oversight

Coast Guard: Review of Administrative and Support Functions

Published by the Government Accountability Office on 1999-03-10.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

      United States
GAO   General Accounting  Office
      Washington, D.C. 20548

      Resources, Cornmurky,    and
      Economic Development     Division



       B-281829


       March lo,1999


       The Honorable Wayne T. Gil&rest
       Chairman
       The Honorable Peter A. DeFazio
       Ranking Democratic Member
       Subcommittee on Coast Guard
        and Maritime Transportation
       Committee on Transportation and Infrastructure
       House of Representatives

       Subject: Coast Guard: Review of Administrative and Sur>nort Functions

       You asked us to review the Coast Guard’s major administrative and support
       functions to identify areas of possible budget savings and to determine if
       additional opportunities for cost savings exist. As agreed with your offices, we
       reviewed eight’ Coast Guard administrative and support functions to identify
       which functions may merit further analysis by the Coast Guard to identify
       potential cost savings. In conjunction with Coast Guard officials, we
       judgmentally selected the eight administrative and support functions on the basis
        of the functions’ costs and importance and the interests of the Subcommittee
       staff in comparison with other Coast Guard administrative functions. Our
       observations stem from studies and reviews we have conducted in recent years
       and from additional research done specifically for this review.

       RESULTS IN BRIEF

       Seven of the eight administrative and support functions we reviewed may have
       the potential to achieve cost-savings and may merit further examination to
       determine the size and nature of these potential savings. The Coast Guard is
       already considering some of the cost-saving opportunities but has taken no


       ‘The eight administrative and support functions are training; permanent change of
       station and related travel and transportation; shipbuilding and repair; cutter and
       aircraft spare parts inventory control; health care; collection of administrative civil
       penalties; payment of bills and payroll costs; and housing.

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action on others. Table 1 shows each administrative and support function, the estimated
annual expenditures associated with it, the types of cost-saving initiatives that have
already been taken, and the types of cost-saving possibilities that may still remain. The
one function we identified that has few additional possibilities, the housing function,
already has major cost-saving initiatives under way that would eliminate much
government-owned housing.




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                   Table 1: Summary of Cost-Savinq              Possibilities      in Coast Guard Administrative and Support Functions


idministrative                                                                             Observations on possible additional cost-saving
                    Approximate 1998 Cost-saving initiative in past 5
)r support                                                                                 initiatives
                   annual expenditure     years
unction
Functions with some potential for cost sakrings
                                                 Consolidation of training centers
Training                          $345 million   has been studied but not                  Consolidate training centers.
                   I                             implemented.
                                                 Tour of duty for officers has been
                                                 increased 8 percent from i 990 to         Study longer tours of duty as a cost-saving option.
                                                 1995.
                                                 Overhead and labor rates have
                                                                                           Conduct comprehensive study to determine whether
Shipbuilding and                                 been reduced and infrastructure
                                   $55 million                                             the Yard is more cost-effective than commercial
repair                                           improvements at the Coast Guard
                                                                                           shipyards.
                                                 Yard have been made.
Cutter and                                                                                 Study the possible consolidation of the two new
                                                 Development of new inventory
aircraft spare         $790 million (inventory                                             systems: also, reduce or eliminate “cannibalizing” parts
                                                 control systems for cutters and
parts                                   value)                                             from one aircraft to put on another despite extensive
                                                 aircraft is under way.
inventories                                                                                inventories, a practice that is expensive.
                                                 Initiatives are under way on
                                                 information system compatibility,
                                                                                           Closely monitor costs; examine the applicability of
                                                 privatization of administrative
Health care                       $140 million                                             initiatives used in the Department of Defense (DOD)
                                                 functions, and establishing an
                                                                                           and other agencies to cut costs.
                                                 oversight unit.

                                                 New system for collecting penalties
Coliection of                                    for pollution violations has allowed      Study the collection system implemented in 1995 to
administrative                  $59.2 million”   the Coast Guard to consolidate            determine its effectiveness; also, study the need to
civil penalties                                  hearing offices.                          further consolidate hearing offices.

