United States Merchant Marine Academy:

Internal Control Weaknesses Resulted in Improper Sources and Uses of Funds; Some Corrective Actions Are Under Way

GAO-09-635: Published: Aug 10, 2009. Publicly Released: Sep 9, 2009.

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The U.S. Merchant Marine Academy (Academy), a component of the Department of Transportation's Maritime Administration (MARAD), is one of five U.S. service academies. The Academy is affiliated with 14 non-appropriated fund instrumentalities (NAFI) and two foundations. GAO was asked to determine whether there (1) were any potentially improper or questionable sources and uses of funds by the Academy, including transactions with its affiliated organizations; (2) was an effective control environment with key controls in place over the Academy's sources and uses of funds; and (3) were any actions taken, under way, or planned to improve controls and accountability. GAO analyzed selected transactions from fiscal years 2006, 2007, and 2008 to identify improper or questionable sources and uses of funds and reviewed documents and interviewed cognizant officials to assess the Academy's internal controls, and identify corrective actions to improve controls.

GAO identified numerous instances of improper and questionable sources and uses of funds by the Academy and its affiliated organizations. These improprieties and questionable payments GAO identified demonstrate that, while MARAD and the Academy have been taking action to improve the Academy's internal controls, the Academy did not have assurance that it complied with applicable fund control requirements, including the Antideficiency Act (ADA). Further, the Academy had numerous breakdowns in its important stewardship responsibilities with respect to maintaining accountability over the receipt and use of funds. For example, GAO identified improper and questionable midshipmen fee transactions related to: (1) fee collections and uses of fees unrelated to goods and services provided to all midshipmen, (2) fee collections that exceeded the actual expense to the Academy for the goods or services, and (3) the use of accumulated excess midshipmen fees for improper and questionable purposes. GAO found that a weak overall control environment and the flawed design and implementation of internal controls were the root causes of the Academy's inability to prevent or effectively detect numerous instances of improper and questionable sources and uses of funds. Specifically, GAO found that there was a lack of awareness or support for strong internal control and accountability across the Academy at all levels and risks, such as those that flow from a lack of clear organizational roles and responsibilities and from significant activities with affiliated organizations. The internal control weaknesses GAO identified were systemic and could have been identified in a timely manner had Academy and MARAD management had a more effective oversight and monitoring regimen. For example, GAO found that the Academy did not routinely prepare financial reports and information for use by internal and external users. GAO found that various actions were taken and in process that were intended to improve the Academy's internal controls, including actions to address issues of accountability with its affiliated organizations. For example, a permanent position of Assistant Chief Financial Officer (CFO) for the Academy was established in March 2009 with direct reporting responsibility to the MARAD CFO. This action provides a senior financial official at the Academy with authority to conduct needed oversight and monitoring of financial activities on a real time basis. Further, following discussions GAO had with Department and MARAD officials, the MARAD CFO took steps to secure and protect accumulated reserves held in commercial bank accounts of an affiliated organization. However, even though MARAD and the Academy have taken actions, much more needs to be done, including determining the amount of midshipmen fees that were used to cover official Academy expenses, performing a comprehensive analysis of the risks posed by the Academy's organizational structure and its relationships with its affiliated organizations, and establishing and implementing policies, procedures, and internal controls over many Academy activities.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: In April 2011, the Maritime Administration (MARAD), working in conjunction the MARAD Chief Counsel determined that Academy officials had retained excess funds for which they had no legal authority and augmented funds in excess of appropriations made by Congress, but also determined that sufficient prior year funds existed to offset the GMATS-funded expenditures. Since sufficient prior year funds existed, MARAD concluded the Academy did not exceed its available appropriation or violate the ADA. MARAD adjusted its accounts accordingly.

    Recommendation: To determine whether the Academy complied with the ADA, the Secretary of the Department of Transportation should determine whether legal authority exists to retain payments to the Academy from the Global Maritime and Transportation School (GMATS), both in Academy appropriations accounts and in commercial bank accounts of affiliated organizations, and if not, adjust the Academy's appropriations accounts to charge available Academy appropriations and expense accounts for the amount of official Academy expenses that were paid by funds received from GMATS or paid directly by GMATS on behalf of the Academy. To the extent that insufficient appropriations remain available for these expenses report ADA violations as required by law.

    Agency Affected: Department of Transportation

  2. Status: Closed - Implemented

    Comments: In March 2011, the Maritime Administration (MARAD), working in conjunction with DOT, initiated corrective actions by transmitting a memorandum from MARAD's Chief Counsel to the Maritime Administrator stating it was determined that officials at the Academy had violated the ADA by charging midshipmen fees in excess of authorized levels, had improperly augmented agency appropriations, and had made expenditures in excess of and in advance of appropriations. The total amount of the augmentation was estimated to be $8.13 million over 6 academic years, beginning in academic year 2003-2004. Also, in March 2011, the MARAD CFO determined the Treasury fee account held $3.12 million attributable to excess midshipmen fee collections, which, when combined with a deficiency appropriation from Congress of up to $6 million, was used to reimburse the full estimated amount of overcharges to midshipmen for academic years 2003-2004 through 2008-2009. In July 2012, the Department of Transportation completed corrective action by filing the required ADA report, notifying both the President and the Congress of the resulting ADA violation.

    Recommendation: To determine whether the Academy complied with the ADA, the Secretary of the Department of Transportation should determine the amount of midshipmen fees that were used to cover official Academy expenses without legal authority to do so and adjust the Academy's accounts, as necessary, to charge available appropriations for such expenses. To the extent that insufficient appropriations remain available, report ADA violations as required by law.

    Agency Affected: Department of Transportation

  3. Status: Closed - Implemented

    Comments: The Department of Transportation agreed with our recommendation. In February 2010, the Department's Maritime Administration's (MARAD) Chief Financial Officer (CFO) performed a review of the Academy's funds control process and submitted the results to the Acting Maritime Administrator. MARAD is responsible for overall policy direction at the Academy. The review recommended that the MARAD CFO issue a Directive establishing policies and procedures requiring the periodic review and closeout of undelivered orders (UDO). On December 10, 2012, MARAD issued CFO Directive 15 establishing policy and procedures requiring the quarterly review of dormant UDOs-those with no obligations, adjustments, contract modifications, or disbursements within a 360 day period-to determine if they remain valid. The February 2010 CFO's review also recommended issuing policy guidance regarding contractor officer approval of Academy invoices. On August 31, 2012, the Chief of the Academy Contracting Office issued policy guidance regarding contractor officer approval of Academy invoices. The guidance, issued to all Academy procurement department personnel, established step-by-step procedures regarding contactor officer approval of Academy invoices.

    Recommendation: To provide reasonable assurance that the Academy will comply with the ADA and other applicable laws and regulations, the Secretary of the Department of Transportation should perform a review of the funds control processes at the Academy and take actions to correct any deficiencies that are identified.

