U.S. MERCHANT 

MARINE ACADEMY

Additional Actions 

Needed to Establish 

Effective Internal 

Control

Report to Congressional Committees

July 2012

GAO-12-369

United States Government Accountability Office

GAO
United States Government Accountability Office

Highlights of GAO-12-369, a report to 

congressional committees 

July 2012 

U.S. MERCHANT MARINE ACADEMY

Additional Actions Needed to Establish Effective 

Internal Control

Why GAO Did This Study

The Academy, a component of the 

Department of Transportation’s (DOT) 

MARAD, was established in 1938 and 

built during World War II to provide 

undergraduate education programs for 

midshipmen to become shipboard 

officers and leaders in the maritime 

transportation field. DOT allocated 

$80 million to the Academy for fiscal

year 2011 for its operations, CIP, and 

facilities maintenance.

In August 2009, GAO issued a report 

that identified numerous internal 

control deficiencies and made 47 

recommendations for corrective action. 

This report provides the results of 

GAO’s assessment of (1) the extent to 

which the Academy has taken actions 

to address the prior recommendations 

and (2) the Academy’s CIP oversight. 

To address these objectives, GAO 

evaluated corrective actions and 

supporting documentation; interviewed 

Academy, MARAD, and DOT officials; 

and performed walk-throughs of 

several processes revised in response 

to GAO’s prior recommendations. 

What GAO Recommends

In addition to reiterating the need to 

fully implement the remaining open 

recommendations, GAO is making one 

new recommendation directed at 

updating the Academy’s capital 

improvement plan to include reliable 

cost estimates and phased investment 

priorities aligned with the Academy’s 

strategic objectives in accordance with 

leading practices. In commenting on a 

draft of this report, DOT stated that it

had recently established a 

comprehensive plan to manage CIP, 

and plans to keep GAO apprised as it 

completes actions addressing other 

GAO open recommendations.

What GAO Found

The U.S. Merchant Marine Academy (Academy) has made progress in improving 

its internal control since GAO’s August 2009 report, but has not yet fully 

addressed one key recommendation related to fundamental weaknesses in its

overall internal control system. GAO found that while the Academy had 

appointed an Internal Control Officer responsible for coordinating reviews of 

internal controls, it had not yet established a comprehensive risk-based internal 

control system to ensure effective and efficient operations, reliable financial 

reporting, and compliance with laws and regulations, including a monitoring 

system to help ensure that control deficiencies are proactively identified and 

promptly corrected. Maritime Administration (MARAD) officials stated that their 

strategy had been to focus on the deficiencies that could be readily resolved. As 

of September 30, 2011, Academy and MARAD officials had addressed 32 of the 

other 46 prior recommendations regarding control activity deficiencies. 

Summary of GAO Conclusion on Status of Actions Taken to Address 2009 Recommendations 

Related to the Academy’s Control Activities

Academy control 

activity

Total 

recommendations

Recommendations 

implemented

Remaining open

recommendations 

Training vessel use 5 5 0

Personal service 

acquisitions 2 2 0

NAFI camps and clinics 

using Academy 

facilities 3 3 0

Midshipmen fee 

accountability 9 7 2 

Accountability for 

Academy reserves 4 4 0

Academy and NAFI 

governance structure 8 4 4

Financial reporting 5 2 3

Fund accountability 7 4 3

Capital asset repairs 

and improvements 3 1 2

Total 46 32 14

Source: GAO analysis of MARAD and Academy data as of September 30, 2011. 

Importantly, for many of the specific control-related recommendations that 

remained open, the Academy and MARAD had not yet identified the cause of the 

related internal control deficiencies, a critical step for designing effective controls. 

GAO also found that the Academy and MARAD have taken steps to improve 

Capital Improvement Program (CIP) oversight. For example, the Academy filled a 

new Assistant Superintendent position responsible for oversight of the 

Academy’s capital improvements and facilities maintenance. However, the 

Academy did not yet have an up-to-date, comprehensive plan for capital 

improvements to provide a basis for oversight. Specifically, the Academy did not 

have a capital improvement plan that identified long-term capital improvement 

needs aligned with the Academy’s strategic objectives, reliable cost estimates for 

planned improvements, and a phased implementation approach for prioritizing 

capital improvement needs. Such plan elements are consistent with Office of 

Management and Budget guidance and GAO-identified leading practices.

View GAO-12-369. For more information, 

contact Beryl Davis at (202) 512-2600 or 

DavisBH@gao.gov. 
Page i GAO-12-369 Merchant Marine Academy 

Letter 1 

Background 3

Actions Taken to Address Prior Recommendations 8

Further Enhancements to Capital Improvement Program Oversight 

Are Needed 21

Conclusions 24

Recommendation for Executive Action 24

Agency Comments and Our Evaluation 25

Appendix I Scope and Methodology 27

Appendix II Status of Prior Recommendations and Description of Corrective 

Actions Taken 29

Appendix III Comments from the Department of Transportation 44

Appendix IV GAO Contact and Staff Acknowledgments 46

Tables

Table 1: NAFIs in Transition for Closure 4

Table 2: Summary of GAO Conclusion on Status of Actions Taken 

to Address Our 2009 Recommendations Related to the 

Academy’s Specific Control Activities 10

Table 3: Implementation Status of GAO Recommendations 29

Figure

Figure 1: Overview of Merchant Marine Academy Organizational 

Structure 6

Contents
Page ii GAO-12-369 Merchant Marine Academy 

Abbreviations

ADA Antideficiency Act

CFO Chief Financial Officer

CIP Capital Improvement Program

DOT Department of Transportation

FAR Federal Acquisition Regulation

FCO Fiscal Control Office

FMFIA Federal Managers’ Financial Integrity Act

FOB Fiscal Oversight Board

GMATS Global Maritime and Transportation School

ICO Internal Control Officer

MAO Maritime Administrative Order

MARAD Maritime Administration

NAFI Nonappropriated Fund Instrumentality 

R&M Repair and Maintenance

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Page 1 GAO-12-369 Merchant Marine Academy 

United States Government Accountability Office 

Washington, DC 20548

July 6, 2012

The Honorable Patty Murray

Chairman

The Honorable Susan M. Collins

Ranking Member

Subcommittee on Transportation, Housing and Urban Development,

and Related Agencies

Committee on Appropriations

United States Senate

The Honorable Tom Latham

Chairman

The Honorable John W. Olver

Ranking Member

Subcommittee on Transportation, Housing and Urban Development,

and Related Agencies

Committee on Appropriations

House of Representatives

The U.S. Merchant Marine Academy (Academy), one of five United 

States service academies, was established in 1938 to provide 4-year 

undergraduate educational programs for men and women (midshipmen) 

to become shipboard officers and leaders in the maritime transportation 

field. A graduate from the Academy receives a Bachelor of Science 

degree and a U.S. Coast Guard license as deck or engineering officer 

and a commission in the U.S. Naval Reserve or another uniformed 

service. The Academy is a component of, and receives federal funding 

and overall policy direction through, the Department of Transportation’s 

(DOT) Maritime Administration (MARAD). For fiscal year 2011, DOT 

allocated $80 million to the Academy for its operations, capital 

improvements, and facilities maintenance. Most of the Academy’s 44 

principal facilities were constructed during or shortly after World War II.

In August 2009, we issued a report1

 

1

GAO, United States Merchant Marine Academy: Internal Control Weaknesses Resulted 

in Improper Sources and Uses of Funds; Some Corrective Actions Are Under Way, 

that identified numerous deficiencies 

in the Academy’s internal control activities and weaknesses in the 

GAO-09-635 (Washington, D.C.: Aug. 10, 2009).

 
 

Page 2 GAO-12-369 Merchant Marine Academy 

Academy’s overall internal control environment2 that resulted in numerous 

instances of improper and questionable sources and uses of funds by the 

Academy and its affiliated organizations. Our 2009 report included 47 

recommendations to address the deficiencies we identified. You 

requested that we update the status of the Academy’s efforts to address 

our recommendations from our 2009 report and that we review the 

Academy’s oversight of its Capital Improvement Program (CIP).3

To assess the extent to which actions have been taken to address our 

prior recommendations, we (1) evaluated the Academy’s and MARAD’s 

corrective actions for each recommendation and supporting 

documentation as of September 30, 2011, and—where relevant—

reviewed documentation supporting selected transactions to assess the 

Academy’s implementation of revised internal control procedures; 

(2) interviewed Academy, MARAD, and DOT officials responsible for the 

development and implementation of the corrective actions; and 

(3) performed walk-throughs of the Academy’s processes as revised in 

response to our recommendations.

This 

report provides the results of our assessment of (1) the extent to which 

the Academy has taken actions to address our prior recommendations 

and (2) the Academy’s CIP oversight.

To assess the Academy’s oversight of its CIP, we (1) interviewed 

cognizant agency officials responsible for oversight of the Academy’s 

implementation of the program, (2) obtained and reviewed related policies 

and procedures and strategic planning documents, and (3) toured the 

Academy grounds to observe the current physical condition of buildings 

and infrastructure. In addition, we interviewed MARAD human resources 

 

2

GAO, Standards for Internal Control in the Federal Government, GAO/AIMD-00-21.3.1

(Washington, D.C.: November 1999). Standards for Internal Control in the Federal 

Government provides that the control environment sets the tone of the organization, 

influencing the control consciousness of its people and their attitude toward internal 

control. It is the foundation for all other components of internal control, providing discipline 

and structure. Control environment factors include the integrity, ethical values, and 

competence of the entity’s people; management’s philosophy and operating style; and the 

way management assigns authority and responsibility and organizes and develops its 

people. 

3

The Academy’s CIP encompasses the construction or maintenance of capital assets at 

the Academy, including construction of new academic or support facilities, major 

renovation or refurbishment of existing facilities, or acquisition or replacement of capital 

equipment or training resource needs. 
 

Page 3 GAO-12-369 Merchant Marine Academy 

personnel regarding Academy staff resources used to oversee and 

manage CIP projects.

During our review, the Academy and MARAD continued to address 

internal control weaknesses that were the focus of our prior 

recommendations. For this report, we evaluated corrective actions taken 

through September 30, 2011, that the Academy, MARAD, and DOT made 

us aware of as of February 15, 2012. We will evaluate information that we 

receive about additional actions taken as part of our standard, ongoing 

recommendation follow-up procedures.

We conducted this performance audit from February 2011 to June 2012 

in accordance with generally accepted government auditing standards. 

Those standards require that we plan and perform the audit to obtain 

sufficient, appropriate evidence to provide a reasonable basis for our 

findings and conclusions based on our audit objectives. We believe that 

the evidence obtained provides a reasonable basis for our findings and 

conclusions based on our audit objectives. Additional details on our scope 

and methodology are in appendix I.

MARAD is responsible for overall policy direction of the Academy. The 

Maritime Administrator issues Maritime Administrative Orders (MAO) and 

bulletins establishing policies and providing guidelines for Academy 

operations. Additionally, the MARAD Chief Financial Officer (CFO) issues 

directives to provide guidance for conducting Academy financial 

operations. Since 2010, there have been two MARAD CFOs with an 

acting CFO between their appointments. From 2009 through 2011, 

MARAD relied on a Fiscal Oversight Board to assist MARAD in the 

oversight of the Academy’s operations.

The Academy Superintendent is responsible for day-to-day management 

of the Academy and reports directly to the head of MARAD, the Maritime 

Administrator. Since September 2008, there have been three Academy 

Superintendents, with the Academic Dean serving as Interim

Background

Organizational Structure 

and Oversight
 

Page 4 GAO-12-369 Merchant Marine Academy 

Superintendent between Superintendent appointments.4 Various 

assistant superintendents report to the Superintendent, and various 

directors of departments and offices report to the assistant 

superintendents. The Office of Academy Operations is led by the 

Academy’s CFO, who reports directly to the MARAD CFO. Additionally, 

since our 2009 report, four Academy support functions5

As of September 30, 2011, the Academy was also affiliated with two 

nonappropriated fund instrumentalities (NAFI) intended to assist the 

Academy in providing programs and services primarily for Academy 

midshipmen and employees. One of these NAFIs, the Employee 

Association, is intended to promote and support the interests of Academy 

personnel. The other is the Regimental Morale Fund Association, 

authorized to support morale, welfare, and recreation activities for the 

Academy’s midshipmen. In addition, as of September 30, 2011, four other 

NAFIs were in transition for closure (see table 1).

now report 

directly to MARAD headquarters offices.