                                                 Comparisons between Finance
                                                 Center processing of transactions         Study the use of the Finance Center to do other
                                                 and other processing centers has          processing as well; plans to administer the new payroll
Payment of bills
                                 $31.5 million   shown the Finance Center to be            system at a different location raise the possibility for
and payroll
                                                 efficient; development of a new           phasing out or reducing the size of the Human
                                                 personnel and payroll system is           Resources and Information Center.
                                                 currently under way.
Areas with little or no possibility    for add   onal cost savings
                                                         Program is under way that is
                                                          expected to eliminate much
                                                                                           Changes already under way hold the greatest potential
Housing                           $119 million                government-owned and
                                                                                           for savings.
                                                     government-leased housing and
                                                      rely on the commercial market.


                   “Approximate amount of administrative civil penalties, including interest and administrative
                   charges, assessed by the Coast Guard in the last several fiscal years.




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BACKGROUND

The Coast Guard, a Department of Transportation (DOT) agency, is responsible for
maritime missions that include conducting search and rescue operations; protecting the
marine environment; enforcing laws relating to fishing, immigration, and drugs; and
facilitating the safe navigation of vessels through U.S. waters. The Coast Guard’s nearly
41,000 full-time military and civilian employees, 7,500 reservists, and 34,000 volunteer
auxiliary staff provide services through 185 boat stations, 26 air stations, 43 marine safety
offices, and other facilities located in coastal areas and on navigable lakes and rivers. To
carry out its functions, the agency maintains a.fleet of cutters and other vessels as well as
a fleet of airplanes and helicopters.

The Coast Guard’s fiscal year 1999 budget totals about $4.3 billion, of which $2.8 billion,
about 66 percent, is for operating expenses, including administrative costs. Most of the
remainder is for retirement pay and acquisition, construction, and improvement projects.

To manage and support its varied missions, the Coast Guard has established a structure
consisting of (1) headquarters offices, which are responsible for the overall management
of a specific program; (2) area commands, which are responsible for overall mission
performance in their geographic areas; (3) district offices, which provide regional
direction; (4) maintenance and logistics commands, which provide support for the agency;
and (5) activities and group commands, which provide direction and support for
performing units such as boat stations.

The Coast Guard’s cost-reduction efforts since fiscal year 1‘994have occurred in two
phases. The agency’s efforts in fiscal year 1994through fiscal year 1996 yielded savings of
about $266 million by eliminating over 2,600jobs and decommissioning old cutters and
aircraft. In fiscal year 1996, the agency began a second round of efforts, called the
National Plan for Streamlining, from which it expects to achieve an additional $77 million
in net savings by fLscal year 1999.

ADMINISTRATIVE AND SUPPORT FUNCTIONS
WITH POTENTIAL FOR COST SAVINGS

Seven of the eight administrative and support functions appear to hold some possibility for
additional cost savings. Three of the seven functions have no major cost-saving initiatives
currently planned or under way, but opportunities exist for such initiatives. The remaining
four are the focus of cost-saving initiatives, but additional opportunities may also be
present. These seven areas are discussed below.

Training

           l   Pm-nose. scone, and cost. The Coast Guard spends about $345 million annually,
               including salaries, to operate and maintain six training centers-in PetaIuma,
               California; Yorktown, Virginia; Mobile, Alabama; Cape May, New Jersey;
               Elizabeth City, North Carolina; and New London, Connecticut. The training
               centers’ operating expenditures include building maintenance and repair, food,
               boat supplies, vehicles, specialized electronic equipment, training equipment

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           and supplies, spare parts, housekeeping, energy, salaries, and other daily
           supply needs.

       l   Current or recent cost-saving initiatives. No cost-saving initiatives are
           currently under way for the training centers. A 1995 study conducted by the
           Coast Guard as part of its streamlining efforts recommended closing the
           training center at Petaluma, which could save up to an estimated $9 million a
           year. The Coast Guard decided not to close the training center, largely because
           of public opposition and because it was conducting its other streamhning
           efforts at the time.

       l   Observations on areas for further studv. The Coast Guard agrees that it has
           excess training space and needs to assess whether it should close or
           consolidate its training centers. In its fiscal year 1999 budget, the Coast Guard
           received $2.2 million to conduct the first portion of a multiyear effort to
           optimize its training infrastructure. It plans to first assess the environmental,
           social, and economic impacts associated with any options for closure or
           consolidation. We believe it is important that the Coast Guard complete the
           assessment it has under way before it conducts additional studies of the
           training function.