    Agency Affected: Department of Transportation

  4. Status: Closed - Implemented

    Comments: The Department of Transportation (DOT) agreed with our recommendation. In March 2013, MARAD finalized the Maritime Administration Internal Control Program Plan for the Academy, which establishes a structured, systematic approach for managing and strengthening the Academy's internal control using the five components of internal control as outlined in our Standards for Internal Control in the Federal Government.

    Recommendation: To improve the design and operation of the internal control system at the Academy, the Secretary of the Department of Transportation should direct the Administrator of MARAD, in coordination with the Superintendent of the Academy, to establish a comprehensive risk-based internal control system that addresses the core causes and the challenges to proper administration that we identify in this report, including the risks and challenges that flow from the close organizational and transactional relationships between the Academy and its affiliated organizations and implement internal controls that address the elements of our Standards for Internal Control in the Federal Government, including the role and responsibilities of management and employees to establish and maintain a positive and supportive attitude toward internal control and conscientious management, and the responsibility for managers and other officials to monitor control activities.

    Agency Affected: Department of Transportation

  5. Status: Closed - Implemented

    Comments: In October 2010, the Maritime Administration (MARAD), working in conjunction with DOT, completed corrective action by issuing a final version of Chief Financial Officer (CFO) Directive 2 establishing procedures for the production of monthly Academy financial reports that were to be provided to cognizant Academy offices and departments and the MARAD Office of Budget to assist in their performance oversight. The reporting requirements included documenting identified anomalies and questioned items and their resolution. We verified, though a review of the previous 12 months' reports for the fiscal year ended September 30, 2011, the monthly reports were being reviewed by the Academy CFO and associated follow-up was performed an any identified unusual items and balances.

    Recommendation: To improve the design and operation of the internal control system at the Academy, the Secretary of the Department of Transportation should direct the Administrator of MARAD, in coordination with the Superintendent of the Academy, to implement a program to monitor the Academy's performance, including: reviews of periodic financial reports prepared by Academy officials; and reviews of the Academy's documentation and analysis from its review of its periodic financial reports and associated items, such as the results of its follow-up on unusual items and balances.

    Agency Affected: Department of Transportation

  6. Status: Closed - Implemented

    Comments: In September 2011, the Maritime Administration, working in conjunction with the Academy, closed all but two of its 14 NAFIs including the Global Maritime and Transportation School, Melville Hall, and the Athletics Association. In addition, the Maritime Administrator issued Manual of Orders 400-11, which provides governing principles and the governance structure under which the remaining NAFIs are to operate.

    Recommendation: To improve internal controls over activities with its affiliated organizations, the Academy should perform a comprehensive review and document the results of an analysis of the risks posed by the Academy's organizational structure and its relationships with each of its affiliated organizations, including: address the inherent organizational conflicts of interest that we identify in this report regarding Academy managers having responsibility for activities with affiliated organizations that are in conflict with the managers' Academy responsibilities, and determine whether the current organizational structure should be maintained or whether an alternative organizational structure would be more efficient and effective, while at the same time reducing risk and facilitating improvement in internal control and accountability.

    Agency Affected: Department of Transportation: Maritime Administration: Merchant Marine Academy

  7. Status: Closed - Implemented

    Comments: In September 2011, the Academy and MARAD completed corrective actions related to this recommendation by disestablishing all but two NAFIs and issuing Manual of Orders (MAO) 400-11. The two NAFIs remaining are the Employees Association and the Regimental Activities NAFIs, for which governance documents such as charters and by-laws were created. Additionally, MAO 400-11 provides governing principles and the governance structure under which the two remaining NAFIs may operate. In addition to the charters and by-laws described above, the MAO requires the establishment of a NAFI governing board as well as an annual business plan detailing the NAFIs proposed programs of activities, resource needs, anticipated operating expense, and financial plans for the current year and 2 forecasted years.

    Recommendation: To improve internal controls over activities with its affiliated organizations, the Academy should require that all affiliated organizations have approved governing documents and that the functions they will perform in the future are consistent with their scope of authority.

    Agency Affected: Department of Transportation: Maritime Administration: Merchant Marine Academy

  8. Status: Closed - Implemented

    Comments: The Department of Transportation agreed with our recommendation. As part of its response, the Academy rescinded operating authority for and closed 12 Academy Non-Appropriated Fund Instrumentalities (NAFI) between 2010 and 2012, significantly mitigating the risk of improper activities between the Academy and the NAFIs. In March 2013, the Maritime Administration (MARAD), which is responsible for overall policy direction at the Academy, documented its analysis of the activities conducted by each of the Academy's remaining affiliated organizations, which include 2 remaining NAFIs and 5 independent organizations, such as the Alumni Association and Foundation, that support the Academy, its midshipmen, faculty, staff, and alumni, and the Academy's Merchant Marine Museum. The analysis identified the entity purpose, business risks of the organizations' activities, and each activity's compliance with law, regulation and policy.The 2 NAFIs do not have financial transactions with the Academy, mitigating the business risk of activities between the Academy and NAFIs. The business risk of activities with the 5 independent support organizations primarily consists of gifts from the organizations to the Academy, all of which are subject to the MARAD Gift and Bequest policy, including review by the Superintendent, the Chief Financial Officer, and the Office of Chief Counsel prior to acceptance and bi-annual reporting to the Maritime Administrator.

    Recommendation: To improve internal controls over activities with its affiliated organizations, the Academy should perform an analysis to identify each activity involving the Academy and its affiliated organizations and for each activity determine: the business purpose; the reason for Academy involvement; the business risk that each activity presents; and if the activity complies with law, regulation, and policy. Design a robust system of checks and balances for each activity with each affiliated organization that is consistent with the business risk that each activity presents considering, among other things, the nature and volume of the activities with each affiliated organization.

    Agency Affected: Department of Transportation: Maritime Administration: Merchant Marine Academy

  9. Status: Closed - Implemented

    Comments: The Department of Transportation agreed with our recommendation. As part of its response, between 2010 and 2012, the Academy rescinded operating authority for and closed 12 Academy Non-Appropriated Fund Instrumentalities (NAFI), some of which previously had financial transactions with the Academy. In September 2011, the Maritime Administration (MARAD), which is responsible for overall policy direction at the Academy, issued Maritime Administrative Order (MAO) 400-11, providing guidelines for the establishment, governance, maintenance, operation, and disestablishment of Academy NAFIs. For the Academy's two remaining NAFIs, which do not have financial transactions with the Academy, MAO-400-11 established requirements including organization documentation, monthly financial reporting, annual business plans, and ongoing oversight through a new NAFI Governing Board, improving the internal control over NAFI activities. The other affiliated organizations consist of five independent organizations, such as the Alumni Association and Foundation, which support the Academy, its midshipmen, faculty, staff, and alumni, and the Academy's Merchant Marine Museum. Transactions between the Academy and these organizations are generally limited to gifts from the organizations for which the MARAD Gift and Bequest policy, updated in September 2011, provides internal control through a system of reviews, approvals, and reporting.

