Federal government investigating allegations of misallocation of funds by Kings Point

Citing an alleged misuse of funds that it called “startling,†the U.S. Senate Committee on Appropriations has asked the U.S. Government Accountability Office (GAO) to conduct an audit of spending practices at the U.S. Merchant Marine Academy (USMMA).

In a report accompanying a bill to provide funding for USMMA for fiscal 2009, the Senate panel questioned the way money has been allocated at the academy in Kings Point, N.Y., and requested an examination of how it may have been allowed to occur.

“Earlier this year, the committee was informed by the Department of Transportation and the Maritime Administration (MarAd) that for many years, officials at the United States Merchant Marine Academy may have been involved in the improper and illegal use of appropriated funds,†the committee wrote. “The suggested level of impropriety is startling.â€

The report, released on July 14, includes five potential violations at the academy that were identified in an internal review ordered by the Deputy Secretary of the Department of Transportation:

• Obligating funding in excess of the amount appropriated for salaries and benefits at the academy.

• Bypassing the civil service system by employing staff through the academy’s Non-Appropriated Fund Instrumentalities (NAFIs) to conduct official academy business.

• Bypassing competition requirements by entering into invalid reimbursable agreements in order to transmit revenue to the Global Maritime and Transportation School (GMATS), one of the academy’s NAFIs.

• Circumventing federal procurement regulations.

• Siphoning money from the direct appropriation for the academy’s instructional program and using it for other academy functions.

“The level of disregard that academy officials appear to have shown to appropriate financial practices, government regulations and statutory limitations is intolerable,†the report stated. “The idea that so many questionable and potentially illegal actions took place under the supervision of MARAD leadership suggests either gross negligence in the agency’s oversight responsibility, or worse, complicity. The committee is also greatly disturbed that some of the actions by the academy’s officials appear to have taken funding away from the educational programs for the academy’s students.â€

Shannon Russell, director of congressional and public affairs for MarAd, the agency that oversees the four-year service academy, said there was no evidence of impropriety.

“The issues are technical and involve how money was appropriated,†she said. “It’s just a situation where there was a mixing of accounts. The sum total is the same, but Congress set specific monetary amounts for certain (budget) categories and they didn’t match up. There is no missing money or misappropriation of funds.â€

Russell, who said the academy’s budget was overseen by a variety of personnel from Kings Point and MarAd, would not comment on which officials may have been involved.

“We will wait for the audit to tell us,†she said. “We’ve been working with the GAO and we look forward to the report.â€

Academy officials did not respond to repeated calls for comment.

Russell said two recent leadership changes at the academy — the retirement in September of Superintendent Joseph Stewart and the transfer of Deputy Superintendent Christopher McMahon — were not related to the GAO audit. Russell said McMahon’s position at the academy was eliminated for reasons that she would not specify; he will be MarAd’s new director of safety in Washington. Stewart’s successor has not been named.

While the audit will not affect the academy’s $61.4 million budget request for fiscal 2009, a USMMA proposal to change how the money is allocated — combining several programs into a unified account called Academy Operations — was rejected by lawmakers.

—Rich Miller

By Professional Mariner Staff