The Academy is headed by a Superintendent. The Superintendent reports directly to the head of MARAD, the Maritime Administrator. MARAD, an agency of the Department, is responsible for overseeing and monitoring the Academy. A Deputy Superintendent and four Assistant Superintendents—Administration, Regimental Affairs, Academic Affairs, and Plans, Assessment, and Public Affairs—report directly to the Superintendent and are the principal officials responsible for carrying out the Academy’s operations. Academy components with respect to the issues discussed in this report include the following. The Department of Resource Management (DRM) provides bookkeeping, payroll, and other administrative support services for the Academy. Further, for most of fiscal years 2006 and 2007, the director of DRM was also the head of the Fiscal Control Office (FCO) NAFI. During fiscal years 2006 and 2007, the Director of DRM reported to the Academy’s Deputy Superintendent. When the position of Deputy Superintendent was not occupied, the Director of DRM reported directly to the Superintendent. The Department of Waterfront Activities operates the waterfront area of the Academy’s property, maintains the Kings Pointer and other training vessels, and provides training to midshipmen. Further, the Department of Waterfront Activities collaborates with two NAFIs on waterfront related activities (the Sail, Power and Crew Association, and the Global Maritime and Transportation School (GMATS)), and the Sailing Foundation, a private non-profit foundation. The Director of Waterfront Activities reported to the Deputy Superintendent, or when that position was not occupied, the Director reported directly to the Superintendent. The Department of Information Technology provides information technology services for all Academy operations and midshipmen. The Director of Information Technology reported to the Deputy Superintendent or when that position was not occupied, the Director reported directly to the Superintendent. The Department of Health Services provides medical and dental services to midshipmen. The Director reported to the Assistant Superintendent for Administration as well as the Deputy Superintendent or the Superintendent. An overview of the organizational relationships of the Department of Transportation, MARAD, selected components within the Academy, as well as the Academy’s affiliated NAFIs and foundations is provided in figure 1. The Academy carries out its mission and operations primarily using appropriated funds. The Academy’s 14 affiliated NAFIs operate using the proceeds from their own operations, rather than with appropriated funds. NAFIs are organizations that typically provide for the morale, welfare, and recreation (MWR) of government officers and employees. These are items and services that support the efforts of government employees and officers to carry out the government’s business by fulfilling their MWR needs. For example, tailoring, hair cuts, and laundry services provided by the Academy’s NAFIs are examples of MWR services that generally should not be paid from appropriated funds. In addition to the 12 MWR type NAFIs, the Academy has two other affiliated NAFIs. The Fiscal Control Office (FCO) provides bookkeeping, payroll, and other administrative support services and the Global Maritime and Transportation School (GMATS) provides training to other federal agencies and to the maritime industry. The activities of the FCO with respect to the issues discussed in this report include the following. The FCO was responsible for bookkeeping, payroll, and administrative support services for 12 of the other 13 NAFIs and also handled payroll for the Athletic Association. The Athletic Association handled its own bookkeeping, and the GMATS handled all of its own bookkeeping and payroll functions. The FCO was also responsible for the collection of all midshipmen fees for the Academy and the payment of amounts to other NAFIs, vendors and others from the fees collected. The FCO also collected funds from GMATS that were provided for the use and benefit of the Academy. Further, the FCO was responsible for maintaining books and records for “prior years’ reserves” from the excess of midshipmen fees collected over payments made as discussed in this report. The FCO maintained various commercial checking accounts for activities related to its collection and payment responsibilities for Academy funds. The functions of the FCO and DRM staff and managers were interchangeable. The manager of the FCO (the same individual as the head of DRM) reported on FCO matters to the Deputy Superintendent or when that position was not occupied, the FCO manager reported directly to the Superintendent. The Academy’s 14 affiliated NAFIs and 2 affiliated foundations are listed in table 1. Appendix II provides more detail on the relationships and financial activity between the Academy and its affiliated organizations. Table 2 shows the amount and sources of the Academy’s funding for fiscal years 2006 and 2007. Amounts received by the Academy for capital improvement, totaling $15.9 million and $13.8 million for fiscal years 2006 and 2007, respectively, were to be used for capital assets, including certain related