    Recommendation: To improve internal controls over activities with its affiliated organizations, the Academy should establish formal written policies and procedures for each activity involving the Academy and an affiliated organization and specify for each activity: the required documentation requirements, necessary approvals and reviews, and requirements for transparency (e.g., require regular financial reports for each activity for review and approval by Academy management and MARAD officials charged with oversight). Establish internal controls for each activity with each affiliated organization, including (1) the planned timing of performance of the control activity (e.g., periodic reconciliations of billings with collections); (2) the responsibilities for oversight and monitoring and the documentation requirements for those performing oversight and monitoring functions; and (3) the necessary direct, compensating and mitigating controls for each activity.

    Agency Affected: Department of Transportation: Maritime Administration: Merchant Marine Academy

  10. Status: Closed - Implemented

    Comments: In April 2010, the Maritime Administration, working in conjunction with the Academy and with the assistance of a public accountant, completed an analysis of midshipmen fee collections and uses of collected funds for academic years 2003 through 2009. As a result of the analysis, it was determined that the prior years' midshipmen fees included costs of items that should have been paid by the Academy rather than the Academy's midshipmen. Consequently, the Academy implemented a program to reimburse overcharges to midshipmen from 2003 through 2008.

    Recommendation: To improve accountability and internal controls over midshipmen fee activities and to resolve potential issues surrounding the past collections and uses of midshipmen fees, the Academy should perform an analysis to identify all midshipmen fee collections for fiscal years 2006, 2007, and 2008, to include: identifying those items for which the fee collected is attributable to (1) an activity between the midshipmen as customer and a NAFI as service provider (e.g., collections for haircuts); and (2) an activity between the midshipmen as customer and the Academy as service provider (e.g., collections for personal computers) by determining if the (1) fee collected for each item was for a personal item of the midshipmen and consistent with law, regulation, and policy for such collections; (2) amount of the fee collected for each item was properly supported, based on, among other things, an analysis of the cost to the Academy for the good or service; and (3) amount collected exceeded the cost of the good or service and determining if any liability may exist for collections that (1) are not consistent with law, regulation, and policy as personal items of the midshipmen; (2) were not properly supported, in whole or part; and (3) exceeded the cost to the Academy for the good or service.

    Agency Affected: Department of Transportation: Maritime Administration: Merchant Marine Academy

  11. Status: Closed - Implemented

    Comments: In 2010, the Maritime Administration (MARAD), working in conjunction with the Academy, initiated corrective action by engaging an independent public accountant to perform an analysis to identify midshipmen fee collections and uses of collected funds for academic years 2003 through 2009. On April 30, 2010, the independent public accountant provided MARAD with the results of its analysis, which did not identify any apparent improper payments. Also, in September 2010 the Acting MARAD Chief Financial Officer reported that no improper payments were identified that would warrant a recovery of funds.

    Recommendation: To improve accountability and internal controls over midshipmen fee activities and to resolve potential issues surrounding the past collections and uses of midshipmen fees, the Academy should perform an analysis to identify all payment activity and other uses of the funds collected for midshipmen fees for fiscal years 2006, 2007, and 2008, to include: reviewing payment activity to identify the payees, amounts, and other characteristics of the uses of the funds collected and conducting a detailed review of payment activity and other uses (e.g., transfers to prior years' reserves) for items considered as high risk by reviewing all questionable payments, and other questionable uses of funds, such as transfers to commercial checking accounts for the excess of collections over funds used, as well as the questionable payments that we identify in this report and for each payment and other use of funds that is determined to be for other than a proper governmental purpose and that is not consistent with law, regulation, and policy, consider pursuing recovery from the organization or individual that benefited from the payment.

    Agency Affected: Department of Transportation: Maritime Administration: Merchant Marine Academy

  12. Status: Closed - Implemented

    Comments: The Department of Transportation agreed with our recommendation. In May 2010, working with the Department's Maritime Administration (MARAD), MARAD issued Manual of Orders 400-15 to document policy regarding the collection and use of midshipmen fees, accounting for the fees, reviews of fee collection and uses, and requirements for monthly detailed reports on midshipmen fee activity to Academy and MARAD officials. MARAD is responsible for overall policy direction at the Academy. Also, in March 2013, the Academy established detailed accounting and operating procedures for midshipmen fees, including annual midshipmen fee estimating and budgeting; billing and invoicing; and collections. The operating procedures also address overpayments and refunds, and provide guidance on preparing reports to monitor total midshipmen fee charges, collections, balances, overpayments, refunds, and late payments.

    Recommendation: To improve accountability and internal controls over midshipmen fee activities and to resolve potential issues surrounding the past collections and uses of midshipmen fees, the Academy should establish policies and procedures that require those charged by the Academy with the responsibility for midshipmen fee collections and payments to: (1) maintain detailed accounting records for all midshipmen fee activity that reflect accurate and fully supported information on collections, payments, and other activity that is consistent with document retention practices; (2) implement written review and approval protocols for all midshipmen fee collections and uses of funds consistent with policies and procedures established by the Academy and MARAD; and (3) provide monthly detailed reports of all midshipmen fee activity in the aggregate and by item to Academy and MARAD officials.

    Agency Affected: Department of Transportation: Maritime Administration: Merchant Marine Academy

  13. Status: Closed - Implemented

    Comments: In May 2010, the Maritime Administration (MARAD), working in conjunction with the Academy, completed corrective action by issuing Maritime Administrative Order 400-15, requiring that the MARAD Chief Financial Officer ensure the Academy complies with the annual midshipmen fee reporting requirement. In November 2009 and September 2010, the Department of Transportation demonstrated compliance with the revised procedures by notifying Congress of changes in the midshipmen fee schedule for academic years 2009-2010 and 2010-2011.

    Recommendation: To improve accountability and internal controls over midshipmen fee activities and to resolve potential issues surrounding the past collections and uses of midshipmen fees, the Academy should establish policies and procedures and perform the necessary analysis to support annual reports to the Congress to address changes in "any item or service" in midshipmen fees from that existing in 1994 as required by law.

    Agency Affected: Department of Transportation: Maritime Administration: Merchant Marine Academy

  14. Status: Closed - Implemented

    Comments: In May 2010 the Maritime Administration, working in conjunction with the Academy, completed corrective action by issuing Maritime Administrative Order (MAO) 400-15, establishing seven baseline categories of personal goods and services that the Academy may provide to midshipmen and for which the Academy may collect and use the midshipmen fees. The MAO also provided guidance on how the fee amounts are to be determined. Further, the Academy had established and revised the amount of fees to be charged for each of the baseline categories for academic years 2009-2010 and 2010-2011 in accordance with the policy.