Table 1: NAFIs in Transition for Closure

NAFI Purpose Status 

Global Maritime and 

Transportation School

Provide education and training to 

other federal agencies and to the 

maritime industry.

MARAD rescinded this NAFI’s authorization but authorized 

transitional operations through its planned closure on July 31, 

2012. 

Melville Hall Provide dining, lodging, and 

meeting facilities.

MARAD rescinded this NAFI’s authorization but authorized 

transitional operations through its planned closure on October 

31, 2012, to complete conversion to a contract agreement.

Athletics Association Enhance midshipmen’s 

educational experience through 

participation in athletic activities.

MARAD rescinded this NAFI’s authorization but authorized 

transitional operations through its planned closure on 

December 31, 2011, to complete transition to an appropriated 

federal program.

Fiscal Control Office (FCO) Provide bookkeeping, payroll, and 

other administrative support 

services for NAFIs.

MARAD rescinded this NAFI’s authorization on March 16, 

2010. The Academy CFO assumed the FCO NAFI’s 

responsibilities for the administrative and financial functions of 

the NAFIs in transition for closure until they cease operations 

completely. 

Source: GAO presentation of MARAD data as of September 30, 2011.

 

4

In addition, on June 25, 2012, the Secretary of Transportation announced that a new 

Superintendent had been appointed and would begin work at the Academy in July 2012.

5

The four Academy support offices that report directly to MARAD are the Offices of 

Academy Operations, Procurement, Human Resources, and Academy Legal Counsel. 
 

Page 5 GAO-12-369 Merchant Marine Academy 

Additionally, the Academy also received financial support from two private 

foundations, the U.S. Merchant Marine Academy Alumni Association and 

Foundation and the Sailing Foundation. These foundations use funds 

provided by Academy alumni to provide financial support for the 

Academy’s charitable, scientific, and educational activities. See figure 1 

for an overview of DOT, MARAD, and Academy organizational 

relationships.
 

Page 6 GAO-12-369 Merchant Marine Academy 

Figure 1: Overview of Merchant Marine Academy Organizational Structure

a

The Fiscal Oversight Board, comprising senior management officials from the Academy and 

MARAD, met on a regular basis to increase the flow of information between the Academy and 

MARAD. A DOT official informed us that after September 30, 2011, the Fiscal Oversight Board 

meetings had been replaced by weekly meetings to be chaired by the DOT Secretary and attended 

by departmental executives, the Maritime Administrator, and the Interim Superintendent to address 

Academy management issues. Additionally, the official stated that departmental executives conduct 

biweekly meetings with MARAD and Academy management to discuss facilities management and 

capital improvement issues. 
 

Page 7 GAO-12-369 Merchant Marine Academy 

Our 2009 report6

Of the 47 recommendations, we made 1 overarching recommendation 

concerning actions needed for the Academy to establish effective overall 

internal control. Specifically, we recommended that the Secretary of 

Transportation direct the Administrator of MARAD, in coordination with 

the Superintendent of the Academy, to establish a comprehensive, riskbased internal control system to address the core causes of the control 

deficiencies identified in our 2009 report, including delineating the roles 

and responsibilities of management and employees to establish and 

maintain a positive and supporting attitude toward internal control and 

conscientious management, and the responsibility of managers to monitor 

control activities.

on the Academy identified numerous internal control 

deficiencies as well as weaknesses in the Academy’s control 

environment. Specifically, we found that flawed design and 

implementation of internal controls were the root causes of the 

Academy’s inability to prevent or detect numerous instances of improper 

and questionable sources and uses of funds that we identified. 

Additionally, we found that the Academy lacked an accountability 

structure that clearly defined organizational roles and responsibilities; 

policies and procedures for carrying out its financial stewardship 

responsibilities; an oversight and monitoring process; and periodic, 

comprehensive financial reporting. As a result, our 2009 report included a 

total of 47 recommendations for corrective action.

The remaining 46 recommendations related to control deficiencies 

associated with the following activities:

• Academy training vessel use,

• personal service acquisitions,

• NAFI camps and clinics using Academy facilities,

• midshipmen fee accountability,

• accountability for Academy reserves,

• Academy and NAFI governance structure,

• financial reporting,

• fund accountability, and

• capital asset repairs and improvements.

 

6

GAO-09-635. 

GAO’s 2009 Report 

Recommendations
 

Page 8 GAO-12-369 Merchant Marine Academy 

Our review of the Academy’s and MARAD’s efforts to address the issues 

reported in our 2009 report found that the Academy and MARAD had not 

yet established a comprehensive, risk-based system of internal control at 

the Academy. The Academy and MARAD both focused their initial efforts 

on the more readily correctible deficiencies in the Academy’s controls 

over specific activities. As a result, the Academy and MARAD had made 

substantial progress in addressing weaknesses related to specific control 

activities by successfully implementing 32 of the 46 control deficiencyrelated recommendations identified in our 2009 report. For example, the 

corrective actions taken to improve controls were sufficient for us to 

conclude that all recommendations related to training vessel use, 

personal service acquisitions, accountability for Academy reserves, and 

NAFI camps and clinics using Academy facilities were successfully 

implemented.

Our review found that actions taken by the Academy and MARAD through 

September 30, 2011, were not sufficient to fully address our overarching 

recommendation related to the establishment of a comprehensive, riskbased internal control system at the Academy, a positive and supportive 

attitude toward internal control, and an associated system of monitoring 

internal control effectiveness. Standards for Internal Control in the 

Federal Government7

 

7

provides that internal control should (1) serve as 

the first line of defense in preventing and detecting errors and fraud, 

(2) provide for an assessment of external and internal risks to the entity, 

and (3) provide for internal control monitoring. Monitoring is critical to 

ensure that findings of audits or other reviews are promptly resolved and 

to assess the ongoing effectiveness of controls. However, our review 

found that the Academy had not yet taken actions sufficient to address 

the core cause of many of the control deficiencies identified in our 2009 

report. Understanding the causes of internal control deficiencies is critical 

to designing effective, risk-based controls that can help prevent 

questionable transactions in the future. For example, as discussed later in 

this report, the Academy took action to correct errors we identified in its 

accounting for certain capital asset repairs and improvements, but had 

not yet taken action to conduct an analysis, as we recommended, to 

identify and address the underlying causes of these errors.

GAO/AIMD-00-21.3.1. 

Actions Taken to 

Address Prior 

Recommendations

Additional Action Needed 

to Establish Overall, RiskBased Internal Control 

System
 

Page 9 GAO-12-369 Merchant Marine Academy 

Nonetheless, the Academy and MARAD have taken a number of actions 

that represent an important first step toward focusing the top-level 

attention and accountability needed to establish an effective overall 

system of internal control for the Academy. For example, in January 

2011, MARAD established and filled an Internal Control Officer (ICO) 

position for the Academy. The Academy ICO, who is also the Academy’s 

Chief Information Officer, reports to MARAD’s Internal Controls Program 

Manager and is responsible for coordinating and leading the Academy’s 

reviews of internal controls in accordance with Office of Management and 

Budget (OMB) Circular A-123 and the Federal Managers’ Financial 

Integrity Act of 1982 (FMFIA).8

Despite these completed actions, until Academy and MARAD officials 

take additional actions to fully address our recommendation in this area, 

their ability to ensure that Academy and MARAD management’s 

objectives are carried out, including proactively identifying and correcting 

control deficiencies in a timely fashion, will continue to be impaired. Both 

the Academy and MARAD focused their initial efforts on the more readily 

correctible deficiencies in the Academy’s specific controls, as discussed 

later in this report. However, while these efforts are necessary and have a 

significant impact on internal control, it is important that the Academy and 

MARAD address the long-standing, deeply rooted causes of the specific 

control deficiencies we identified and establish processes to ensure that 

effective internal control is fully established, maintained, and monitored 

over time. In this regard, it is also important that the Academy and 

MARAD provide priority attention and focus not only on addressing 

questionable transactions we identified in our prior report, but also on the 

underlying causes of the specific errors we identified.

 Also, in September 2011, MARAD issued 

guidance in MAO 400-11 intended to help clarify the Academy’s oversight 

role and responsibilities with respect to the Academy’s affiliated NAFIs.

 

8

31 U.S.C. §3512 et seq., commonly known as FMFIA, requires ongoing evaluations and 

reports of the adequacy of internal accounting and administrative control of each 

executive agency. The act requires the head of each agency to annually prepare a 

statement on the adequacy of the agency’s systems of internal accounting and 

administrative control. OMB Circular A-123, Management’s Responsibility for Internal 

Control, contains guidance for implementing FMFIA. OMB A-123 requires agency 

management to annually report on internal control in its performance and accountability 

report, including a report on identified material weaknesses and corrective actions. 
 

Page 10 GAO-12-369 Merchant Marine Academy 

As of September 30, 2011, Academy and MARAD officials had taken 

sufficient actions to address 32 of our 46 prior recommendations intended 

to address specific deficiencies in the Academy’s control activities. For 

example, officials took steps to fully close all of our previous 

recommendations related to controls over training vessel use, personal 

service acquisitions, accountability for Academy reserves, and NAFI 

camps and clinics using Academy facilities. For the 14 remaining 

recommendations, we identified varying levels of action in process as of 

September 30, 2011, but none sufficient for us to consider them 

effectively implemented. Our conclusions on the status of Academy and 

MARAD actions to address our 46 previous recommendations concerning 

specific deficiencies in control activities are summarized in table 2, 

discussed in summary in the following sections, and discussed in greater 

detail in appendix II. Standards for Internal Control in the Federal 

Government9 provides that agencies should take appropriate follow-up 

actions to address findings and recommendations of audits and other 

reviews. Also, GAO’s Internal Control Management and Evaluation Tool

provides that in taking such actions, agencies are to ensure that the 

underlying causes giving rise to the findings or recommendations are 

investigated, that actions are decided upon to correct the identified 

weaknesses, and that weaknesses are corrected promptly.10

Table 2: Summary of GAO Conclusion on Status of Actions Taken to Address Our 

2009 Recommendations Related to the Academy’s Specific Control Activities

Academy control 

activity

Total 

recommendations

Recommendations 

implemented

Remaining open

recommendations 

Training vessel use 5 5 0 

Personal service 

acquisitions

2 2 0 

NAFI camps and clinics 

using Academy facilities

3 3 0 

Midshipmen fee 

accountability

9 7 2 

Accountability for 

Academy reserves

4 4 0 

 

9

GAO/AIMD-00-21.3.1. 

10GAO, Internal Control Management and Evaluation Tool, GAO-01-1008G (Washington, 

D.C.: August 2001).

Actions Taken to Address 

Many of Our Prior 

Recommendations Related 

to Specific Control 

Activities
 

Page 11 GAO-12-369 Merchant Marine Academy 

Academy control 

activity

Total 

recommendations

Recommendations 

implemented

Remaining open

recommendations 

Academy and NAFI 

governance structure

8 4 4 

Financial reporting 5 2 3 

Fund accountability 7 4 3 

Capital asset repairs 

and improvements

3 1 2 

Total 46 32 14

Source: GAO analysis of MARAD and Academy data.

• Training vessel use. In 2009, we reported that the Academy lacked 

policies and procedures and adequate internal controls over the use 

of Academy training vessels by outside parties. For example, we 

found that the usage rates for Academy training vessels were not 

supported and were not based on consideration of current costs of 

operation. The Academy and MARAD took steps to address all five of 

our recommendations related to internal control deficiencies regarding 

outside party use of Academy training vessels. In September 2010, 

the Academy issued Superintendent’s Instruction 2010-08, which set 

out procedures for outside parties to use and pay for all costs 

associated with the use of Academy training vessels. The Academy’s 

Department of Waterfront Activities also issued a vessel usage rate 

schedule in September 2010 that provided current costs of operation 

for use of Academy training vessels. The guidance provides base 

hourly, daily, and weekly billing rates that outside parties are to be 

charged for using the Academy’s training vessels.

• Personal service acquisitions. In our 2009 report,11

 

11

we identified 

instances in which the Academy entered into illegal personal service 

agreements with its NAFIs, whereby NAFI employees performed 

exclusively Academy functions and reported to Academy supervisors. 