expenses. The Academy’s payments to NAFIs and total expenses for fiscal years 2006 and 2007 are shown in Appendix III. The Academy’s payment activity with its 14 NAFIs was significant in relation to the Academy’s total expenses. For fiscal year 2006 Academy expenses of $55.7 million included $9.6 million to its affiliated NAFIs, representing over 17 percent of total Academy expenses. Similarly, for fiscal year 2007, Academy expenses of $62.0 million included $13.4 million to its NAFIs, representing over 21 percent of total Academy expenses. Payments to NAFIs were generally classified in the Academy’s financial records as contractual services; operations and maintenance; and gifts and bequests. The total amount of payments that the Academy made to its NAFIs in fiscal years 2006 and 2007 are shown in table 3. The Academy is to provide each midshipman with free tuition, room and board as well as limited medical and dental care. However, under MARAD regulations, the Academy requires each midshipman to pay fees for items or services generally of a personal nature (hereafter “goods or services” or “personal items”) each academic year. The Academy treats all fees collected as non-appropriated funds when the good or service is provided by a NAFI, such as services for laundry and haircuts that are provided by the Ship’s Services Store, or by a department of the Academy, such as Information Technology that provides internet services and personal computers to the midshipmen. The FCO collects all midshipmen fees on behalf of the Academy and also makes payments to vendors and others from the fees collected. For fiscal years 2006 and 2007, the FCO collected about $7 million in total midshipmen fees. In the 2007-2008 academic year, fees collected represented $15,560 per midshipmen over the course of a 4-year education and ranged in amount from $2,410 to $7,020, depending on class year. Details on midshipmen fee collections for fiscal years 2006 and 2007 are shown in table 4. Our review identified instances of improper and questionable sources and uses of funds by the Academy and its affiliated NAFIs, some of which violated laws, including the ADA. Specifically, we identified improper and questionable sources and uses of midshipmen fees and questionable financial activity associated with GMATS and other NAFIs. The improper and questionable activities and transactions that we identified demonstrate the Academy did not have assurance that it complied with applicable fund control requirements, including those in the ADA. Further, the Academy could not effectively carry out its important stewardship responsibilities with respect to maintaining accountability over the collection and use of funds, including assuring that funds were collected and used only for authorized purposes. As discussed in this report, the primary causes of these improper and questionable sources and uses of funds can be attributed to a weak control environment and the flawed design and implementation of internal controls at the Academy, including inadequate oversight and monitoring by the Academy and MARAD. MARAD regulations provide that the Academy can collect fees from all midshipmen to pay for “personal” goods and services. However, we found a number of improper and questionable activities concerning the Academy’s and its affiliated NAFIs’ collection and use of midshipmen fees. Specifically, we identified improper and questionable midshipmen fee- related transactions with respect to: (1) collections for goods and services that were not the midshipmen’s responsibility, (2) collected amounts that exceeded the actual expense to the Academy for the goods or services provided to the midshipmen, and (3) the use of accumulated fee reserves for questionable purposes. We also identified improper and questionable uses of the fees collected. For fiscal years 2006 and 2007, the Academy collected fees of approximately $7 million from midshipmen. We nonstatistically selected four midshipmen fee categories for review. We found that the total fees collected for these four midshipmen fee categories of about $1.5 million were questionable because they did not appear to be items of a personal nature to each midshipman, but rather, expenses that would normally be paid by the Academy from appropriated funds. Specifically, over the 2006 and 2007 fiscal years, we found that the Academy collected questionable midshipmen fees for waterfront activities, processing services, information technology services, and medical services. We also identified potentially improper payments from these questionable fee collections totaling approximately $1.2 million that were paid to NAFIs and vendors, including the Sail, Power and Crew Association (SP&C) for waterfront activities, the FCO for processing services, and vendors for information technology services. There may be other improper and questionable collections and uses of midshipmen fees that our review did not identify. To the extent these collections and the uses of these funds improperly covered Academy expenses that are chargeable to Academy appropriations, the Academy improperly augmented its appropriated funds, which may have resulted in violations of the ADA, 31 U.S.C.