    Recommendation: To improve accountability and internal controls over midshipmen fee activities and to resolve potential issues surrounding the past collections and uses of midshipmen fees, the Academy should establish written policy and criteria for determining the baseline items that are properly due from midshipmen for personal items, the amount of fees to be collected (based on underlying studies), and the approved uses of the fees collected.

    Agency Affected: Department of Transportation: Maritime Administration: Merchant Marine Academy

  15. Status: Closed - Implemented

    Comments: In May 2010 the Maritime Administration, working in conjunction with the Academy, completed corrective action by issuing Maritime Administrative Order (MAO) 400-15, establishing written policy for the analysis and approvals required to change the baseline items for which collection and use of midshipmen fees are authorized. The MAO requires approval by the Maritime Administrator before any changes can be made to the amount of midshipmen fees that are charged.

    Recommendation: To improve accountability and internal controls over midshipmen fee activities and to resolve potential issues surrounding the past collections and uses of midshipmen fees, the Academy should establish written policy for the underlying analysis that is required and the approvals that must be obtained before changes are made in the baseline of midshipmen fee items, or before a change is made in the amount of such fees, or in the approved uses of the fees collected.

    Agency Affected: Department of Transportation: Maritime Administration: Merchant Marine Academy

  16. Status: Closed - Implemented

    Comments: In May 2009, the Maritime Administration (MARAD), working in conjunction with the Academy, issued a revised midshipmen fee schedule which reduced midshipmen fees by approximately 64 percent compared to those of the prior fiscal year. Information obtained from an independent public accountant's analysis of midshipmen fees, in conjunction with MARAD cost trend analysis, provided the basis for the schedule. More recently, in May 2010, MARAD completed corrective action by issuing Maritime Administrative Order 400-15, establishing written policy requiring that midshipmen fees are to be reviewed and adjusted each academic year to reflect price fluctuations on actual purchases and services. Further, the Academy Superintendent is to develop a midshipmen fee schedule based on input from Academy program offices.

    Recommendation: To improve accountability and internal controls over midshipmen fee activities and to resolve potential issues surrounding the past collections and uses of midshipmen fees, the Academy should utilize the information obtained from the analysis of midshipmen fees collected in prior years and other work to determine the amount of midshipmen fees that should be charged to midshipmen for personal items in subsequent years.

    Agency Affected: Department of Transportation: Maritime Administration: Merchant Marine Academy

  17. Status: Closed - Implemented

    Comments: In October 2010, the Maritime Administration, working in conjunction with the Academy, completed corrective action by finalizing Chief Financial Officer (CFO) Directive 2, which provided written policy for internal reviews of monthly reports of midshipmen fee activity. The CFO Directive also required the Office of Academy Operations to identify any anomalies requiring additional information, follow-up, or actions, as well as documenting the disposition of any associated follow-up.

    Recommendation: To improve accountability and internal controls over midshipmen fee activities and to resolve potential issues surrounding the past collections and uses of midshipmen fees, the Academy should establish written policy for internal reviews of monthly reports of midshipmen fee activity and balances, identified anomalies, and questioned items as well as the results from the associated follow-up.

    Agency Affected: Department of Transportation: Maritime Administration: Merchant Marine Academy

  18. Status: Closed - Implemented

    Comments: The Department of Transportation agreed with our recommendation. In August 2012, the Department's Maritime Administration, responsible for overall policy direction at the Academy, performed an analysis to determine whether appropriated funds and midshipmen fee collections should be used to pay for contracted medical services. Based on this analysis, a new midshipmen health coverage operating model for the 2012-2013 academic year was implemented. The new model requires all midshipmen to be enrolled in a health insurance program that provides comprehensive coverage, whether through their parents' plan or an alternate provider.

    Recommendation: To improve accountability and internal controls over midshipmen fee activities and to resolve potential issues surrounding the past collections and uses of midshipmen fees, the Academy should perform an analysis to determine whether and, if applicable, the extent to which appropriated funds and midshipmen fees collected should be used to pay for contracted medical services.

    Agency Affected: Department of Transportation: Maritime Administration: Merchant Marine Academy

  19. Status: Closed - Implemented

    Comments: The Department of Transportation agreed with our recommendation. In October 2010, the Maritime Administration (MARAD), which is responsible for overall policy direction at the Academy, issued Chief Financial Officer (CFO) Directive 2, implementing preparation, review, and monitoring of monthly financial reports. However, the monthly reports did not include certain kinds of transactions such as expired funds activity; expenditures of gift, bequest, and capital improvement program funds after the year of obligation; and miscellaneous receipts. In March 2013, MARAD completed corrective action by implementing a revised CFO Directive 2, which requires monthly financial reporting on all transactions conducted at the Academy and its affiliated entities, along with subsequent review by Academy and MARAD officials to identify and address related anomalies and questions.

    Recommendation: To improve internal controls over financial information, the Academy should implement financial reporting policies and procedures that, among other things, will provide visibility and accountability to Academy activities and balances to facilitate oversight and monitoring, including: (1) periodic reporting of actual and budget amounts for revenues and expenses for the current and cumulative period; (2) periodic reporting of amounts for activity and balances with affiliated organizations in detail; and (3) identification of items of revenue and expense for each funding source, including annual and no-year appropriated funds and other collections.

    Agency Affected: Department of Transportation: Maritime Administration: Merchant Marine Academy

  20. Status: Closed - Implemented

    Comments: In October 2010, MARAD, working in conjunction with the Academy, completed corrective action by issuing a final version of Chief Financial Officer (CFO) Directive 2 providing instructions for the preparation, review, and monitoring of Academy monthly financial reports. Additionally, we found the Office of Academy Operations provides a memo to the MARAD CFO documenting the Academy's review of financial reports each month. The memo identifies which Academy senior staff participate in each review and summarizes related discussions covering areas concerning senior management and the Academy's unresolved business. The Academy's Assistant CFO maintains evidence of follow-up to these discussions.

    Recommendation: To improve internal controls over financial information, the Academy should implement comprehensive policies and procedures for the review of financial reports, to include requiring: reviews by the preparers of the financial reports as to their completeness and accuracy; evidence of departmental management reviews; and written records of identified anomalies and questioned items, as well as requirements for maintaining evidence of the results from associated follow-up on all identified anomalies and questioned items.

    Agency Affected: Department of Transportation: Maritime Administration: Merchant Marine Academy

  21. Status: Closed - Implemented

    Comments: The Department of Transportation agreed with our recommendation. In September 2010, working with the Department's Maritime Administration - responsible for overall policy direction at the Academy - the Academy made adjustments to correct errors in its repairs and maintenance expenses and for amounts handled "off-book," and concluded that adjustments for the Global Maritime and Transportation School's revenue and expenses were not required because the net adjustment amount did not materially misstate the Department of Transportation's financial statements. In July 2012, the Academy recorded adjustments to correct about $1.3 million of its expenditures that should have been funded with appropriations instead of midshipmen fees in fiscal years 2007 through 2009. The appropriation accounts for fiscal year 2006 had been cancelled and were no longer available for adjustment.