The Academy and MARAD took actions to address both of our 

recommendations related to improving internal controls over personal 

service acquisitions. To address our recommendations, MARAD 

performed an analysis to identify the nature and scope of personal 

service arrangements in order to determine whether amounts paid by 

the government were consistent with the services received by the 

Academy. Using the results of the analysis, MARAD took action to 

address all personal service arrangements by either converting 

GAO-09-635. 
 

Page 12 GAO-12-369 Merchant Marine Academy 

affected NAFI employees to the civil service or transferring them to a 

contract. In addition, the MARAD Administrator finalized MAO 400-11 

on September 30, 2011, which provided governing principles under 

which NAFIs must operate, including that a NAFI must have staff to 

conduct its daily operations, and it is not to receive any operating 

subsidy from the Academy other than minor incidental support. 

Notably, however, MAO 400-11 requires that generally, a NAFI may 

not provide goods or services to the Academy.12

• NAFI camps and clinics using academy facilities. In 2009, we 

reported that the Academy lacked policies and procedures and 

effective internal controls to help ensure proper accounting for the use 

of fees from conducting camps and clinics using Academy athletic 

facilities. The Academy and MARAD took corrective actions to 

address all three of our recommendations related to NAFI camps and 

clinics’ use of academy facilities. Specifically, MARAD engaged the 

services of an independent public accounting firm to perform an 

analysis to identify NAFI camps, clinics, or fund-raising activities that 

used Academy property from fiscal years 2006 through 2008 and 

determine the related sources and uses of funds. Based on this 

analysis, it was determined that most of the revenue resulting from the 

camp and clinic activity was paid to the individuals responsible for 

conducting the activities and the residual revenue, deemed nominal, 

was identified to have been used to support the general activities of 

the NAFI conducting the camp or clinic. Also, Superintendent’s 

Instruction 11100.1, dated May 17, 2011, established a written policy 

that Academy facilities will not be used for revenue-generating athletic 

 

12MAO 400-11 provides that the Superintendent may authorize a solicitation from a NAFI 

for a particular purchase on an “exigent or emergency basis,” but the transaction must 

fully comply with the Federal Acquisition Regulation (FAR). CFO Directive 4, which also 

requires that transactions must fully comply with the FAR, was issued on December 30, 

2009. It provides that the standard under which a NAFI can offer goods or services to the 

Academy is that such instances should be “exception rather than routine.” Upon being 

notified of these differing standards, MARAD stated that CFO Directive 4 was in the 

process of being rescinded.
 

Page 13 GAO-12-369 Merchant Marine Academy 

camps and clinics.13 Our review of supporting financial documents for 

selected 2010 and 2011 transactions did not identify any camp or 

clinic activity using the Academy’s facilities.

• Midshipmen fee accountability. In 2009, we identified instances of 

improper and questionable sources and uses of midshipmen fees, as 

well as a lack of adequate procedures and controls to maintain 

effective accountability over the amounts charged to midshipmen and 

to ensure that midshipmen fees were used only for their intended 

purpose. The Academy and MARAD undertook a series of reviews 

and completed actions that addressed seven of our nine 

recommendations related to midshipmen fee accountability. To 

address our recommendations, MARAD established a baseline for 

items of a personal nature and related costs to be charged to 

midshipmen, beginning with fiscal year 2009. Following an analysis 

based on this baseline, MARAD determined that prior years’ 

midshipmen fees included the costs of items that should have been 

paid by the Academy. Consequently, the fees collected from 

midshipmen over their 4-year academic program dropped from 

$15,500 in fiscal year 2008 to approximately $5,500 in fiscal year 

2009. As a result, MARAD proposed a refund of midshipmen fees to 

the midshipmen who it was determined had overpaid in academic 

years from academic year 2003-2004 through academic year 

2008-2009. In February 2012, DOT informed us that MARAD began 

making refunds in November 2011 and, as of January 2012, had 

reimbursed 83 percent of eligible refund recipients and continued with 

its efforts to reach the remaining refund-eligible midshipmen.

One of the two recommendations that remain open relates to 

establishing written policies and procedures over (1) processing of 

midshipmen fee collections and payments and (2) monthly reporting 

for midshipmen fee activity and balances. On May 26, 2010, MARAD 

issued MAO 400-15, providing policy guidance governing the setting, 

 

13Superintendent’s Instruction 11100.1 states that unless superseded by the Academy 

Superintendent, all Academy components and personnel are prohibited from using 

Academy facilities or resources to conduct any revenue-generating camps or clinics. The 

instruction further states that any superseding direction shall incorporate the elements of 

our recommendation, including establishing targeted internal controls, such as the 

required approvals; costs to be recovered by the Academy; requirements for participation 

by Academy employees in the activities; and other matters of importance, such as 

insurance requirements, security, and required accounting records on the source and 

uses of funds from each event.
 

Page 14 GAO-12-369 Merchant Marine Academy 

managing, and reporting of midshipmen fees. However, this guidance 

did not provide detailed procedures to ensure that staff consistently 

and effectively process and account for midshipmen fee activities and 

balances. The second of these open recommendations calls for a 

determination of the extent to which appropriated funds and 

midshipmen fees collected should be used to pay for contracted 

medical services. On February 5, 2010, MARAD reported the results 

of a joint MARAD and Academy review that identified the types of 

medical services provided to the midshipmen, through both 

appropriated and nonappropriated funding, and stated that for the 

fiscal year 2012 budget development process, the Administrator may 

wish to consider guiding the Superintendent to seek alternatives to the 

current approach. However, as of September 30, 2011, the Academy 

had not yet determined the extent to which appropriated funds and 

midshipmen fees collected should be used to pay for contracted 

medical service as called for in our recommendation.

• Accountability for academy reserves. Our 2009 report identified 

inappropriate conversion of “off-book” reserves14

 

14After the end of an academic year, the Fiscal Control Office (FCO) typically transferred 

the excess of midshipmen fees collected over payments made to a commercial bank 

account that was not reflected in the books and records of the Academy (“off book”). FCO 

tracked the transaction activity in the account using off-line (“cuff”) records.

accumulated from 

excess midshipmen fee collections, funds received from the Global 

Maritime and Transportation School (GMATS) NAFI for use of the 

Academy’s facilities, and expiring appropriated funds that were 

deposited to a commercial bank account to fund Academy operations 

the following fiscal year. For example, a “Superintendent’s Reserve” 

account was created “off book” and used to make discretionary 

Academy operations payments authorized by the Academy 

Superintendent. The Academy and MARAD have taken corrective 

actions sufficient to address all four recommendations related to 

accountability for Academy reserves. To address our 

recommendations, MARAD engaged the services of a public 

accounting firm to perform an analysis of the sources and uses of 

funds held in commercial bank accounts during fiscal years 2006 

through 2008 to determine consistency with applicable law, regulation, 

or policy. A May 19, 2010, MARAD CFO memorandum on the results 

of the analysis stated that the review did not identify any evidence that 

funds were used inappropriately or for the personal benefit of any 
 

Page 15 GAO-12-369 Merchant Marine Academy 

individual and that no inconsistency with law, regulation, or policy was 

identified. Accordingly, the MARAD CFO concluded that no further 

action was warranted. In addition, the Academy’s changed business 

practices discontinued conversion of appropriated and 

nonappropriated funds to “off-book” reserves. Further, as a result of 

the analysis performed in response to our recommendation, a balance 

of approximately $3 million in the commercial bank account 

maintained for excess prior-year midshipmen fee collections was 

transferred to the U.S. Treasury to assist with the midshipmen fee 

refunds.

• Academy and NAFI governance structure. Our 2009 report found 

that 11 of the 14 NAFIs that provided programs and services for 

Academy midshipmen and employees did not have approved 

governing documents, such as charters and bylaws, and that the 

remaining 3 NAFIs performed some duties and functions that fell 

outside the scope of authority set forth in their governance 

documents. As a result, we issued eight recommendations related to 

improving controls over activities between the Academy and its 

affiliated organizations. The Academy and MARAD completed actions 

sufficient to address four of our eight recommendations related to 

Academy and NAFI governance structure. For example, on 

September 30, 2011, MARAD issued MAO 400-11, which provides 

policies and general guidelines for the establishment and governance 

of NAFIs and their affiliation with the Academy, including charters, 

bylaws, and a NAFI governing board. In addition, an independent 

public accounting firm’s analysis of activity between the Academy and 

its GMATS NAFI did not identify any activity that was inconsistent with 

applicable law, regulation, or policy. A May 19, 2010, MARAD CFO 

memorandum concluded that none of the NAFI funds were used 

inappropriately or for the benefit of any individual and that no further 

action was warranted.

Two of the four recommendations that we concluded were not yet 

addressed relate to performing an analysis to identify each activity 

involving the Academy and its NAFIs and establishing formal written 

policies and procedures documenting the (1) planned timing of 

performance of each internal control procedure for each NAFI activity, 

(2) responsibilities for oversight and monitoring of those internal 

control procedures, and (3) direct, compensating, and mitigating 

controls for each NAFI activity. Although MAO 400-11 provides 

general guidance on NAFI and Academy relationships, it does not 

provide the necessary detailed procedures to be followed to ensure 

that each NAFI has a robust, risk-based system of checks and 
 

Page 16 GAO-12-369 Merchant Marine Academy 

balances with the Academy for each NAFI activity as called for in our 

2009 recommendation. As of September 30, 2011, we found that 

neither the Academy nor MARAD had performed an analysis aimed at 

identifying all activities between the Academy and its ongoing 

affiliated organizations. Without identifying such activities and their 

associated risks to the Academy, the Academy faces the continued 

risk of improper transactions.

The other two open recommendations relate to the relationship 

between the Academy and its GMATS NAFI. The recommendations 

were intended to address the Academy improperly entering into solesource agreements with GMATS to provide training to other federal 

agencies and improperly accepting and using nonappropriated 

GMATS funds. On September 30, 2011, the Maritime Administrator 

issued a memorandum rescinding the authority of GMATS to operate 

as a NAFI effective August 1, 2012. The memorandum also provided 

that GMATS may continue future operations if it is reestablished 

under a different operating model. However, because GMATS NAFI 

operations have not yet been terminated or reestablished, our two 

recommendations in this area remain open.

• Financial reporting. In 2009, we found that the Academy did not 

routinely prepare financial reports presenting information on all of its 

financial activities, including sources and uses of its appropriated and 

nonappropriated funds. Instead, we found that the Academy’s 

financial reporting was sporadic, unreliable, and, consequently, of 

limited value for decision making. The Academy and MARAD 

completed actions sufficient to address two of our five 

recommendations aimed at improving controls over the Academy’s 

financial reporting. MARAD issued CFO Directive 2 in December 2009 

and amended it twice in 2010. Directive 2 established procedures for 

monitoring Academy financial performance by requiring the Office of 

Academy Operations to prepare, review, and provide monthly 

financial reports to the MARAD CFO for review. Directive 2 also 

provided for following up on, and documenting, unusual items and 

balances.

The three recommendations that remain open relate to (1) the 

production of financial reports to facilitate oversight and monitoring of 

actual and budgeted amounts of revenues and expenses, reporting of 

amounts for activities and balances with affiliated organizations, and 

the identification of items of revenue and expenses; (2) identification 

and evaluation of potential misstatements of amounts in Academy 

financial records; and (3) compliance with required annual reporting to 
 

Page 17 GAO-12-369 Merchant Marine Academy 

Congress on all expenditures and receipts for the Academy and its 

affiliated organizations. CFO Directive 2 provides instructions for the 

Office of Academy Operation’s preparation, review, and monitoring of 

monthly financial reports on funds allotted15

• obligation and expenditure activity of expired funds;

to the Academy. 

However, it does not require the monthly reports to include 

information on all sources and uses of other funds benefiting the 

Academy, such as

• CIP and gift and bequest expenditure activity for years following 

obligation;

• activity for miscellaneous receipts, such as transfer of funds from 

closed commercial bank accounts, fees from foreign midshipmen 

and for outside use of training vessels, and payments from the 

Navy Exchange;

• sources and uses of funds maintained in commercial bank 

accounts; and

• sources and uses of midshipmen fees processed through two 

appropriation accounts and one nonappropriation account.

The MARAD CFO told us that the primary intent of Directive 2 is to 

report the status of funds allotted to the Academy, but acknowledged 

that any additional funds should be identified and reported as well. 

