------------- Appendix I:2

Maureen Murphy


*** End of document. ***