    Recommendation: To improve internal controls over financial information, the Academy should identify and evaluate the potential misstatements of amounts in the financial records for the Academy in fiscal years 2006, 2007, and 2008 to determine if restatement or reassurance of budget and financial reports and statements prepared from those records is appropriate, including: (1) $5,076,198 of errors in accounting for repairs and maintenance expenses and capital additions, and $3,431,725 of expenses that were improperly funded with no-year capital improvement appropriations; (2) $6,410,242 and $6,038,061 of recorded revenue and expenses, respectively, from GMATS training programs; (3) amounts for midshipmen fee collections and payment activity including effects on reported revenues, expenses, assets and liabilities; and (4) amounts for sources and uses of funds handled "off- book" that we identify in this report, including transactions in three Superintendent's Reserves and with GMATS and Fiscal Control Office (FCO).

    Agency Affected: Department of Transportation: Maritime Administration: Merchant Marine Academy

  22. Status: Closed - Implemented

    Comments: The Department of Transportation agreed with our recommendation. On December 10, 2012, the Department's Maritime Administration (MARAD) - responsible for overall policy direction at the Academy - updated Chief Financial Officer (CFO) Directive 3, establishing detailed procedures for the development of a report that provides all expenditure and receipt information for the Academy and its affiliated organizations, including midshipmen fees, gifts and bequests, and any other sources of funds that are not directly appropriated by Congress. We verified that the MARAD Fiscal Years 2010-2011 Annual Report to Congress, the most recent report available, complied with the CFO Directive 3 reporting requirements.

    Recommendation: To improve internal controls over financial information, the Academy should implement policies and procedures to obtain the information necessary to timely comply with the requirement identified in this report for annual reports to the Congress that provides all expenditure and receipt information for the Academy and its affiliated organizations.

    Agency Affected: Department of Transportation: Maritime Administration: Merchant Marine Academy

  23. Status: Closed - Implemented

    Comments: In February 2010 the Maritime Administration (MARAD), working in conjunction with the Academy, completed a review which identified 3 positions funded with appropriations that performed functions exclusively for the NAFIs. The analysis also determined that the amounts rendered were consistent with the services received; however, the MARAD CFO concluded that it was not possible to recover the amounts paid for these positions from the organization that benefited. MARAD also issued Maritime Administrative Order 400-11 in September 2011, which, among other things, specifically precluded NAFIs from performing inherently governmental functions in the future. Further, the Academy converted all affected NAFI employees to civil service or contractor status.

    Recommendation: To improve accountability and internal controls over the acquisition of personal services from NAFIs, and to resolve potential issues surrounding past personal services activities and payments, the Academy should perform an analysis to identify the nature and full scope of personal services activities and the associated sources and uses of funds to include a review of all questionable payments, including those that we identify in this report for personal services totaling more than $8 million for fiscal years 2006 and 2007. For each such personal services arrangement: (1) determine if the amounts paid were consistent with the services received by the Academy; (2) quantify the amounts, if any, paid by the Academy for personal services that were not received by the Academy; and (3) document the decisions made with respect to any payments by the Academy for personal services that were not received, including decisions to seek recovery from other organizations for such amounts.

    Agency Affected: Department of Transportation: Maritime Administration: Merchant Marine Academy

  24. Status: Closed - Implemented

    Comments: In September 2010, the Maritime Administration, working in conjunction with the Academy, issued Maritime Administrative Order (MAO) 400-11, which provided that NAFI employees were not to perform any inherently governmental functions. The MAO also stated that the chapters and by-laws of authorized NAFIs will require oversight by a three person governing board made up of members approved by the Maritime Administration and the Academy Superintendent. The NAFI Governing Board is to be accountable for ensuring that the Academy's NAFIs are operated consistently with the governing principles set forth in MAO 400-11.

    Recommendation: To improve accountability and internal controls over the acquisition of personal services from NAFIs, and to resolve potential issues surrounding past personal services activities and payments, the Academy should develop written policy guidance on acquiring services from NAFIs that complies with the requirements of law, regulation, and policy on the proper use of funds by the Academy.

    Agency Affected: Department of Transportation: Maritime Administration: Merchant Marine Academy

  25. Status: Closed - Implemented

    Comments: In 2010, the Maritime Administration, working in conjunction with the Academy, engaged an independent public accountant to perform an analysis to identify the sources and uses of funds held in the commercial bank accounts of the FCO for fiscal years 2006, 2007, and 2008, including the $605,347 we previously identified. In April 2010, the public accountant presented MARAD with the results of its analysis, which found uses of funds (including payments for telephone and cable services) were consistent with the Academy's mission or support of the midshipmen and did not identify any misuse of government funds for the years reviewed. Additionally, the Academy changed its business practices to discontinue maintaining reserves in "off book" accounts. Additionally, the Academy strengthened its internal controls by mitigating the risk of future reoccurrence of the 2009 reported deficiencies through the discontinued conversion of funds to "off book" reserves.

    Recommendation: To address funds held in commercial bank accounts of the FCO from prior years' reserves and Superintendent's Reserves and to resolve issues surrounding the past collections and uses of funds for excess midshipmen fee collections, the Academy should perform an analysis to identify all activities in the prior years' and other reserves including all sources and uses of funds for fiscal years 2006, 2007 and 2008 by reviewing all the questionable payments and other activity, including payments that we identified that according to FCO records total $605,347 and for each payment that is determined to be for other than a proper governmental purpose and that is not consistent with law, regulation, and policy, consider pursuing recovery from the organization or individual that benefited from the payment.

    Agency Affected: Department of Transportation: Maritime Administration: Merchant Marine Academy

  26. Status: Closed - Implemented

    Comments: The Maritime Administration, working in conjunction with the Academy, engaged the services of an independent public accountant to investigate the unexplained transactions totaling $100,000. In April 2010, the public accountant presented the results of its investigation, which did not identify any express evidence of fraud associated with the transactions in prior year commercial accounts. Additionally, the Academy strengthened its internal controls and accountability by discontinuing the practice of maintaining funds in "off book" reserves.

    Recommendation: To address funds held in commercial bank accounts of the FCO from prior years' reserves and Superintendent's Reserves and to resolve issues surrounding the past collections and uses of funds for excess midshipmen fee collections, the Academy should investigate the unexplained $100,000 transaction(s) in September 2007 per the off-line or "cuff" accounting records maintained by FCO and take actions as appropriate.

    Agency Affected: Department of Transportation: Maritime Administration: Merchant Marine Academy

  27. Status: Closed - Implemented

    Comments: In April 2011, MARAD finalized corrective action by directing that the approximately $3 million in funds attributable to excess midshipmen fees held in commercial banks be directed to be used in the midshipmen refund program. As a result, the intent of our recommendation, to protect and recover the funds resulting from excess midshipmen fee collections, was met. Additionally, the Academy strengthened its internal controls and accountability over Academy reserves by discontinuing the practice of accumulating excess midshipmen fees in commercial accounts, thereby mitigating the risk of possible reoccurrence.