Accordingly, the MARAD CFO agreed that CFO Directive 2 reporting 

requirements should be updated to require all sources and uses of 

Academy funds to be identified and reported to provide visibility over 

all Academy accounts and activities necessary to facilitate 

comprehensive oversight and monitoring.

 

15An allotment is an authorization by either the agency head or another authorized 

employee to his/her subordinates to incur obligations within a specified amount within the 

requirements in OMB Circular No. A-11. The amount allotted by an agency cannot exceed 

the amount of appropriations that are apportioned. Apportionment is a plan, approved by 

OMB, to spend resources provided by one of the annual appropriations acts, a 

supplemental appropriations act, a continuing resolution, or a permanent law (mandatory 

appropriations). The apportionment identifies amounts available for obligation and 

expenditure. It specifies and limits the obligations that may be incurred and expenditures 

made (or makes other limitations, as appropriate) for specified time periods, programs, 

activities, projects, objects, or any combination thereof. An apportioned amount may be 

further subdivided by an agency into allotments, suballotments, and allocations. An 

allotment is part of an agency system of administrative control of funds whose purpose is 

to keep obligations and expenditures from exceeding apportionments and allotments. 
 

Page 18 GAO-12-369 Merchant Marine Academy 

With respect to our recommendation to identify and evaluate potential 

misstatements of amounts in Academy financial records, MARAD 

engaged an independent public accounting firm to determine the 

extent of any such misstatements. The review identified approximately 

$1.3 million in Academy expenditures funded by midshipmen fees that 

should have been funded by appropriated funds. However, as of 

September 30, 2011, MARAD had not yet determined whether it 

should adjust financial records and reports to reflect the use of 

midshipmen fees to augment Academy appropriations. MARAD 

officials acknowledged the need to perform additional work to 

determine whether adjustments to the Academy’s financial records 

and reports are warranted.

In response to our recommendation to provide Congress a statement 

on the purpose and amount of all expenditures and receipts of 

nonappropriated funds benefiting the Academy and its affiliated 

organizations, MARAD issued CFO Directive 3 on December 29, 

2009. Directive 3 established procedures for reporting on resources 

other than the Academy’s appropriated funds to be included in 

MARAD’s annual report to Congress. Specifically, the directive 

provides for reporting on the amount, source, intended use, and 

nature of such funds. However, based on our review of MARAD’s 

fiscal year 2009 annual report to Congress—the most recent report 

available as of September 30, 2011—the report did not contain 

expenditure information for any of the Academy’s affiliated 

organizations and did not provide a purpose for which the 

expenditures were made to comply with the reporting requirement as 

we recommended.

• Funds accountability. In 2009, we found that the Academy did not 

have assurance that it complied with applicable funds control 

requirements, including those in the Antideficiency Act (ADA). The 

Academy and MARAD have taken sufficient actions to implement four 

of our seven prior recommendations related to funds accountability. 

Specifically, officials investigated and mitigated a potential ADA 

violation, completed a series of reviews aimed at resolving past 

deficiencies related to “parking” of Academy funds to keep them from 
 

Page 19 GAO-12-369 Merchant Marine Academy 

expiring,16

The three recommendations that remain open in this area relate to

and established written policy on the accrual of items of 

expense at year-end. With respect to the potential ADA violation, 

MARAD’s Chief Counsel determined in 2011 that Academy officials 

had retained approximately $200,000 in excess funds from GMATS 

which they had no legal authority to retain and had thereby 

augmented Academy funds in excess of appropriations made by 

Congress during fiscal years 2006, 2007, and 2008. According to an 

April 11, 2011, memo signed by the Maritime Administrator, MARAD 

determined that sufficient prior-year funds existed to offset the 

GMATS-funded Academy expenditures. MARAD adjusted its 

accounts accordingly and since these sufficient prior-year funds

existed, MARAD did not exceed its available appropriations in 

violation of the ADA. Also, the Academy and MARAD successfully 

implemented two recommendations related to “parking” of 

appropriated Academy funds by performing a series of reviews to 

identify excess Academy funds improperly held in commercial bank 

accounts. As a result of these reviews, the Fiscal Control Office NAFI 

returned over $214,000 of improperly held excess fiscal years 2006 

and 2007 funds to the Academy. The Academy subsequently 

deobligated these funds and returned them to their respective 

appropriation. Further, the Academy and MARAD have discontinued 

use of the Academy’s in-house fund control system and have 

transitioned to DOT’s financial accounting system and have revised 

the Budget Program Accounting Codes. These actions should provide 

more transparent financial reporting and improved oversight. 

Additionally, in January 2010, MARAD issued CFO Directive 6 

establishing policy and procedures for accounting and recording of 

Academy accrual of expenses at year-end. If fully and effectively 

implemented, Directive 6 should improve internal control over 

accounting and recording of Academy accrual of expenses.

• making final notification to Congress of an ADA violation resulting 

from midshipmen fees that were used to cover Academy 

expenses without legal authority to do so,

 

16“Parking” of funds describes a federal entity’s transfer of funds to a revolving fund or, in 

the Academy’s case, a NAFI bank account, in an effort to keep the funds available after 

their period of availability expires. However, such transfers do not extend the period of 

availability for the transferred funds.
 

Page 20 GAO-12-369 Merchant Marine Academy 

• implementing corrective actions as a result of a MARAD review in 

which it identified weaknesses related to the Academy’s funds 

control process, and

• establishing targeted internal controls, such as management’s 

review and approval procedures, over accruals.

According to a March 23, 2011, memorandum to the Maritime 

Administrator from MARAD’s Chief Counsel, the Academy violated 

the ADA by charging midshipmen fees in excess of authorized levels, 

improperly augmenting agency appropriations, and making 

expenditures in excess of and in advance of appropriations. As of 

June 1, 2012, the required ADA report to Congress had not been filed. 

Additionally, the Academy and MARAD had yet to implement 

corrective actions as a result of a review of the Academy’s funds 

control process. Specifically, on February 1, 2010, the MARAD CFO 

completed a review of the Academy’s funds control process and made 

five recommendations for process improvements, including that the 

MARAD CFO issue a directive establishing policy and procedures 

requiring the periodic review and closeout of undelivered orders. The 

review also recommended that the MARAD CFO issue policy 

guidance to address an internal control weakness regarding 

contracting officer approval of Academy invoices. However, as of 

September 30, 2011, the MARAD CFO had not issued any guidance 

in this area. While MARAD officials told us they had practices in place 

for contracting officer approval of invoices, we found that as of 

September 30, 2011, MARAD had not documented and disseminated 

these practices to Academy acquisition staff in policy guidance, such 

as a CFO directive.

• Capital asset repairs and improvements. Our 2009 report identified 

repair and maintenance (R&M) costs that were improperly charged 

against the Academy’s no-year17

 

17Capital improvement funds are provided under appropriations that remain available for

an indefinite period.

capital asset improvement 

appropriation and found that the MARAD CFO did not conduct timely 

reviews of the Academy’s capital improvement-related expenses for 

fiscal years 2006 and 2007. The Academy and MARAD have taken 

corrective action to address one of the three recommendations we 

made to improve specific controls related to capital asset repairs and 

improvements. On May 25, 2010, the MARAD CFO issued Directive 
 

Page 21 GAO-12-369 Merchant Marine Academy 

7, requiring monthly review of recorded amounts of Academy repairs 

and maintenance expenses and capital improvement transactions to 

identify any anomalies, discrepancies, or questionable entries. Our 

work found that the Office of Academy Operations reviewed the 

accounting records on a monthly basis in accordance with Directive 7.

The two recommendations that remain open relate to (1) establishing 

policies and procedures for reporting financial information on R&M 

expenses and capital asset additions to help monitor these items and 

(2) performing an analysis to identify the causes of approximately $8 

million of errors in recording R&M expenses identified in our 2009 

report. While CFO Directive 7 required monthly reporting, we found 

that the reports were not distributed to users, such as Academy 

department managers, to facilitate monitoring of these items as called 

for in our recommendation. With respect to our recommendation to 

identify the causes of the errors in recording R&M expenses, we 

found that the Academy and MARAD had taken action to reclassify 

the transaction errors we identified but had not yet conducted the 

recommended root cause analysis needed to identify and address any 

systemic issues causing the errors and to prevent such errors in the 

future. Consequently, the Academy and MARAD are at risk of 

reoccurrences of errors in R&M expense accounting.

Although the Academy and MARAD have taken steps to improve 

oversight of the Academy’s CIP, the Academy does not have a current 

comprehensive plan for capital improvements to provide the basis for 

oversight of CIP planning and implementation. In response to a May 2009 

directive from the Secretary of Transportation, MARAD convened an 

independent “Blue Ribbon” advisory panel consisting of senior 

government executives to analyze the Academy’s CIP and its investment 

priorities. The panel concluded that the Academy’s facilities were 

seriously deteriorated and its support buildings were inadequately 

maintained. The panel’s March 2010 report, USMMA: Red Sky in the 

Morning,

18

 

18U.S. Merchant Marine Academy Capital Improvements Advisory Panel, USMMA: Red 

Sky in the Morning, March 2010.

provided 11 recommendations, which included linking a 

comprehensive Academy strategic plan to its Facilities Master Plan with 

capital investments prioritized for a 10- to 15-year period to address the 

Academy’s extensive needs. According to DOT officials, MARAD 

Further 

Enhancements to 

Capital Improvement 

Program Oversight 

Are Needed
 

Page 22 GAO-12-369 Merchant Marine Academy 

prepared its USMMA Capital Improvements Implementation Plan19

The Academy also established and filled a new position for an Assistant 

Superintendent for Capital Improvements and Facilities Maintenance in 

2010, designating the new position’s responsibilities to include oversight 

of the Academy’s Departments of Capital Improvements and Facilities 

Maintenance and the Office of Safety and Environmental Protection. This 

position is to provide oversight for the Academy’s CIP and leadership for 

strategic planning and accountability related to capital improvement 

activities. Further, according to Academy officials, the Academy realigned 

its facilities management organizational structure in December 2010 to 

reflect that of other academic organizations and service academies and to 

improve oversight.

 in 

November 2010 to serve as a road map for implementing the panel’s 

recommendations and to identify the Academy’s immediate capital 

improvement needs through 2016.

Despite these recent improvements, the Academy has not yet developed 

reliable project cost estimates and current phased capital investment 

plans aligned with the organization’s strategic objectives, as 

recommended by the Blue Ribbon panel in 2010. Guidance issued by 

OMB as well as our prior work on leading practices in this area identifies

the need for effective capital planning to provide CIP accountability and 

oversight. Our Executive Guide: Leading Practices in Capital DecisionMaking20 summarizes the results of our research on leading capital

planning practices used by state and local government and private-sector 

organizations. It includes practical steps for implementing capital planning 

effectively and presents examples that illustrate and complement many of 

the concepts and specific steps contained in OMB’s Capital Programming 

Guide.

21 Our GAO Cost Estimating and Assessment Guide,22

 

19Maritime Administration, USMMA Capital Improvements Implementation Plan, 

November 2010.

which 

20GAO, Executive Guide: Leading Practices in Capital Decision-Making, GAO/AIMD-99-32 

(Washington, D.C.: December 1998).

21OMB, Capital Programming Guide: Supplement to Circular A-11, Part 7, Preparation, 

Submission, and Execution of the Budget (Washington, D.C.: Executive Office of the 

President, August 2011). 

22GAO, GAO Cost Estimating and Assessment Guide: Best Practices for Developing and 

Managing Capital Program Costs, GAO-09-3SP (Washington, D.C.: March 2009).
 

Page 23 GAO-12-369 Merchant Marine Academy 

provides best practices for developing, managing, and evaluating capital 

program cost estimates, complements the Executive Guide. Fundamental 

success factors identified in our Executive Guide include developing longterm capital investment plans that integrate with long-range organizational 

strategic objectives, present reliable project cost estimates to inform 

decision making, and use a phased priority approach to guide and 

schedule capital spending.