Permanent Change of Station
and Related Travel and Transnortation

       .   Purnose, scope, and cost. The relocation of personnel is another major
           administrative Coast Guard function. About 19,000relocations, known as
           permanent changes of station (PCS), are made each year. According to the
           Coast Guard, about 28 percent of PCSs are for staff who are retiring, separating
           from the service, or graduating from trainin,.0 Another 24 percent were made
           to replace those members. In addition, about 25 percent result from the need
           to relieve staff from arduous duty, which leaves about 23 percent of PCSs for
           discretionary changes. PCS costs include travel, the transportation and
           storage of household goods, and other authorized items. Over the past 6 years,
           annual PCS costs have ranged from $61.9 million to $75.4 million, not counting
           salary costs for time spent moving or the administrative cost of preparing an
           estimated 19,000 rotation orders annually. The higher amount was due to one-
           time costs associated with the Coast Guards streamlining efforts.

       l   Current or recent cost-saving initiatives. In 1995, the DOT Inspector General
           reported that since 1990, the Coast Guard has increased the average length of a
           standard tour of duty for an officer by 8,percent.*

       l   Observations on areas for further studv. We identified this area as having
           potential for cost savings in our recent review of the Coast Guard’s response to
           budget constraints3 Coast Guard officials said they were reluctant to change

‘DOT Inspector General Report R5-CG-5-003, Mar. 1995.

3CoastGuard Challenges for Addressing Budget Constraints (GAO/RCED-97-110, May 14,
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              the agency’s rotation policies, believing that they had developed optimum
              lengths of time for tours of duty. Coast Guard officers and enlisted personnel
              generally change assignments every 2 to 4 years. We suggested that the
              Congress might want to make certain that potentially controversial issues
              within the Coast Guard, such as rotations, are independently reviewed or that a
              third party validates any Coast Guard studies. Such a study has not been done,
              and we believe that this function still holds the potential for cost savings.

Shipbuilding and Re-oair

          .   Puroose. scope. and cost. The Coast Guard Yard, founded in 1899 and located
              near Baltimore, Maryland, is the Coast Guard’s only major shipbuilding and
              repair facility. Currently, about 800 military and civilian personnel are
              employed at the Yard. The Yard performs only a small percentage of the Coast
              Guard’s industrial operations related to ships. Most operations are contracted
              out to commercial shipyards. The Yard’s industrial operations include the
              repair, modification, and construction of vessels; ordnance overhaul and
              maintenance; the manufacture of miscellaneous Coast Guard equipment; and
              the maintenance and repair of vessel components. The Yard is funded through
              a revolving fund with annual revenues of about $55 million.

          .   Current or recent cost-savin= initiatives. The economic viability of the Yard
              has been debated for over a decade. In 1988, the Coast Guard tried to close
              most of the industrial activities at the Yard, saying that the Yard’s anticipated
              workload was declining and that most of the work there could be done more
              cheaply at commercial shipyards, resulting in estimated savings of $2 million to
              $3 million a year. We were asked to review the Coast Guard’s decision, and
              while we did not take a position on whether the Yard should be closed, we
              noted that the Coast Guard did not have good supporting data to justify closing
              the Yard or keeping it open.4 For example, the Coast Guard did not compare
              the cost of ship repair and construction at the Yard with that of work done in
              the private sector. Rather than restudy the closure, the Coast Guard decided
              not to close the Yard.

              According to the Coast Guard, since 1995, the Yard has undertaken many cost-
              saving initiatives, including (1) reducing the number of overhead personnel, (2)
              bringing its labor rate closer to that of commercial shipyards, and (3) making
              dockside infrastructure improvements to reduce project costs.