    Recommendation: To address funds held in commercial bank accounts of the FCO from prior years' reserves and Superintendent's Reserves and to resolve issues surrounding the past collections and uses of funds for excess midshipmen fee collections, the Academy should finalize actions to protect and recover Academy funds held in commercial bank accounts by the FCO from current and prior years' midshipmen fees that totaled approximately $2 million at September 30, 2008.

    Agency Affected: Department of Transportation: Maritime Administration: Merchant Marine Academy

  28. Status: Closed - Implemented

    Comments: The Maritime Administration (MARAD), working in conjunction with the Academy, initiated corrective action by engaging an independent public accountant to perform the reconciliation called for in the recommendation. The analysis was to include sufficient detail on the uses of funds to identify any specific questionable payments or categories of payments and facilitate documentation and follow-up on such items. In May 2010, the MARAD Chief Financial Officer (CFO) issued a memorandum concluding that, based on the totality of the work performed, there was no indication that any excess midshipmen fees in "off book" reserves were used inappropriately or for the personal benefit of any individual. MARAD finalized CFO Directive 2 in October 2010, establishing procedures for the Academy's CFO to reconcile transaction activity in all commercial bank accounts and required the Academy CFO to confirm that reconciliations were performed on the monthly bank accounts.

    Recommendation: To address funds held in commercial bank accounts of the FCO from prior years' reserves and Superintendent's Reserves and to resolve issues surrounding the past collections and uses of funds for excess midshipmen fee collections, the Academy should require that: (1) bank reconciliations be prepared for all activity in the commercial bank accounts of the FCO used for these reserves during fiscal years 2006, 2007 and 2008; (2) documentation be prepared for all questionable items as well as the related follow-up; and (3) going forward such bank reconciliations be timely prepared and independently reviewed by Academy staff with no direct involvement in the reconciliations or the activity in the bank accounts.

    Agency Affected: Department of Transportation: Maritime Administration: Merchant Marine Academy

  29. Status: Closed - Implemented

    Comments: The Maritime Administration, working in conjunction with the Academy, initiated corrective action by engaging the services of an independent public accountant to perform an analysis to identify GMATS funds that were made available from its two reserves to support the Academy's operations, and identify the nature, amounts, and business purposes associated with the payments. In April 2010, the public accountant provided the results of its analysis which concluded that it did not identify any payments that were not for the continuing operations of the school or for the benefit of the midshipmen. Additionally, the Academy improved its accountability and internal control over activities with affiliated organizations by discontinuing the practice of accepting funds from GMATS for the use of its facilities, thereby mitigating the risk of any such questionable activity in the future.

    Recommendation: To improve internal controls over activities with Global Maritime and Transportation School (GMATS), the Academy should perform an analysis to identify all activities between the Academy and the NAFI, GMATS, during fiscal years 2006 and 2007 and determine for each activity: the nature of the activity; the amounts collected by the Academy or others for the benefit of the Academy; the nature and amounts paid, by the Academy or by others for the benefit of the Academy from the funds collected; the business purpose; the reason for Academy involvement; and if the activity complies with law, regulation, and policy.

    Agency Affected: Department of Transportation: Maritime Administration: Merchant Marine Academy

  30. Status: Closed - Implemented

    Comments: In April 2010, the Maritime Administration, working in conjunction with the Academy, completed corrective action by determining that there was no specific evidence that there were any payments that could be specifically categorized as being for other than the continuing operations of the school or for the benefit of the students, nor did they identify any misuse of government funds during the period under review. Additionally, the Academy strengthened its internal control and accountability over activities with affiliated organizations by discontinuing the acceptance, deposit and conversion of GMATS funds.

    Recommendation: To improve internal controls over activities with Global Maritime and Transportation School (GMATS), the Academy should, for each payment that is determined to be for other than a proper governmental purpose and that is not consistent with law, regulation, and policy, consider pursuing recovery from the organization or individual that benefited from the payment.

    Agency Affected: Department of Transportation: Maritime Administration: Merchant Marine Academy

  31. Status: Closed - Implemented

    Comments: The Department of Transportation agreed with our recommendation. To address our recommendation, a September 30, 2011 memo from the Administrator of the Department's Maritime Administration, which is responsible for overall policy direction at the Academy, stated that the Nonappropriated Fund Instrumentality (NAFI) operating model was not appropriate for the Global Maritime and Transportation School (GMATS) and rescinded its authority. On July 31, 2012, GMATS ceased operations and its employees were terminated. By closing GMATS the Academy has mitigated the internal control weaknesses related to the activities and transactions between the NAFI and the Academy.

    Recommendation: To improve internal controls over activities with Global Maritime and Transportation School (GMATS), the Academy should establish formal written policies and procedures that, among other things, specify the allowable activities and transactions between the Academy and GMATS, and details the necessary approvals and reviews required for each activity.

    Agency Affected: Department of Transportation: Maritime Administration: Merchant Marine Academy

  32. Status: Closed - Implemented

    Comments: The Department of Transportation agreed with our recommendation. To address our recommendation, a September 30, 2011 memo from the Administrator of the Department's Maritime Administration, which is responsible for overall policy direction at the Academy, stated that the Nonappropriated Fund Instrumentality (NAFI) operating model was not appropriate for the Global Maritime and Transportation School (GMATS) and rescinded its authority. On July 31, 2012, GMATS ceased operations and its employees were terminated. By closing GMATS the Academy has mitigated the internal control weaknesses related to the activities and transactions between the NAFI and the Academy.

    Recommendation: To improve internal controls over activities with Global Maritime and Transportation School (GMATS), the Academy should establish targeted internal controls for each direct and indirect activity between the Academy and GMATS.

    Agency Affected: Department of Transportation: Maritime Administration: Merchant Marine Academy

  33. Status: Closed - Implemented

    Comments: In June 2008, the Academy initiated a review of its year-end transactions for the prior 3 fiscal years (fiscal years 2005 to 2007) to identify activities involving accrual accounts utilized to park appropriated funds within the FCO NAFI. The review resulted in over $214,000 of fiscal year 2006 and 2007 funds returned from the FCO NAFI to the Academy and the deobligation of these funds. Further, the Academy and Maritime Administration (MARAD) completed corrective action in April 2010 by engaging the services of an independent public accountant to perform additional analysis to identify the sources and uses of any appropriated funds held in FCO NAFI accounts at year-end. Based on the analysis, the MARAD Chief Financial Officer concluded that there was no specific evidence that there were any payments that could be specifically categorized as for other than the continuing operations of the school or for the benefit of the midshipmen. Additionally, the Academy strengthened its internal controls and accountability over accrual accounts by discontinuing the practice of parking year-end appropriated funds within accrual accounts of the FCO.