The Academy’s Facilities Master Plan, which identified anticipated capital 

projects for a 10-year period in three priority phases, has not been 

comprehensively updated since 2002. Up-to-date CIP information that 

identifies and prioritizes long-range renovation and new construction 

projects and provides reliable project cost estimates and completion and 

funding timelines would facilitate oversight by helping to assess whether 

individual improvements were carried out in a timely and cost-effective 

manner and in priority order. We identified instances where improvements 

were not carried out in priority order and also identified lengthy delays in 

completing some planned capital investments. For example, the 2002 

Facilities Master Plan showed that the midshipmen’s primary 

commissary, Delano Hall (which serves over 2,000 meals a day to the 

Academy’s residential midshipman population), was to have been 

refurbished during fiscal year 2002. As of September 30, 2011, the 

Delano Hall refurbishment project had not yet broken ground. According 

to information that DOT provided in February 2012, several tasks related 

to the Delano Hall refurbishment project have been completed, such as 

remodeling rest rooms in compliance with the Americans with Disabilities 

Act. DOT told us at that time that it expected construction on the 

commissary to begin in the summer of 2012 and to be completed by 

December 2013.

Preparing the 2010 Capital Improvements Implementation Plan was a 

positive step, although the implementation plan acknowledged the need 

for a more comprehensive, phased investment plan. For example, the 

implementation plan did not present a long-range phased investment plan 

and detailed cost estimates. Rather, projects presented were based on 

average replacement cost per square foot for federal government 

buildings, described in the plan as a “rough order of magnitude estimate.” 

Accordingly, the cost estimates presented in the implementation plan did 

not consider specific cost factors for capital improvements at the 

Academy, such as geographic location, local cost of construction and 

labor, and the technology, simulation, and infrastructure requirements of 

an institution of higher education. As stated previously and recommended 

by the 2010 Blue Ribbon panel, reliable cost estimates and phased 
 

Page 24 GAO-12-369 Merchant Marine Academy 

investment priorities for Academy capital projects that are aligned with the 

organization’s long-range strategic objectives would help facilitate CIP 

oversight. According to DOT officials, the Academy had recently begun 

preparing its first strategic plan to define the organization’s goals and 

objectives and to help the Academy better prioritize investments. 

Specifically, they told us in February 2012 that the strategic planning 

process for the Academy is to be led by the Academy’s Acting 

Superintendent and is expected to be a multiphased effort beginning with 

identification of key internal stakeholders to assist with the development 

of critical issues that should be addressed in the strategic plan.

Clearly articulated top management vision and support will be critical for 

fully implementing the open recommendation related to establishing a 

comprehensive risk-based system of internal control and related 

monitoring. The Academy and MARAD have taken a number of positive 

steps, but until Academy and MARAD officials take additional actions to 

fully address our recommendation in this area, their ability to ensure that 

management’s objectives are carried out, including proactively identifying 

and correcting control deficiencies in a timely fashion, will continue to be 

impaired. We reiterate the need to continue efforts to complete full 

implementation of this recommendation. The Academy and MARAD have 

made significant progress in addressing our prior recommendations 

related to specific control activities, and their actions effectively 

addressed 32 of the 46 recommendations related to deficiencies in 

specific controls. We reiterate the need to address the remaining 14 

recommendations related to midshipmen fee accountability, Academy 

and NAFI governance structure, financial reporting controls, fund 

accountability, and controls over capital asset repairs and improvements.

The Academy and MARAD have taken steps to improve CIP oversight 

and planning of capital improvement projects at the Academy. However, 

the Academy does not have comprehensive, updated information on 

capital improvement projects, including reliable cost data, long-range 

capital investment plans, and phased priorities. Further, the Academy has 

not yet aligned its capital improvement priorities with the organization’s 

strategic objectives, a critical factor in providing effective oversight.

To improve oversight of the Academy’s capital improvement program, we 

recommend that the Secretary of Transportation direct MARAD to work 

with Academy officials to develop and maintain a current and 

Conclusions 

Recommendation for 

Executive Action
 

Page 25 GAO-12-369 Merchant Marine Academy 

comprehensive plan in accordance with leading practices and guidance. 

At a minimum, such plan should include

• an inventory of long-range capital improvements that align with the 

Academy’s strategic objectives,

• reliable estimates of cost specific to each capital improvement, and

• a phased investment approach for prioritizing capital improvement 

needs.

On June 19, 2012, DOT provided written comments on a draft of this 

report, signed by the Deputy Assistant Secretary for Administration. The 

comments are reprinted in appendix III. In its comments, DOT described 

steps that the department, MARAD, and Academy are taking to help 

prioritize and manage Academy capital improvement projects. DOT 

indicated that these actions are aligned with and fulfill the 

recommendation in our draft report. Specifically, DOT stated that since 

our draft report was issued, the department, MARAD, and the Academy 

established a comprehensive CIP that includes a Senior Advisory Council 

and working group; a management process that provides a clear and 

consistent understanding of project status; and controls for project 

selection, management, and completion, including tracking reports, 

process documentation, and Senior Advisory Council meetings to monitor 

progress.

We are encouraged by the increased oversight these measures would 

provide for the Academy’s capital investments. However, it is too soon to 

determine the extent to which the new CIP addresses the three specific 

elements that our recommendation provided as minimum attributes for a 

comprehensive capital improvement plan: an inventory of long-range 

capital improvements that align with the Academy’s strategic objectives, 

reliable cost estimates specific to each capital improvement, and a 

phased investment approach for prioritizing capital improvement needs. 

We believe these attributes are critical to facilitating oversight of the 

Academy’s capital improvements to ensure that they address the needs 

of the midshipmen in accordance with the strategic vision of the 

Academy, are undertaken in priority order, and are completed timely and 

cost effectively.

DOT also stated that it remains dedicated to the challenging task of 

building and operating a comprehensive system of internal controls at the 

Academy, including completing action on all recommendations in our prior 

report, and will keep us apprised of progress to close out our 

Agency Comments 

and Our Evaluation
 

Page 26 GAO-12-369 Merchant Marine Academy 

recommendations. DOT further stated that it has established a goal of 

completing action on all 46 of our specific control-related 

recommendations by December 31, 2012.

We are sending copies of this report to the Secretary of Transportation; 

Maritime Administrator; and Superintendent, U.S. Merchant Marine 

Academy. In addition, the report will be available at no charge on the 

GAO website at http://www.gao.gov. 

If you or your staff have any questions concerning this report, please 

contact me at (202) 512-9500 or DavisBH@gao.gov. Contact points for 

our Offices of Congressional Relations and Public Affairs may be found 

on the last page of this report. GAO staff who made key contributions to 

this report are listed in appendix IV.

Beryl H. Davis

Director

Financial Management and Assurance
Appendix I: Scope and Methodology

Page 27 GAO-12-369 Merchant Marine Academy 

To address our objective to assess the extent to which actions have been 

taken to address our prior recommendations as contained in our report, 

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), we interviewed agency officials 

and reviewed and analyzed

• MARAD summaries of action steps taken in response to our 

recommendations;

• activities and policies, procedures, and memorandums issued by the 

U.S. Merchant Marine Academy (Academy) and Maritime 

Administration (MARAD); and

• laws and regulations governing Academy operations.

In addition, as part of our assessment of recommendations related to 

accountability for Academy reserves, financial reporting controls, and 

fund accountability, we obtained a database of Academy obligations and 

expenditures at the transaction level for fiscal years 2010 and 2011 to 

make a nonstatistical selection of transactions to obtain an understanding 

of the Academy’s accounting process. We compared these data to 

amounts reported for the Academy in the Department of Transportation’s 

(DOT) annual performance and accountability reports. We performed 

system walk-throughs to gain an understanding of procedures in place. 

As part of this assessment, we reviewed and analyzed

• receipts and disbursements records;

• bank statements; and

• procurement documentation for selected transactions, including 

contracts, purchase orders, receiving documentation, invoices, and 

disbursement documents and other pertinent supporting documents.

We also reviewed and discussed with appropriate officials the objectives 

and scope of a report prepared by an independent public accountant 

engaged by MARAD on its analysis of certain prior-year sources and 

uses of funds that related to our recommendations.

Further, for some specific recommendations, we reviewed rate schedules, 

billings and underlying calculations, payroll records, and congressional 

notifications, as appropriate. We also reviewed analyses prepared by the 

Academy, MARAD, and certain nonappropriated fund instrumentalities 

(NAFI) regarding specific transaction types, such as a midshipmen fee 

refund schedule and a summary of payments made by the Global 

Maritime and Transportation School (GMATS) NAFI to the Academy.

Appendix I: Scope and Methodology
Appendix I: Scope and Methodology

Page 28 GAO-12-369 Merchant Marine Academy 

To assess actions taken to address our recommendations regarding 

controls over financial reporting and capital asset repairs and 

improvements, we also reviewed monthly reports summarizing 

transaction activity and balances.

To address our second objective regarding our assessment of oversight 

of the Academy’s Capital Improvement Program (CIP), we interviewed 

Academy and MARAD officials and reviewed Academy and MARAD 

procedures, monthly reports to MARAD, and monthly analyses prepared 

to help ensure that transactions are accounted for properly. We also 

reviewed the Academy’s 2002 Facilities Master Plan, a report on the 

Academy’s CIP prepared by a Blue Ribbon panel,1 a follow-up 

implementation plan that responded to the Blue Ribbon panel report,2

We evaluated corrective actions taken through September 30, 2011, that 

the Academy, MARAD, and DOT made us aware of by February 15, 

2012. In addition, we reviewed DOT’s Office of Inspector General audit 

and investigation reports for the period from January 2010 through March 

2012 to determine if any work related to the Academy had been 

performed. No audit reports that could have an impact on this 

engagement were noted.

and 

GAO and Office of Management and Budget (OMB) guides related to 

capital improvements project planning. We also observed the Academy’s 

physical plant.

We conducted this performance audit from February 2011 to June 2012 

in accordance with generally accepted government auditing standards. 

Those standards require that we plan and perform the audit to obtain 

sufficient, appropriate evidence to provide a reasonable basis for our 

findings and conclusions based on our audit objectives. We believe that 

the evidence obtained provides a reasonable basis for our findings and 

conclusions based on our audit objectives.

 

1

U.S. Merchant Marine Academy Capital Improvements Advisory Panel, Red Sky in the 

Morning, March 2010.

2

Maritime Administration, USMMA Capital Improvements Implementation Plan, November 

2010.
Appendix II: Status of Prior Recommendations 

and Description of Corrective Actions Taken 

Page 29 GAO-12-369 Merchant Marine Academy 

This appendix presents a list of the 47 recommendations that we 

previously issued in our August 2009 report1

Table 3: Implementation Status of GAO Recommendations

along with our analysis of 

the implementation status of each recommendation (see table 3). We 

evaluated corrective actions taken through September 30, 2011.

Recommendation Status per GAO

Overall internal control and monitoring – To improve the design and operation of the internal control system at the Academy, we 

recommend that the following actions be taken.

1. 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.

Open.

As of September 30, 2011, the Academy had not yet established 

a comprehensive risk-based internal control system to include 

monitoring to ensure ongoing effectiveness and efficiency of 

operations, reliability of financial reporting, and compliance with 

laws and regulations. In contrast to the substantial actions taken 

to address many of the deficiencies concerning specific Academy 

control activities, few corrective actions have yet been taken to 

address the fundamental weaknesses we previously identified 

concerning the Academy establishing a comprehensive risk-based 

internal control system and monitoring. In particular, the Academy 

had not addressed the underlying causes of many of the 

deficiencies we identified in the Academy’s specific control 

activities. MARAD officials told us that these overriding 

deficiencies were not yet addressed because their strategy has 

been to focus on the deficiencies that could be more readily 

resolved—those relating to deficiencies in controls over specific 

Academy activities. 

Training vessel use – To improve internal controls over activities from usage of training vessels and other Academy-owned boats by 

others, the Academy should take the following actions:

2. 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.

• Identify and recover the cost of any unreimbursed 

nongovernmental uses, to the extent authorized by law.

• 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.

Closed.

MARAD engaged an independent public accountant to identify 

activities related to the use of Academy-owned training vessels by 

outside parties and identify the sources and uses of funds, 

including the bank accounts used in these transactions for fiscal 

years 2006, 2007, and 2008. On April 30, 2010, the independent 

public accountant completed its analysis and concluded that it did 

not identify any payments that could be characterized as being for 

other than the continuing operations of the Academy or for the 

benefit of the midshipmen. On September 21, 2010, the Acting 

MARAD Chief Financial Officer (CFO) also concluded that funds 

from the usage of training vessels were used only for the benefit 

of the Academy or its midshipmen. Based on the independent 

 

1

GAO, 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 (Washington, D.C.: Aug. 10, 2009). 