      .       Observations on areas for further studv. In the past, the cost-effectiveness of
              the Coast Guard Yard has been questioned. According to the Coast Guard,
              however, many cost-saving initiatives have recently been taken. In addition,
              the Coast Guard pointed out that the Yard is the only major shipbuilding and

 1997).

 4Coast Guard: Decision to Phase Out Curtis Bav Yeard Is Inadeauatelv SuDported (GAOIRCED-
 89-29, Oct. 7, 1988)

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           repair facility under Coast Guard control. It therefore can provide backup
           when a commercial contractor fails. A comprehensive, detailed study of the
           Yard may be warranted by the Coast Guard or others to compare its cost-
           effectiveness with that of commercial shipyards.

Cutter and Aircraft Spare Parts Inventor-v Control

       l   Pm-nose, scone, and cost. The Coast Guard maintains a sizable inventory of
           cutter and aircraft spare parts valued at more than $790 million. For cutters, a
           supply center located in Curtis Bay, Maryland, stocks about 18,000 different
           parts valued at about $140 million. Aircraft parts are primarily located at a
           supply center in Elizabeth City, North Carolina, which stocks about 49,000
           different parts valued at about $350 million. In addition, cutters maintain parts
           and supplies inventories on board that range in value from a few thousand
           dollars to a million dollars. Individual air stations also maintain about $175
           million in parts. An additional $125 million in parts are in transit or at repair
           facilities.

       l   Current or recent cost-saving initiatives. Currently, the Coast Guard is
           developing an information system for cutters, called the Fleet Logistics System,
           and a separate system for aircraft, called the Aviation Logistics Management
           Information System. The development of these systems has been under way
           for several years. This revamping stems in part from problems we noted in an
           earlier review. In January 1995, we reported that the Coast Guard did not have
           the organizational structure or computer systems necessary to effectively
           manage its cutter inventory.5 As a result, the Coast Guard did not know the
           value, type, quantity, and condition of many of the spare parts in its inventory.
           We stated that without such information, the Coast Guard could not determine
           whether it had a shortage or an excess of parts. The Coast Guard basically
           agreed with our recommendations and took some interim actions to eliminate
           some of its excess inventory.

           The Coast Guard’s revised cutter inventory system is scheduled for completion
           in 2001. The Coast Guard expects to have a real-time centralized computer
           system to track its cutter inventory; a single source of accountability for all
           fleet logistics; and a consolidated maintenance, technical, and supply
           organization to perform supply functions now performed by headquarters and
           the inventory supply center.

       l   Observations on areas for further studv. We asked both the staff developing
           the cutter system and the staff operating the aircraft system if the systems
           could be combined. They both agreed that, in hindsight, the consolidation of
           the two systems could have saved money. They said that at this stage of the
           Fleet Logistics System’s development, it is too late to achieve any savings by
           consolidation, and consolidation may result in delaying the development of the

5Coast Guard Cutters: Actions Needed Now to Ensure Better Management of Parts and
Sunplies (GAO/RCED-95-62, Jan. 24, 1995).

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           systems. They added, however, that once both systems are operational, the
           Coast Guard plans to explore the potential for consolidating the systems into a
           core Coast Guard logistics system.

           Concerning another issue, we recently completed work on the Coast Guard’s
           Deepwater Acquisition ProjectG During that work, we visited the Coast Guard’s
           aircraft inventory control center in Elizabeth City, North Carolina. Even
           though the Coast Guard maintains an aircraft spare parts inventory in excess of
           $650 million, several Coast Guard officials told us that the center often does not
           have all of the needed parts on hand and has to “cannibalize” parts from other
           aircraft awaiting repair so that it can maintain its air capabilities. This process
           is perpetually repeated as parts from other aircraft are later removed to replace
           parts on the aircraft that were last cannibalized. While the extent of this
           practice is unknown, it is not cost-effective. In light of the past and ongoing
           problems, it appears that further study of the possible consolidation of the
           cutter and aircraft information systems and the cannibalization of aircraft parts
           may be warranted by the Coast Guard or others.