    Recommendation: To improve internal controls over accruals and to resolve potential issues surrounding past "parking" of appropriated funds, the Academy should perform an analysis to identify all activities involving accrual accounts used to "park" appropriated funds with the FCO, including all sources and uses of funds for fiscal years 2006 and 2007.

    Agency Affected: Department of Transportation: Maritime Administration: Merchant Marine Academy

  34. Status: Closed - Implemented

    Comments: In May 2010, the Maritime Administration Chief Financial Officer concluded that an analysis of transactions for fiscal years 2005 through 2007 and an independent public accountants' analysis of sources and uses of funds in the FCO NAFI bank account for the same years, there was no evidence that payment of parked funds were used improperly for a nongovernmental purpose or for the personal benefit of any individual. Accordingly, recovery of payments made with parked funds was not required. Additionally, the Academy strengthened its internal control and accountability over its funds by discontinuing the practice of parking appropriated funds outside the Academy.

    Recommendation: To improve internal controls over accruals and to resolve potential issues surrounding past "parking" of appropriated funds, the Academy should, for each payment that is determined to be for other than a proper governmental purpose, consider pursuing recovery from the organization or individual that benefited from the payment.

    Agency Affected: Department of Transportation: Maritime Administration: Merchant Marine Academy

  35. Status: Closed - Implemented

    Comments: In January 2010, the Maritime Administration (MARAD), working in conjunction with the Academy, completed corrective action by issuing Chief Financial Officer (CFO) Directive 6 providing policy guidance on the accrual of items of expense at year-end. Specifically, the CFO Directive provided Academy expenses should be accrued in accordance with MARAD and DOT financial policy and generally accepted accounting principles. The Directive also provided that revenues should be recognized when earned and expenses should be recognized when a liability is incurred, without regard to timing of associated receipts or payments.

    Recommendation: To improve internal controls over accruals and to resolve potential issues surrounding past "parking" of appropriated funds, the Academy should establish written policy guidance on the accrual of items of expense at year-end.

    Agency Affected: Department of Transportation: Maritime Administration: Merchant Marine Academy

  36. Status: Closed - Implemented

    Comments: The Department of Transportation agreed with our recommendation. On December 10, 2012, the Department's Maritime Administration, which is responsible for overall policy direction at the Academy, took corrective action by issuing version 2 of Chief Financial Officer Directive 6, establishing policies and procedures for maintaining internal controls over accounting and recording of Academy accrual of expenses, including at year-end. Specifically, the Directive provides criteria and documentation requirements for accrual of expenses for goods and services orders via purchase orders/contracts, purchase card purchases, and intra-governmental acquisitions. Additionally, the Directive identifies specific review and approval instructions for accrual and year-end closing.

    Recommendation: To improve internal controls over accruals and to resolve potential issues surrounding past "parking" of appropriated funds, the Academy should establish targeted internal controls that, among other things, provide the criteria for accruals, specify the documentation requirements for accruals, and provide management's review and approval procedures.

    Agency Affected: Department of Transportation: Maritime Administration: Merchant Marine Academy

  37. Status: Closed - Implemented

    Comments: In 2010, the Academy, working with the Maritime Administration (MARAD), initiated corrective action by engaging the services of an independent public accounting firm to identify activities related to the use of Academy-owned training vessels by outside parties during 2006, 2007, and 2008, and identify the sources and uses of the funds. On April 30, 2010, the public accountant concluded that its analysis did not identify any funds received for others' use of Academy vessels that were used for other than the continuing operations of the Academy or the Acting MARAD Chief Financial Officer for the benefit of the midshipmen. MARAD completed corrective action in September 2010 with a memorandum concluding that funds from the usage of training vessels were used only for the benefit of the Academy or its midshipmen and no further actions were warranted.

    Recommendation: To improve internal controls over activities from usage of the training vessel--Kings Pointer and other Academy-owned boats--by others, the Academy should perform an analysis to identify all activity involving the use of the Kings Pointer and Academy-owned boats by others, including all sources and uses of funds for fiscal years 2006 and 2007 by identifying and recovering the cost of any unreimbursed non-governmental uses, to the extent authorized by law and for each payment, including payments to affiliated organizations, that is determined to be for other than a proper governmental purpose and that is not consistent with law, regulation, and policy, consider pursuing recovery from the organization or individual that benefited from the payment.

    Agency Affected: Department of Transportation: Maritime Administration: Merchant Marine Academy

  38. Status: Closed - Implemented

    Comments: In September 2010, the Academy completed corrective action by issuing Superintendent's Instruction 2010-08, which established policies and procedures governing the use of Academy owned training vessels by outside parties. The instruction provides guidance on the procedures to follow in making Academy-owned training vessels available to outside parties and stated that all costs associated with their use are to be borne by the outside user, including the costs of personnel, fuel, provisions, dockage, and maintenance and repair.

    Recommendation: To improve internal controls over activities from usage of the training vessel--Kings Pointer and other Academy-owned boats--by others, the Academy should establish written policies and procedures to govern the use of the Academy-owned training vessel the Kings Pointer and other boats, including addressing issues for ship's crews, insurance, security, billing procedures, and other responsibilities.

    Agency Affected: Department of Transportation: Maritime Administration: Merchant Marine Academy

  39. Status: Closed - Implemented

    Comments: In September 2010, the Academy completed corrective action by completing a usage rate study and issuing a vessel usage rate schedule to provide for the full costs of using the training vessel Kings Pointer and other Academy vessels. The rate schedule established a base hourly, daily, and weekly billing rate for use of Academy vessels by outside parties. The base rate includes direct and indirect costs related to the ship's crew, administrative personnel, major repairs, routine maintenance, and operational expenses. Further, the rate schedule provides that fuel charges are to be billed on a direct reimbursable basis.

    Recommendation: To improve internal controls over activities from usage of the training vessel--Kings Pointer and other Academy-owned boats--by others, the Academy should perform or contract out for a comprehensive usage-rate study to establish usage rates. Such a study should include (1) consideration of the full cost to the Academy of the training vessels and other boats, including salaries and benefits of Academy personnel, major repairs, routine maintenance, non-routine maintenance and long-term repairs, fuel and dockage; and (2) identification of indirect expenses and imputed costs as appropriate (e.g., depreciation).

    Agency Affected: Department of Transportation: Maritime Administration: Merchant Marine Academy

  40. Status: Closed - Implemented

    Comments: In September 2010 the Academy completed corrective action by issuing Superintendent's Instruction 2010-08 which requires the Academy's Director of Waterfront Activities to maintain a comprehensive schedule of usage rates for all Academy training vessels made available for outside parties. Further, the Instruction provides that the schedule is to be adjusted for any cost-of-living, inflation, or payroll increases on an annual basis and shall be reviewed for other factors at least every three years.

    Recommendation: To improve internal controls over activities from usage of the training vessel--Kings Pointer and other Academy-owned boats--by others, the Academy should establish policy for the timing and extent of the analysis required for periodic updates to the usage-rate study.