Appendix II: Status of Prior 

Recommendations and Description of 

Corrective Actions Taken
Appendix II: Status of Prior Recommendations 

and Description of Corrective Actions Taken 

Page 30 GAO-12-369 Merchant Marine Academy 

Recommendation Status per GAO

public accountant’s work, MARAD management determined that 

no further actions were warranted. We are closing this 

recommendation because the independent public accountant’s 

analysis performed did not identify any misuse of government 

funds during fiscal years 2006 through 2007. We also noted that 

the Academy’s changed business practices include new written 

policies and procedures that govern the use of Academy training 

vessels. 

3. 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 ships’ crews, insurance, 

security, billing procedures, and other responsibilities.

Closed.

On September 29, 2010, the Academy issued Superintendent’s 

Instruction 2010-08, which established policies and procedures 

governing the use of Academy-owned training vessels by outside 

parties. The instruction contained the process by which Academyowned training vessels would be made available to outside parties 

and stated that all costs associated with their use shall be borne 

by the outside user—including the cost of personnel, fuel, 

provisions, dockages, and maintenance and repair.

4. Perform or contract out 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, 

nonroutine maintenance and long-term repairs, fuel, and dockage, 

and (2) identification of indirect expenses and imputed costs as 

appropriate (e.g., depreciation).

Closed.

On September 29, 2010, the Academy’s Department of Waterfront 

Activities completed a usage rate study and issued a vessel 

usage rate schedule, entitled Usage Rates for T/V Kings Pointer

and Other USMMA Vessels, establishing a base hourly, daily, and 

weekly billing rate for use of Academy-owned training 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. Fuel charges are 

to be billed on a direct reimbursable basis. 

5. Establish policy for the timing and extent of the analysis 

required for periodic updates to the usage rate study.

Closed.

On September 29, 2010, the Academy issued Superintendent’s 

Instruction 2010-08, which required the Director of Waterfront 

Activities to maintain a comprehensive schedule of usage rates for 

all Academy vessels made available for use by outside parties. 

Additionally, the instruction states that the schedule may be 

adjusted for cost-of-living, inflation, or payroll increases on an 

annual basis, and shall be reviewed for other factors at least every 

3 years. Prior to completion of our review, and as a result of our 

transaction testing results, the Academy updated the usage rate 

policy and reissued it on July 20, 2011.

6. Determine—in coordination with the department or MARAD 

legal counsel, as appropriate—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.

Closed.

In fiscal years 2006 and 2007, MARAD’s appropriations acts 

permitted MARAD to collect moneys for utilities, services, and 

necessary repairs in connection with any lease, contract, or 

occupancy and credit these funds back to the appropriation 

charged. However, any portions of rental receipts for items other 

than utilities, services, or repairs were to be deposited into the 

Treasury as miscellaneous receipts. Although there was authority 

to take up certain collections from the use of Academy-owned 

training vessels and other boats and credit these funds back to 

the appropriation charged, it was not possible to definitely 

determine whether MARAD’s treatment of its collections was in 

accordance with its authority because available records do not 
Appendix II: Status of Prior Recommendations 

and Description of Corrective Actions Taken 

Page 31 GAO-12-369 Merchant Marine Academy 

Recommendation Status per GAO

detail the sources of all funds and financial records do not detail 

their complete application. MARAD stated that it would develop 

recommendations for further improvement of the record-keeping 

process, and that it was proceeding with the development of a 

written lease to be employed in all instances of vessel use by 

outside parties.

Personal service acquisitions – 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 take the 

following actions:

7. 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.

Closed.

On February 25, 2010, the MARAD CFO issued a memo to the 

Fiscal Oversight Board (FOB) summarizing a follow-up review that 

had identified 15 NAFI positions that were paid all or in part with 

the Academy’s appropriations but had not been identified in an 

earlier review, which resulted in the conversion of NAFI staff to 

civil service or contract positions. The memo described the 

disposition of those positions and identified 3 positions funded 

with appropriations that performed functions exclusively for the 

NAFIs. The follow-up review also determined that the amounts 

rendered were consistent with the services received by the 

Academy; however, the MARAD CFO concluded that there was 

no possibility of recovering the amounts paid for these positions 

from the organizations that benefited. We are closing this 

recommendation based on (1) the results of the analysis MARAD 

performed and (2) the Academy’s changed business practices 

with the implementation of Maritime Administrative Order (MAO) 

400-11 and the discontinued use of illegal personal service 

arrangements.

8. 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.

Closed.

On September 30, 2011, MARAD issued MAO 400-11, which 

provided governing principles under which NAFIs must operate. It 

included principles stating that a NAFI, generally, may not provide 

goods or services to the Academy; must have staff to conduct its 

daily operations; and will receive no operating subsidy from the 

Academy, in kind or otherwise, other than minor incidental 

support. In addition, Section 6.03 of the MAO states the charters 

and bylaws of authorized NAFIs will provide for oversight by a 

three-person Governing Board made up of members approved by 

the Maritime Administrator and 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 by MAO 400-11. 

NAFI camps and clinics using academy facilities – To improve internal controls over camps and clinics operated by the Athletics 

Association NAFI or others on Academy property, the Academy should take the following actions:

9. 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.

Closed.

MARAD engaged an independent public accountant to identify 

camps, clinics, or similar fund-raising activities operated by the 

Athletics Association using Academy property; document the 

scope and nature of these activities, including the sources and 

uses of funds; and document payments to coaches constituting 

their compensation for fiscal years 2006, 2007, and 2008. Based 
Appendix II: Status of Prior Recommendations 

and Description of Corrective Actions Taken 

Page 32 GAO-12-369 Merchant Marine Academy 

Recommendation Status per GAO

on this analysis, MARAD management issued a memo on 

May 13, 2010, stating that the majority of the camps and clinics 

revenue had been provided to the individuals conducting the 

camps and clinics and that the residual revenue had been minor 

and was used to support the general activities of the Athletics 

Association. We are closing this recommendation because the 

analysis performed did not identify any misuse of government 

funds during fiscal years 2006 through 2008. Also, we noted that 

the Academy’s business practices have changed with the 

establishment of Superintendent Instruction 11100.1, stating that it 

is the official policy of the Academy that its facilities will not be 

used for revenue-generating athletic camps or clinics. Our review, 

which included physical observation and review of financial 

documents for selected 2010 and 2011 transactions, did not 

identify any camp and clinic activities or revenue related to such 

activities. 

10. Establish written policies and procedures for camps and 

clinics operated by the Athletics Association NAFI or others on 

Academy property.

Closed.

Superintendent’s Instruction 11100.1, dated May 17, 2011, 

established written policy that Academy facilities will not be used 

for revenue-generating athletics camps and clinics. Our work, 

which included physical observation and review of financial 

documents for selected 2010 and 2011 transactions, did not 

identify any camp and clinic activities or revenue related to such 

activities.

11. 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.

Closed.

The Academy has terminated all camp and clinic-related activities. 

Superintendent’s Instruction 11100.1, dated May 17, 2011, 

established written policy that Academy facilities will not be used 

for revenue-generating athletics camps and clinics. Our work, 

which included physical observation and review of financial 

documents for selected 2010 and 2011 transactions, did not 

identify any camp and clinic activities or revenue related to such 

activities.

Midshipmen fee accountability – 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 take the following actions:

12. 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 customers 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). Determine 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. 

Further, determine 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 

Closed.

MARAD engaged an independent public accountant to perform an 

analysis to identify midshipmen fee collections and uses of 

collected funds for academic years 2003—the first year for which 

Academy accounting records were considered reliable—through 

2009. The analysis was to identify any questionable payments, or 

categories of payments, that may not be consistent with law, 

regulation, or policy, and calculate an amount that MARAD 

management could consider as a potential refund to the 

midshipmen. On April 30, 2010, the independent public 

accountant completed its analysis and provided the results to 

MARAD and was able to account for almost all of the fee revenue 

collected. The independent public accountant provided MARAD 

with a spreadsheet model to estimate elements of cost data that 

were incomplete for some academic years. Supplementing this 

spreadsheet analysis with a trend analysis prepared by the 
Appendix II: Status of Prior Recommendations 

and Description of Corrective Actions Taken 

Page 33 GAO-12-369 Merchant Marine Academy 

Recommendation Status per GAO

whole or part; and (3) exceeded the cost to the Academy for the 

good or service.

MARAD CFO, MARAD determined the amount collected that 

exceeded the cost of goods and services provided to midshipmen. 

Based on the calculated excess collections, the Academy 

implemented a program to reimburse overcharges to midshipmen 

from 2003 through 2008. 

13. 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.

• Review all questionable payments and other 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.

• 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.

Closed.

MARAD engaged an independent public accountant to perform an 

analysis to identify midshipmen fee collections and uses of 

collected funds for academic years 2003 through 2009. The 

analysis was to identify any questionable payments or categories 

of payments that may not be consistent with law, regulation, or 

policy. On April 30, 2010, the independent public accountant 

provided MARAD with the results of its analysis, which did not 

identify any payments that could not be fairly categorized as 

supporting the continuing operations of the Academy or for the 

benefit of the midshipmen. A September 16, 2010, memorandum 

signed by the Acting MARAD CFO stated that based on the 

totality of the work performed, including previous work performed 

by the MARAD CFO’s Office and the independent public 

accountant, nothing had come to MARAD’s attention related to 

improper payments that would warrant a recovery of funds. We 

are closing this recommendation because the independent public 

accountant’s analysis did not identify any misuse of government 

funds during 2006 through 2008. Additionally, we noted that the 

Academy changed business practices, discontinuing the use of 

commercial bank accounts to manage midshipmen fee collections 

and documenting policy to establish the baseline items due from 

midshipmen, the amount of fees to be collected, and the approved 

uses of such fees.

14. 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.

Closed.

On May 26, 2010, MARAD issued MAO 400-15, requiring that the 

MARAD CFO ensure that the Academy complies with the annual 

midshipmen fee reporting requirement established in 46 U.S.C. § 

51314. This section requires the Secretary of Transportation to 

notify Congress of any change made by the Academy in the 

amount of a charge or fee charged to a midshipman at the 

Academy. Further, we obtained and verified DOT’s November 23, 

2009, and September 10, 2010, notifications to Congress 

regarding the changes in the midshipmen fee schedule for 

academic years 2009–2010 and 2010–2011. 

15. 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.

Closed.

On May 26, 2010, MARAD issued policy in 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 midshipmen fees. The 

policy also provides guidance on how the fee amounts are to be 

determined. Additionally, we verified that 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. 
Appendix II: Status of Prior Recommendations 

and Description of Corrective Actions Taken 

Page 34 GAO-12-369 Merchant Marine Academy 

Recommendation Status per GAO

16. 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.

Closed.

On May 26, 2010, MARAD issued MAO 400-15, establishing 

written policy for, among other things, the analysis and approvals 

required to change the baseline items for which collection and use 

of midshipmen fees are authorized. Specifically, in advance of 

each academic year, the Superintendent is required to develop a 

midshipmen fee schedule based upon input from Academy 

program offices for approval by the Maritime Administrator. No 

fees are to be charged without the Administrator’s approval. Any 

request to the Administrator to impose, collect, and use fees for 

goods and services in addition to the seven categories of baseline 

items identified in the MAO is to be made through the MARAD 

CFO. 

17. 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.

Closed.

In May 2009, MARAD, working in conjunction with the Academy, 

issued a revised midshipmen fee schedule for academic year 

2009, which reduced midshipmen fees by approximately 64 

percent compared to those of the prior fiscal year. Information 

obtained from the independent public accountant’s midshipmen 

fee analysis and MARAD’s cost trend analysis for academic years 

2003 through 2009 provided the basis for the schedule. By 

academic year, the schedule presented items of a personal nature 

that became the personal property of midshipmen but were 

procured by the Academy. Further, MAO 400-15 provides that 

because of inflation and price fluctuations on actual purchases 

and services, midshipmen fees are reviewed and adjusted each 

academic year. Specifically, in advance of each academic year, 

the Academy Superintendent shall develop a midshipmen fee 

schedule based on input from Academy program offices for 

approval by the Maritime Administrator. While conducting our 

review at the Academy, we verified that the billings to midshipmen 

were based on the published rates. Also, we obtained the revised 

midshipmen fee schedule for academic year 2010–2011 to 

validate that the schedule was updated to reflect actual, current 

prices of the goods and services provided to the midshipmen 

when compared to the revised 2009 midshipmen fee schedule. 