Health Care

       .   Purpose, scope. and cost. Health care is a major personnel program for the
           Coast Guard, which must ensure that health care is available for more than
           100,000 people-35,000 active duty military personnel, 60,000 active duty
           dependents, and 7,500 selected reservists. For fiscal year 1998, the Coast
           Guards estimated health care cost was $140 million. Health care is provided
           from the following five sources:

                    l        Coast Guard Clinics. The Coast Guard manages 30 outpatient
                             clinics at certain units. Each clinic has one or more physicians
                             from the Public Health Service. In fiscal year 1997, these clinics
                             had 337,379outpatient visits. Estimated expenditures for fiscal
                             year 1998were $8.5 million for clinic costs and $15 million for
                             Public Health Service salaries, for a total cost of $23.5 million.

                    l        Nonfederal health care. Nonfederal health care providers are
                             civilian physicians, dentists, and hospitals that are contracted by
                             the Coast Guard to provide emergency and routine health care.
                             These providers are used only when their use is determined to be
                             more cost-effective than military facilities. Estimated expenditures
                             for fiscal year 1998 were $23.3 million.

                        l     DOD medical treatment facilities. Active duty personnel and their
                              dependents are entitled to medical and dental care in any facility of
                              any uniformed service. A memorandum of agreement with the
                              Army, Air Force, and Navy requires reimbursement at the federal

‘Coast Guard’s Acquisition Management: Deepwater Proiect’s Justification and
Affordabilitv Need to Be Addressed More Thoroughly (GAOiRCED-99-6, Oct. 26, 1998).

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                             interagency rate. Estimated reimbursements provided by the Coast
                             Guard for fiscal year 1998 were $31.2 million.

                   l        Civilian Health and Medical Program of the Uniformed Services
                            (CHAMPUS). Dependents of personnel on active duty can use
                            CHAMPUS for inpatient or outpatient care. When these
                            dependents use a private doctor who accepts CHAMPUS, health
                            care funds cover a portion of the cost. Estimated expenditures for
                            fiscal year 1998 were $54.5 million, including dental costs.

                       l     Uniformed Services Familv Health Plan KW?HP~. This is a
                             managed care plan that provides benefits, similar to CHAMPUS
                             benefits, for active-duty dependents. If these dependents enroll in
                             the plan, they cannot use CHAMPUS or any DOD facility, except in
                             an emergency. Estimated expenditures for fiscal year 1998 were
                             $5.5 million.

       l   Current or recent cost-saving initiatives. According to Coast Guard
           headquarters officials, cost-saving initiatives, like other management activities
           at the clinic level, are done primarily at the area office level. Coast Guard
           headquarters has typically had a limited staff to monitor and manage clinics’
           health care costs. However, the Coast Guard is currently establishing a
           headquarters unit that will more closely monitor clinics’ health care
           expenditures and identify opportunities to optimize the use of the Coast
           Guards health care resources. Other initiatives currently under way include
           (1) making information systems compatible with DOD’s and capable of
           providing better monitoring information and (2) studying whether the process
           of certifying medical bills for payment should be done by private contractors or
           by the Coast Guard’s Finance Center rather than by health care personnel.

       l   Observations on areas for further studv. Current Coast Guard actions
           notwithstanding, areas of additional study still remain to determine if costs can
           be lowered without affecting the quality of care. In particular, analyzing the
           relative cost of providing care through the various sources used by the Coast
           Guard may show areas with potential for cost savings. Although the Coast
           Guard is attempting to improve its information systems, it has not developed
           the data it needs to evaluate the cost-effectiveness of the various components
           of the health care program. Because its cost accounting system does not track
           all costs, the Coast Guard cannot compare the per-unit costs of its individual
           clinics or its health care costs with DOD’s costs. Such comparisons could help
           determine if the costs for care provided by clinics or nonfederal sources are in
           line with those at DOD facilities. Other cost comparisons, such as those we
           have previously made at DOD and the Veterans Administration (VA), might
           point to additional ways to reduce costs. For example, in previous work we
           found that VA could save money by consolidating health care management as

‘CHAMPUS is a part of DOD’s managed health care program for military beneficiaries called
TRICARE.