    Agency Affected: Department of Transportation: Maritime Administration: Merchant Marine Academy

  41. Status: Closed - Implemented

    Comments: In September 2011, MARAD completed a legal analysis aimed at determining the legal authority for retention of funds for lease or charter of Academy-owned training vessels. As a result of the analysis, it was determined that MARAD's appropriations acts permitted MARAD to collect rental receipts to be deposited into the Treasury as miscellaneous receipts. As a result, MARAD and the Academy have met the intent of our recommendation by determining that the Academy had the legal authority to retain and use a portion of the funds received for use of Academy-owned training vessels.

    Recommendation: To improve internal controls over activities from usage of the training vessel--Kings Pointer and other Academy-owned boats--by others, the Academy should, in coordination with the Department or MARAD legal counsel, as appropriate, determine if the Academy had the legal authority to retain and use any collections from the use of the Academy-owned training vessel the Kings Pointer and other boats; otherwise, deposit them in the general fund of the U.S. Treasury.

    Agency Affected: Department of Transportation: Maritime Administration: Merchant Marine Academy

  42. Status: Closed - Implemented

    Comments: In 2010 the Maritime Administration (MARAD), working in conjunction with the Academy, engaged the services of a public accounting firm to identify camps, clinics, or similar fund raising activities operated by the Athletics Association using Academy property, for fiscal years 2006, 2007, and 2008. The public accounting firm's April 2010 report and MARAD Chief Financial Officer's related May 2010 memorandum concluded that the revenue from camps, clinics, and similar activities during the period analyzed had been primarily provided to the individuals conducting those activities with minimal residual revenue used to support the general activities of the Athletics Association.

    Recommendation: To improve internal controls over camps and clinics operated by the Athletics Association NAFI or others on Academy property, the Academy should perform an analysis to identify practices at the Academy involving camps and clinics operated by the Athletics Association or others using Academy property and other assets. Document the nature and scope of such activities, including all sources and uses of funds for fiscal years 2006 and 2007 and take corrective action on any improper transactions.

    Agency Affected: Department of Transportation: Maritime Administration: Merchant Marine Academy

  43. Status: Closed - Implemented

    Comments: In May 2011 the Academy completed corrective action by developing and issuing Superintendent's Instruction 11100.1, which established written policy that Academy facilities will not be used for revenue-generating athletics camps and clinics.

    Recommendation: To improve internal controls over camps and clinics operated by the Athletics Association NAFI or others on Academy property, the Academy should establish written policies and procedures for camps and clinics operated by the Athletics Association NAFI or others on Academy property.

    Agency Affected: Department of Transportation: Maritime Administration: Merchant Marine Academy

  44. Status: Closed - Implemented

    Comments: In May 2011 the Academy addressed this recommendation by issuing Superintendent's Instruction 11100.1, which provides that Academy facilities will not be used for revenue-generating athletics camps and clinics.

    Recommendation: To improve internal controls over camps and clinics operated by the Athletics Association NAFI or others on Academy property, the Academy should establish targeted internal controls that include: approvals required; costs to be recovered by the Academy; requirements (such as advance approval) for participation by Academy employees in the activities; and other matters of importance such as, insurance requirements, security, and required accountings to be provided to the Academy on the sources and uses of funds from each event.

    Agency Affected: Department of Transportation: Maritime Administration: Merchant Marine Academy

  45. Status: Closed - Implemented

    Comments: The Department of Transportation agreed with our recommendation. In November 2012, the Department's Maritime Administration (MARAD)- responsible for overall policy direction at the Academy - provided GAO with the results of a root cause analysis which determined that capitalizable expenditures were recorded as repairs and maintenance expenses because of a lack of documented policies and procedures and supervisory review over recording such transactions. MARAD also determined that the fiscal year 2006 and 2007 expenses were improperly funded with no-year capital improvement appropriations because the Academy incorrectly continued to follow a fiscal year 2004 Congressional Appropriations Report instruction, which indicated that the appropriation included funding for maintenance and repairs. In May 2010, the Academy implemented Chief Financial Officer (CFO) Directive 7, which requires a monthly review of capital asset and maintenance and repair transactions by knowledgeable department managers to ensure accurate recording. Based on its root cause analysis, the Academy has reasonable assurance that consistent implementation of CFO Directive 7 will prevent reoccurrences of classification and funding errors.

    Recommendation: To improve internal controls over processing of vendor invoices and accounting for repairs and maintenance expenses and additions to capital assets, the Academy should perform an analysis to identify the causes of the errors in the recording of repairs and maintenance expenses that should have been capitalized totaling $5,076,198, and $3,431,725 of expenses that were improperly funded with the no-year capital improvement appropriation, during fiscal years 2006 and 2007.

    Agency Affected: Department of Transportation: Maritime Administration: Merchant Marine Academy

  46. Status: Closed - Implemented

    Comments: In May 2010, the Maritime Administration (MARAD), working in conjunction with the Academy, completed corrective action by issuing CFO Directive 7, which established policy and procedures to account for and record costs of Academy capital assets and ordinary maintenance and repair, verify the use of appropriate funding for the two kinds of expenditures, and require monthly reporting and review of Academy repair and maintenance expenses and capital improvement transactions to identify and help resolve any anomalies, or questionable entries before Academy monthly financial reports are prepared for MARAD review. We verified, at time of our 2012 field work, the Academy CFO's Office prepared and carried out the required review on a monthly basis.

    Recommendation: To improve internal controls over processing of vendor invoices and accounting for repairs and maintenance expenses and additions to capital assets, the Academy should establish written policies and procedures for repairs and maintenance expenses and capital asset additions that require: (1) periodic reviews of recorded amounts for repairs and maintenance expenses and capital asset additions to identify and timely address issues requiring management attention; and (2) correction of errors before financial reports are prepared from the books and records.

    Agency Affected: Department of Transportation: Maritime Administration: Merchant Marine Academy

  47. Status: Closed - Implemented

    Comments: The Department of Transportation agreed with our recommendation. In May 2010, the Department's Maritime Administration - responsible for overall policy direction at the Academy - issued Chief Financial Officer (CFO) Directive 7, requiring monthly reports on Academy repairs and maintenance expenses and capital improvement transactions to be generated and reviewed for instances of anomalies, discrepancies, or questionable entries. In September 2012, the Academy completed implementation of CFO Directive 7 by providing system access to the Academy official responsible for preparing the monthly reports for stakeholder review.

    Recommendation: To improve internal controls over processing of vendor invoices and accounting for repairs and maintenance expenses and additions to capital assets, the Academy should establish polices and procedures for periodic reporting of financial information for repairs and maintenance expenses and capital additions to assist users in monitoring these items as well as the funding sources--annual appropriations or no-year appropriations for long-term improvement projects.

    Agency Affected: Department of Transportation: Maritime Administration: Merchant Marine Academy

 

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