18. 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 activities that reflect accurate and 

fully supported information on collections, payments, and other 

activities 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 activities in the aggregate and by item to 

Academy and MARAD officials.

Open.

The Academy and MARAD have taken several actions to address 

this recommendation. MARAD issued a policy in MAO 400-15, 

issued in May 2010, to address the handling, usage, and reporting 

of midshipmen fees. Among other things, the MAO addressed 

policy regarding written protocols for the collection and use of 

midshipmen fees, accounting for the fees, reviews of fee 

collection and uses, and requirements for monthly detailed reports 

of all midshipmen fee activities to Academy and MARAD officials. 

Also, in accordance with the fiscal year 2010 Consolidated 

Appropriations Act, the Academy must now credit midshipmen fee 

collections to MARAD’s Operations and Training account with the 

U.S. Treasury to assist in tracking and accounting for midshipmen 

fee activities in DOT’s accounting system. Further, MARAD issued 

CFO Directive 2 in December 2009, establishing required 

procedures for the Office of Academy Operations to produce 
Appendix II: Status of Prior Recommendations 

and Description of Corrective Actions Taken 

Page 35 GAO-12-369 Merchant Marine Academy 

Recommendation Status per GAO

monthly Academy financial reports for review by Academy and 

MARAD officials, including information regarding the status of 

midshipmen fees. However, our walk-through of the midshipmen 

fee collections process demonstrated the complex series of steps 

Academy staff use to maintain detailed accounts of individual 

midshipmen fee activity and balances, which includes manual 

entry of transactions in a system separate from the Academy 

general ledger system. At the time of this walk-through, the 

Academy was operating without documented detailed accounting 

procedures for maintaining detailed accounts of individual 

midshipmen fee activity and balances. 

19. 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 followup.

Closed.

MARAD issued CFO Directive 2 establishing written policy for 

internal reviews of monthly reports of midshipmen fee activity. 

Directive 2 also established written policy requiring the Office of 

Academy Operations to identify any anomalies requiring additional 

information, follow-up, or action. Further, the Office of Academy 

Operations is to document the written records, with associated 

disposition, of any identified anomalies.

20. 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.

Open.

As of September 30, 2011, neither MARAD nor the Academy had 

performed an analysis to determine the extent to which 

midshipmen fees and appropriated funds should be utilized to pay 

for contracted medical services. However, memorandums from 

the FOB Chair to the Maritime Administrator document FOB 

conversation and consideration of this matter and a conclusion 

that for the fiscal year 2012 budget development process, the 

Administrator may wish to consider alternatives to the current 

approach. 

Accountability for academy reserves – To address funds held in commercial bank accounts of the Fiscal Control Office (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 take the following actions:

21. 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.

• Review all the questionable payments and other activity, 

including payments that we identify in this report that 

according to FCO records total $605,347.

• 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.

Closed.

MARAD 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 NAFI for fiscal years 2006, 

2007, and 2008, including the $605,347 we previously identified. 

The funds—or Superintendent’s Reserves—included in the review 

were GMATS Reserves, the Year-End Appropriated Funds 

Reserve, and the Excess Midshipmen Fees Reserve. In addition, 

the independent public accountant reviewed collections and 

expenditures of the FCO commercial bank accounts that could not 

be attributed to any of the Superintendent’s Reserves. On 

April 30, 2010, the independent public accountant provided 

MARAD with the results of its analysis, which identified examples 

of typical uses of the funds, including payments for telephone and 

cable services, accounting software, express mail services, and 

office equipment—all purposes consistent with the Academy’s 

mission or support of the midshipmen through its NAFIs. We are 

closing this recommendation because the analysis performed by 

the independent public accountant did not identify any misuse of 
Appendix II: Status of Prior Recommendations 

and Description of Corrective Actions Taken 

Page 36 GAO-12-369 Merchant Marine Academy 

Recommendation Status per GAO

government funds during fiscal years 2006 through 2008. Also, we 

noted that the Academy’s changed business practices have 

discontinued conversion of appropriated and nonappropriated 

funds to “off-book” reserves.

22. 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.

Closed.

MARAD engaged the services of an independent public 

accountant to investigate the unexplained transactions totaling 

$100,000 in the Academy’s FCO NAFI off-line record of monthly 

activity. On April 30, 2010, the independent public accountant 

report did not identify any express evidence of fraud. We are 

closing this recommendation because the Academy and MARAD 

conducted an investigation of the unexplained transactions. We 

also noted that the Academy changed its business practices—

discontinuing the conversion of available funds to “off-book” 

reserves and eliminating “cuff” accounting systems.

23. 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.

Closed.

On June 7, 2009, the Academy CFO took steps to secure prioryear excess balances in midshipmen fees held in commercial 

bank accounts by the FCO and protect excess balances from the 

academic year ending June 2009—which totaled approximately 

$3 million by that time. The excess midshipmen fees were to 

remain frozen until the approval of a methodology and procedures 

to use these funds to refund the overcharged midshipmen. 

24. 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.

Closed.

MARAD engaged an independent public accountant to perform 

the reconciliation as called for in this 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. On May 19, 2010, the MARAD CFO issued a memo 

concluding that—based on the totality of the work that the 

independent public accountant performed—there was no 

indication that these funds were used inappropriately or for the 

personal benefit of any individual.

MARAD issued CFO Directive 2, which established procedures for 

the Academy’s CFO to reconcile transaction activity in all 

commercial bank accounts. The Academy CFO is to also prepare 

an exhibit for inclusion in the Academy’s monthly financial report 

that confirms reconciliations were performed on the bank 

accounts.

Academy and NAFI governance structure – To improve internal controls over activities with its affiliated organizations, we 

recommend that the Academy take the following actions:

25. 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 

Closed.

We believe the intent of this recommendation has been met 

because the Academy and MARAD assessed the Academy/NAFI 

relationship and demonstrated a commitment to improving the 

Academy’s organizational structure. This was sufficiently 

demonstrated through evidence in the form of decision memos; 

charters; bylaws; MAO 400-11; and the closure or planned closure 

of 10 NAFIs, including GMATS, Melville Hall, and the Athletics 
Appendix II: Status of Prior Recommendations 

and Description of Corrective Actions Taken 

Page 37 GAO-12-369 Merchant Marine Academy 

Recommendation Status per GAO

alternative organizational structure would be more efficient and 

effective, while at the same time reducing risk and facilitating 

improvement in internal control and accountability.

Association. These changes should allow for more efficient and 

effective operations, as well as assist in reducing risk and 

facilitating improvements in internal control and accountability. 

26. 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.

Closed.

On September 30, 2011, MARAD issued MAO 400-11, which 

provides governing principles and the governance structure of the 

two remaining NAFIs—the Employees Association and the 

Regimental Morale Fund Association. The MAO requires the 

establishment of charters, bylaws, and a NAFI governing board, 

as well as an annual business plan detailing the NAFIs’ proposed 

programs of activities, resource needs, anticipated operating 

expenses, and financial plans for the current and forecasted 2 

years. 

27. 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.

Closed.

MARAD engaged an independent public accountant to identify 

GMATS funds that were made available from its two reserves to 

support the Academy’s operations. The Superintendent’s Reserve 

consisted of funds received from GMATS and deposited into a 

NAFI bank account for use at the Superintendent’s discretion. The 

GMATS Reserve, which was used at the discretion of various 

Academy officials, consisted of funds made available to the 

Academy from the GMATS bank account and was intended to 

serve as indirect compensation for GMATS use of Academy 

facilities. The independent public accountant’s analysis of the 

Superintendent’s Reserve concluded that no payments could be 

specifically characterized as being for other than the continuing 

operations of the school or for the benefit of the midshipmen. The 

analysis of the GMATS Reserve concluded that payments were 

related to the business of the Academy and for the benefit of the 

school in all cases.

MARAD legal analysis determined that sufficient prior-year 

unobligated appropriated funds were available to offset the 

GMATS-funded expenditures during each fiscal year in question, 

mitigating the potential for an Antideficiency Act (ADA) violation 

and any reporting requirements.

We are closing this recommendation because (1) the analysis 

performed did not identify any misuse of government funds during 

fiscal years 2006 through 2008 and (2) the Academy’s business 

practices in this area have improved.

28. Consider pursuing recovery from the organization or individual 

that benefited from the payment 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.

Closed.

The independent public accountant’s analysis of the 

Superintendent’s and GMATS Reserves determined that no 

payments could be specifically identified for anything other than 

the continuing operations of the school or the benefit of the 

midshipmen. We are closing this recommendation because the 

analysis performed did not identify any misuse of government 

funds during fiscal years 2006 through 2008. Also, we noted that 

the Academy improved its business practices by discontinuing

acceptance, deposit, and conversion of GMATS funds.

29. Perform an analysis to identify each activity involving the 

Academy and its affiliated organizations and for each activity 

Open.
Appendix II: Status of Prior Recommendations 

and Description of Corrective Actions Taken 

Page 38 GAO-12-369 Merchant Marine Academy 

Recommendation Status per GAO

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.

As of September 30, 2011, the Academy had not performed an 

analysis identifying activities between the Academy and its 

affiliated organizations that would allow—in addition to the 

identification of the attributes listed in the recommendation—the 

design of a robust system of checks and balances for each activity 

identified. To its credit, MARAD has established charters and 

bylaws for the two remaining NAFIs; issued a policy statement 

that to the extent practicable, the NAFIs should produce an annual 

business plan addressing their proposed programs of activities; 

and issued CFO Directive 4, which reiterated the requirement to 

conduct procurement transactions in accordance with Federal 

Acquisition Regulation (FAR) requirements. However, this order 

lacks the necessary detailed procedures, such as documenting 

the planned timing of performance, documenting monitoring 

responsibilities, and defining appropriate controls for each 

ongoing NAFI activity. 

30. 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.

Open.

As of September 30, 2011, the Academy had not performed an 

analysis identifying activities between the Academy and its 

affiliated organizations that would facilitate the establishment of 

formal, written policies and procedures for each activity between 

the Academy and its affiliated organizations.

Although MARAD made some progress by issuing MAO 400-11—

which provided guidelines for the establishment, governance, and 

maintenance of NAFIs—the MAO does not provide the necessary 

detailed procedures as called for in our recommendation.

31. Establish formal written policies and procedures that among 

other things, specify the allowable activities and transactions 

between the Academy and GMATS, and detail the necessary 

approvals and reviews required for each activity.

Open.

On September 30, 2011, the Maritime Administrator issued a 

memo, which stated that the NAFI is not an appropriate operating 

model for GMATS and rescinded its authority. It authorized 

continued transitional operations to allow GMATS to complete and 

deliver training classes through July 31, 2012. By December 30, 

2011, the Academy Superintendent, in coordination with the 

MARAD CFO, was to prepare an implementation plan for the 

orderly shutdown of the GMATS NAFI, with an option for the plan 

to include the GMATS plans for any future activities under a new 

operating model.

However, because the GMATS NAFI operations have not yet 

been terminated or reestablished, this recommendation remains 

open.

32. Establish targeted internal controls for each direct and indirect 

activity between the Academy and GMATS.

Open.

On September 30, 2011, the Maritime Administrator issued a 

memo, which stated that the NAFI is not an appropriate operating 

model for GMATS and rescinded its authority. It authorized 

continued transitional operations to allow GMATS to complete and 

deliver training classes through July 31, 2012. By December 30, 

2011, the Academy Superintendent, in coordination with the 

MARAD CFO, was to prepare an implementation plan for the 
Appendix II: Status of Prior Recommendations 

and Description of Corrective Actions Taken 

Page 39 GAO-12-369 Merchant Marine Academy 

Recommendation Status per GAO

orderly shutdown of the GMATS NAFI, with an option for the plan 

to include the GMATS plans for any future activities under a new 

operating model.

However, because the GMATS NAFI operations have not yet 

been terminated or reestablished, this recommendation remains 

open. 

Financial reporting controls – To improve internal controls over financial information, the Academy should take the following 

actions:

33. 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. 

Closed.

MARAD issued CFO Directive 2 in October 2010 to provide 

instructions for the preparation, review, and monitoring of 

Academy monthly financial reports. In accordance with CFO 

Directive 2, 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 managers and the 

Academy’s unresolved business. The Academy’s Assistant CFO 

maintains evidence of follow-up to these discussions. 

34. 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.

Open.

