Audit Reports

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MARAD’s Policy and Procedures for the Title XI Program’s Application Review Process Do Not Ensure Full Compliance with Requirements

Required by the Fiscal Year 2019 John S. McCain National Defense Authorization Act
Project ID: 
ST2020038
What We Looked At
Title XI of the Merchant Marine Act of 1936 established the Maritime Administration’s (MARAD) Federal Ship Financing Program (Title XI), which provides loan guarantees to private companies for ship construction and shipyard modernization. The Fiscal Year 2019 John S. McCain National Defense Authorization Act requires us to audit MARAD’s policies and procedures for reviewing and approving loan guarantee applications. Our audit objectives were to assess (1) the completeness of the program’s policy for application reviews and (2) the program’s adherence to the policy in its application reviews.
 
What We Found
MARAD’s Title XI policy manual does not fully cover 13 of 28 regulatory requirements that address program eligibility and applications. A MARAD official acknowledged that the manual does not cover all requirements but pointed out that missing requirements are not frequently relevant to application reviews. However, lack of inclusion of all requirements creates a risk that the program will omit attention to relevant requirements, and in turn, diminish the reliability of information the program uses to assess applicants’ eligibility and creditworthiness.
MARAD lacks adequate procedures to ensure that staff fully comply with requirements. The program also takes longer to process applications than the 9-month statutory review period, and the program’s controls are inadequate to ensure staff comply with policy requirements. According to the Government Accountability Office, management must enforce accountability for the entity’s internal control, including through supervisory feedback. However, the program supervisor reviews applications for completeness on an ad-hoc basis. The lack of internal controls could inhibit assessments of applicants’ eligibility and creditworthiness.
 
Recommendations
We made three recommendations, and MARAD concurred with all three.

Recommendations

Open

Closed

No. 1 to MARAD

Update the 2012 policy manual to address all statutory and regulatory requirements.

No. 2 to MARAD

Develop and implement procedures that direct MARAD to obtain and document all application related materials required by statute and regulation.

No. 3 to MARAD

Develop and implement procedures that require program staff to adhere to MARAD's program policy and statutory and regulatory requirements.