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               well as specific types of health care services.’ Such adjustments might be
               appropriate within the Coast Guard’s health care delivery system as well.


Collection of Administrative Civil Penalties


       .       Puroose, scoue, and cost. To encourage compliance, the Coast Guard can
               assess an administrative civil penalty for various maritime-related violations of
               regulations and laws. These include violations related to chemical testing, the
               illegal dumping of materials in U.S. waterways, navigation safety, pollution
               prevention, port and waterways safety, recreational boating safety, chemical or
               oil spills, and vessel systems and operations. Coast Guard inspectors or other
               officials report the violations and recommend the amount of the penalty in
               accordance with written criteria. The report is sent to a hearing office, which
               reviews the case for the sufficiency of the evidence. Ifa valid case exists, the
               office notifies the violator by letter that the Coast Guard will begin a civil
               proceeding. The violator then can either appear in person at a hearing or
               submit evidence in writing regarding the penalty or the violation The hearing
               officer then reviews all evidence and makes a final determination on whether a
               violation occurred and, if so, the amount of the penalty; and the violator is then
                notified of the payment due.

               Typically, only a fraction of the penalty amounts recommended by inspectors
               are actually collected. This smaller percentage collected occurs because
               recommended penalties are reduced by the hearing officer, and not all of the
               reduced penalties are actually collected. For example, for fucal years 1995
               through 1997, the Coast Guard recommended penalties of $154,550 for
               violations related to chemical testing. The hearing offices reduced this amount
               to $66,050, or by about 57 percent. Of the $66,050,$62,000-about 40 percent of
               the amount recommended-was actually collected. During our 1995 review of
               illegal discharges into U.S. waterways, enforcement personnel with whom we
               talked expressed frustration and confusion about the dismissal or reduction of
               penalties9

           l   Current or recent cost-saving initiatives. The introduction of a new system for
               collecting penalties has the potential for cost-savings. This new system,
               implemented in 1995, allows inspectors to issue a “ticket” on the spot for
               pollution violations. The Coast Guard is currently considering implementing
               this system for other violations. A Coast Guard official told us that because of
               the Coast Guard’s new system, hearings for and appeals of penalties have
               dramatically decreased. As a result, the Coast Guard has consolidated its four

 VA Health Care: Lessons Learned From Medical Facilitv Integrations (GAO/T-HEHS-97-184,
 July 24, 1997).

 ‘Coast Guard: Enforcement Under MARPOL V Convention on Pollution Expanded,
 Although Problems Remain (GAO/RCED-95-143,May 30,1995).

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           hearing offices into two. The official also said that further consolidation might
           be possible.

       l   Observations on areas for further study. Now that a new system for assessing
           and collecting penalties has been in place for several years, a study by the
           Coast Guard or others to determine its effect could reveal whether collection
           rates are appropriate or whether additional changes to the penalty process
           should be considered. A study to determine the need for further hearing office
           consolidation may also be warranted.

Pavment of Bills and Pavroll Costs

The Finance Center located in Chesapeake, Virginia, and the Human Resources and
Information Center, located in Topeka, Kansas, pay most of the Coast Guard’s bills as well as
its payroll costs.

              Finance Center

              l   Purpose. scone, and costs. The Finance Center is responsible for paying
                  bills, maintaining accounting records, and preparing financial reports for a.Il
                  functions within the Coast Guard except health care and inventory control.
                  The center was established in 1989, when the Coast Guard consolidated its
                  25 field accounting offices to increase operational efficiency and
                  effectiveness. In fiscal year 1996, the Finance Center managed more than
                  5.2 million accounting transactions. Its military and civilian salary costs,
                  including overtime, were about $14 million. Its operating budget is an
                  additional $2.5 million.