Although MARAD issued CFO Directive 2 in October 2010 to 

provide instructions for the preparation, review, and monitoring of 

monthly financial reports, our transaction testing demonstrated 

that not all financial activity is accounted for in the monthly 

reports. For example, as of September 30, 2011, we found that 

the monthly reports did not include information on (1) obligation 

and expenditure activity of expired funds; (2) CIP and gift and 

bequest expenditure activity for years following obligation; 

(3) activity for miscellaneous receipts, such as transfer of funds 

from closed commercial bank accounts, fees from others’ use of 

Academy training vessels, and payments from the Navy 

Exchange; (4) sources and uses of funds maintained in 

commercial bank accounts; and (5) sources and uses of 

midshipmen fees processed through two appropriation accounts 

and one nonappropriation account. 

35. 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 

Open.

On September 17, 2010, the Acting MARAD CFO issued a 

memorandum stating that adjustments to the fiscal years 2008 

and 2009 accounting records were made to correct the errors in 

Academy accounting for repairs and maintenance expenses and 

capital asset additions, as well as the funds handled “off book,” 

including transactions in the three Superintendent’s Reserves, as 

available records allowed. With respect to recording revenue and 

expenses from GMATS training programs, MARAD recognized 

the Academy’s error but noted that because correcting the 

offsetting revenue and expense amounts in MARAD’s Statements 

of Net Costs would not have any impact on MARAD’s future 

financial statements, it declined to make adjustments for fiscal 

years 2006 and 2007. Further, MARAD noted that as a 

consolidated part of DOT’s financial statements, the restatement 

would not be needed because these adjustments are below 
Appendix II: Status of Prior Recommendations 

and Description of Corrective Actions Taken 

Page 40 GAO-12-369 Merchant Marine Academy 

Recommendation Status per GAO

we identify in this report, including transactions in three 

Superintendent’s Reserves and with GMATS and FCO.

DOT’s restatement threshold (i.e., $500 million). However, with 

respect to the third aspect of this recommendation, midshipmen 

fee collections, MARAD engaged the services of an independent 

public accountant to determine the source and use of midshipmen 

fees for academic years 2003 through 2009, which identified 

approximately $1.3 million in Academy expenditures funded by 

midshipmen fees that should have been funded with appropriated 

funds. As of September 30, 2011, MARAD had not yet determined 

whether adjusting entries were required to reflect the use of 

midshipmen fees to augment Academy appropriations.

36. Implement policies and procedures to obtain the information 

necessary to timely comply with the requirement identified in the 

2009 report for annual reports to the Congress that provides all 

expenditure and receipt information for the Academy and its 

affiliated organizations.

Open.

On December 29, 2009, MARAD issued CFO Directive 3, 

establishing procedures for the production of a report on 

resources other than the Academy’s appropriated funds—such as 

gifts and bequests received by the Academy and paid to others, 

midshipmen fee receipts and expenditures, and GMATS receipts 

and expenditures—to be included in MARAD’s annual report to 

Congress. However, the directive does not include sufficiently 

detailed procedures on the data to be provided for inclusion in the 

report and does not address all aspects of the reporting 

requirement. Although the MARAD CFO told us that the annual 

report to Congress fulfills the requirement, we found that the fiscal 

year 2009 report lacked expenditure information for any of the 

Academy’s affiliated organizations and the purposes for which the 

expenditures were made. As of February 2012, MARAD’s fiscal 

year 2010 annual report to Congress was not available for review.

37. To improve the design and operation of the internal control 

system at the Academy, 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. 

Closed.

The Academy issued CFO Directive 2 in December 2009, 

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 the Budget to 

assist in their performance oversight. The reporting requirements 

included documenting identified anomalies and questioned items 

and their resolution. Directive 2 was revised twice in 2010, 

expanding the information required to be reported each month. 

Further, a review of the previous 12 months’ reporting for the 

fiscal year ended September 30, 2011, demonstrated that the 

monthly reports were reviewed by the Academy CFO and 

associated follow-up was performed on any identified unusual 

items and balances.

Fund accountability – To determine whether the Academy complied with the ADA,

a

38. Determine whether legal authority exists to retain payments to 

the Academy from 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 amounts 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.

the Academy should take the following actions:

Closed.

The MARAD Chief Counsel determined that Academy officials 

retained excess funds for which they had no legal authority and 

augmented funds in excess of appropriations made by Congress. 

Specifically, during fiscal years 2006, 2007, and 2008 the 

Academy accepted payments from and on behalf of GMATS 

totaling approximately $200,000. According to the facts collected 

and provided by MARAD’s Office of the CFO, the Academy 

violated the miscellaneous receipts statute by failing to deposit the 

GMATS funds into the U.S. Treasury and, instead, depositing 
Appendix II: Status of Prior Recommendations 

and Description of Corrective Actions Taken 

Page 41 GAO-12-369 Merchant Marine Academy 

Recommendation Status per GAO

funds into commercial bank accounts to use at Academy 

discretion. Additionally, it was determined the Academy “utilized 

funds provided by [GMATS] so as to augment the funding made 

available ... by Congress.” The funds were used in place of the 

Academy’s Operations & Training appropriation. In an April 11, 

2011, memo signed by the Maritime Administrator, MARAD 

determined that sufficient prior-year funds existed to offset the 

GMATS-funded expenditures. MARAD adjusted its accounts 

accordingly, and since sufficient prior-year funds existed, MARAD 

did not exceed its available appropriation in violation of the ADA.

39. 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.

Closed.

MARAD’s Assistant CFO for Academy operations analyzed the 

Academy’s year-end transactions for fiscal years 2005 through 

2007 to identify activities involving accrual accounts utilized to 

“park” appropriated funds within the NAFI FCO. Two summary 

memos—dated June 5 and 6, 2008—explained that the review 

had resulted in over $214,000 of fiscal year 2006 and 2007 funds 

being returned from the FCO NAFI to the Academy and that the 

Academy had deobligated the funds. 

40. Consider pursuing recovery from the organization or individual 

that benefited from the payment for each payment that is 

determined to be for other than a proper governmental purpose.

Closed.

Based on the Academy, MARAD, and the independent public 

accountant’s analysis of the year-end appropriated funds held in a 

FCO reserve bank account, MARAD did not identify any payments 

not related to the continuing operations of the school or for the 

benefit of the midshipmen. As a result, On May 19, 2010, the 

MARAD CFO concluded that—based on the totality of the work 

performed by the independent public accountant and the 

Academy—nothing was brought to light to suggest these funds 

were used inappropriately or for the personal benefit of any 

individual. We are closing this recommendation because the 

analysis performed did not identify any misuse of government 

funds during fiscal years 2006 through 2007. Additionally, we 

noted that the Academy’s changed business practices address 

the practice of “parking” appropriated funds within accrual 

accounts of the FCO.

41. Determine the amounts 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.

Open.

In a March 23, 2011, memorandum from MARAD’s Chief Counsel 

to the Maritime Administrator it was determined that officials at the 

Academy violated the ADA by charging midshipmen fees in 

excess of authorized levels, improperly augmenting agency 

appropriations, and 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. As of March 23, 2011, 

the MARAD CFO determined the Treasury fee account held 

$3.12 million attributable to excess midshipmen fee collections. 

Application of the $3.12 million in excess fees held by the 

Treasury to the $8.13 million debt left a $5.01 million deficiency. 

DOT received a deficiency appropriation from Congress of up to 

$6 million to be used to reimburse the full estimated amount of 

overcharges to midshipmen for academic years 2003–2004 

through 2008–2009. The required ADA report pending final DOT 
Appendix II: Status of Prior Recommendations 

and Description of Corrective Actions Taken 

Page 42 GAO-12-369 Merchant Marine Academy 

Recommendation Status per GAO

approval prior to submission to Congress had not been filed as of 

June 1, 2012.

42. To provide reasonable assurance that the Academy will 

comply with the Antideficiency Act and other applicable laws and 

regulations, we recommend a review of the funds control process 

be performed at the Academy and corrective actions be taken on 

any identified deficiencies.

Open.

On February 1, 2010, the MARAD CFO submitted the results of a 

review of the Academy’s funds control processes to the Acting 

Maritime Administrator. The review made numerous 

recommendations for process improvements. For example, the 

review recommended that the MARAD CFO issue a CFO directive 

establishing a policy and procedure requiring the periodic review 

and closeout of undelivered orders. As of September 30, 2011, 

the MARAD CFO had not yet issued the related policy. The review 

also recommended issuing policy guidance regarding contracting 

officer approval of Academy invoices. DOT officials told us the 

procedure regarding contracting officer approval of Academy 

invoices was prepared as part of the review of internal controls 

under OMB Circular A-123. However, MARAD only sent the 

procedure to officials within MARAD, and no formal or informal 

document establishing the procedure was developed and 

disseminated to Academy procurement personnel. Academy 

procurement officials we spoke with were unaware of any policy 

guidance related to contractor officer approval of invoices. 

43. Establish written policy guidance on the accrual of items of 

expense at year-end.

Closed.

On January 29, 2010, MARAD issued CFO Directive 6 providing 

policy guidance on the accrual of items of expense at year-end. 

Specifically, the directive stated that the accrual of Academy 

expenses should be conducted in accordance with MARAD and 

DOT financial policy and generally accepted accounting 

principles. The directive also provided the general principle that 

revenues should be recognized when earned and expenses 

should be recognized when a liability is incurred, without regard to 

receipts or payments of cash.

44. 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.

Open.

On January 29, 2010, MARAD issued CFO Directive 6, providing 

overall control policy for the accrual of expenses at the Academy. 

However, while CFO Directive 6 is a positive step, this 

recommendation remains open because Directive 6 does not 

provide criteria or specify the documentation requirements for the 

accrual of Academy expenses at year-end, or identify the specific 

required review and approval procedures for accruals. 

Controls over capital asset repairs and improvements – To improve internal controls over processing of vendor invoices and 

accounting for repairs and maintenance expenses and additions to capital assets, the Academy should take the following actions: 

45. 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.

Closed.

On May 25, 2010, MARAD issued CFO Directive 7, requiring 

monthly reporting and review of Academy repairs and 

maintenance expenses and capital improvement transactions to 

identify any instances of anomalies, discrepancies, or 

questionable entries. During our audit, we found that the Academy 

CFO’s Office prepared and carried out the required review 
Appendix II: Status of Prior Recommendations 

and Description of Corrective Actions Taken 

Page 43 GAO-12-369 Merchant Marine Academy 

Recommendation Status per GAO

monthly. 

46. 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. 

Open.

Although the Academy and MARAD reclassified certain incorrect 

transactions we identified in our August 2009 report, they have not 

yet identified the root cause(s) of these errors necessary to help 

guard against recurrence of such errors.

47. Establish policies 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.

Open.

The Academy and MARAD implemented CFO Directive 7 to 

address this recommendation. Directive 7 establishes procedures 

for distinguishing between accounting for and recording costs of 

Academy capital assets and ordinary maintenance and repair. It 

also requires 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. While the directive is a 

positive step, it does not fully satisfy our recommendation. We 

found that the Directive 7 monthly reports were not distributed to 

the department-level users to allow for monitoring of repairs and 

maintenance expenses and capital asset additions as called for in 

our recommendation. Further, while the policy in Directive 7 

requires that a detail report be run to validate that expenditures 

were recorded correctly, the Academy officials responsible for 

running this report did not have access to the prescribed reporting 

format.

Source: GAO analysis of DOT data.

a

31 U.S.C. §§ 1341-42, 1349-51, 1511-19. 
Appendix III: Comments from the Department 

of Transportation

Page 44 GAO-12-369 Merchant Marine Academy 

Appendix III: Comments from the 

Department of Transportation
Appendix III: Comments from the Department 

of Transportation

Page 45 GAO-12-369 Merchant Marine Academy 
Appendix IV: GAO Contact and Staff 

Acknowledgments

Page 46 GAO-12-369 Merchant Marine Academy 

Beryl Davis, (202) 512-9500 or DavisBH@gao.gov

In addition to the contact named above, Jack Warner, Assistant Director; 

Crystal Alfred; Francine DelVecchio; Geoff Frank; Pat Frey; Matthew 

Gardner; Jehan Abdel-Gawad; Jamie Haynes; Kate Lenane; and Scott 

McNulty made key contributions to this report.

Appendix IV: GAO Contact and Staff 

Acknowledgments 

GAO Contact

Staff 

Acknowledgments

(197219)
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