                  Current or recent cost-saving initiatives. Recent studies have found the
                  Finance Center’s operations to be effrci;ent. In 1993, the public accounting
                  firm of Coopers and Lybrand compared the Finance Center’s cost with that
                  of eight other accounting organizations within the federal government,
                  including some that process financial transactions for many federal
                  agencies. The firm found that the Finance Center (1) was less expensive
                  than the other organizations in terms of the average cost per payment and
                  costs per receivable collected, (2) matched the other agencies in invoices
                  processed per full-time equivalent position, and (3) had fewer errors. The
                  Coast Guard recently received the U.S. Senate’s Productivity and Quality
                  Award for its Finance Center’s efficiency.

              l   Observations on areas for further studv. According to the Coast Guard’s
                  Chief Financial Officer, the Finance Center is extremely efficient and
                  effective. He believed that, to save money, the Coast Guard should have the
                  Finance Center handle alI of the Coast Guard’s finances, including health
                  care and inventory costs, because it is more effective then the other units
                  handling some of the Coast Guard’s finances. Given his comments, further
                  study by the Coast Guard seems warranted to explore whether it could
                  realize further savings by processing more of its financial transactions at the
                  Finance Center.
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              Human Resources Service and Information Center

              l       Puroose, scol)e, and cost. The Coast Guard’s Human Resources Service and
                      Information Center maintains personnel information on all Coast Guard
                      military personnel, develops management reports for personnel and pay
                      matters, provides payment and personnel services, and pays Coast Guard
                      travel claims. Personnel and payroll systems for the Coast Guard’s civilian
                      personnel are provided elsewhere, mainly by DOT.” The Center employs
                      300 people and costs the Coast Guard about $4 million annually to operate.
                      Salary costs are about $11 million annually. In addition to the Center, the
                      Coast Guard has 48 personnel reporting units located throughout the United
                      States. These units make personnel and pay determinations, provide pay
                      and personnel advice, and submit electronic personnel/pay transactions to
                      the center for automated processin,.a As of December 1,1998, the 48 units
                      employed 409 people. The Coast Guard does not provide separate cost
                      information for these units.

                  l   Current or recent cost-saving initiatives. The Coast Guard is currently
                      revamping its military personnel and payroll system, a change that, among
                      other things, is expected to reduce the need for administrative personnel.
                      The current system, known as the Personnel Management Information
                      System/Joint Uniform Military Pay System (PMIS/JUMPS), is being replaced
                      with a system called PMISLTUMPSII. This new system will include all of the
                      Coast Guard’s human resource databases in a single database. During the
                      first phase of the project (fiscal years 199496), the Coast Guard reduced 127
                      billets, or positions, from personnel reporting units. Beginning this year, for
                      3 years, the Coast Guard intends to remove another 115 positions by the
                      time PMISLJUMPSII is completed in 2002. The core of the PMISLJUMPS II
                      software is commercially operated in the Coast Guard’s Martinsburg, West
                      Virginia, Operations System Center, which is staffed predominantly by
                      contractors.”

                      To comply with the Government Performance and Results Act, a Coast
                      Guard official stated that the Coast Guard surveyed the commercial
                      market and other government agencies to see if they had the capability
                      to process its military payroll. The Coast Guard found no commercial
                      company capable of providing this service, and only DOD was capable
                      of providing this service among federal agencies. However, according
                      to Coast Guard officials, in 1995 and 1996, it cost the Coast Guard only


“DOT is currently the sponsor of a project known as the Human Resources Information
System, which will determine a course of action for providing civilian personnel and pay
services for all DOT modes except the Federal Aviation Administration.

 “The Operations Systems Center develops, supports, and maintains a small number of large,
 specific, operationally focused information systems, databases, and services that are
 accessible across the Coast Guard around the clock to support mission accomplishments.
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                   $2.81 per account per month, as compared with DOD’s cost of about
                   $8.00 for payroll services.

               l   Observations on areas for further studv. We have not analyzed or
                   verified the Coast Guard’s cost data regarding its processing costs at the
                   Center. AIso, given all the changes currently being made to the Coast
                   Guard’s pay system, a review by the Coast Guard of its processing costs,
                   as well as the need for the Topeka Center after the changes are finished,
                   may be warranted.


ONE FUNCTION WITH LITTLE OR NO
POTENTIAL FOR ADDITIONAL COST SAVINGS

One function appears to hold the least potential for cost savings through additional
initiatives. This function, housing, may hold considerable potential for savings but appears
to be adequately addressed in current Coast Guard initiatives.

Housing

       .   Purnose. scope. and costs. About 42 percent of the Coast Guard’s military
           personnel live in Coast Guard-owned or -leased facilities or other government-
           owned facilities, including houses, barracks, and ships. The Coast Guard owns
           about 4,600 houses and leases about 3,000 housing units for families. For fiscal
           year 1999, the Coast Guard estimates that it wi.U spend a total of $119 million
           for its housing program, which includes about $47 million for the houses it
           owns, $47 million for its leased units, $11 miUion for units owned by other
           services, and $14 million for personnel costs.

       .   Current or recent cost-saving initiatives. The Coast Guard has implemented
           new housing policies and a new housing program. According to the Chief of
           the Coast Guard’s Housing Branch, the new program is administered and
           regulated by DOD and is called the Basic Allowance for Housing. The new
           program wiII provide a price-based housing allowance linked to a national
           index of housing costs. It is meant to defray the cost of adequate housing,
           provide geographic and pay grade equity, and meet other goals. The new
           program was implemented because DOD reports and studies showed that it
           would be cheaper to allow members to obtain housing on the open market with
           it. The Basic Housing Allowance is expected to ehminate much government
           housing.




13                   GAO/RCED-99-62R    Coast Guard Administrative   and Support   Functions
B-281829


       l   Observations on areas for further studv. Given the breadth of the changes
           being made in military housing, we do not see a need for further study in this
           function until the new program is fully implemented and sufficient data are
           available for evaluating it.

AGENCY COMMENTS

We provided copies of a draft of this report to DOT and the Coast Guard for review and
comment and met with Coast Guard officials, including officials from many of the
functions discussed in this report, such as the Chief for Information Management for
Human Resources and the Chief, Offrce of Health Services. The officials generally agreed
with the information included in the report. They questioned, however, whether cost-
savings could actually be achieved in some of the functions, primarily shipyard building
and repair and the collection of civil penalties. Because this report points out areas of
potential savings and states that the actual amount of savings to be achieved is unknown,
we did not make any changes to the report in response to this comment. For example,
regarding shipyard building, the Coast Guard officials provided information on its recent
cost-saving efforts and examples of individual projects done by the Yard that they believe
were very cost-effective. We continue to believe, however, that without a detailed,
comprehensive study, the Yard’s overall cost-effectiveness as compared with that of
commercial shipyards is still unknown. As a result, additional cost savings may be
possible in the future. The Coast Guard also provided technical comments to clarify
portions of the draft, which we have incorporated as appropriate.

SCOPE AND METHODOLOGY

To identify the Coast Guard’s major administrative functions, we reviewed the Coast Guard’s
budget and organization manual. We also talked with various Coast Guard administrative and
liaison officials and Subcommittee staff to obtain their views on what the Coast Guard’s major
administrative functions are. For each function, we discussed with Coast Guard officials the
operation of these functions, their costs, and the changes under way. We did not validate the
information obtained from Coast Guard officials. We conducted our review from October 1998
through February 1999 in accordance with generally accepted government auditing standards.




 14                   GAO/RCED-99-62R    Coast Guard Administrative   and Support Functions
B-281829




We are sending copies of this report to the Honorable Rodney E. Slater, the Secretary of
Transportation and Admiral James M. Loy, Commandant, U.S. Coast Guard. We will also make
copies available to others on request.

Please call me on (202) 512-2834if you or your staff have any questions about this report.
Major contributors to this report were Neil Asaba, Steve Gazda, and Randy Williamson.




Associate Director,
 Transportation Issues




(348127)




15                   GAOIRCED-99-62R Coast Guard Administrative     and Support   Functions
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