Who Should Read This Report and Why? The President of the Naval Postgraduate School , the Naval Postgraduate School Comptroller, and personnel in the Naval Postgraduate School Research Program who are responsible for the management and day-to-day operations of projects performed on a reimbursable basis should read this report. The report discusses the management of the Army Game Project by the Naval Postgraduate School .
Background. In May 2000, the Assistant Secretary of the Army for Manpower and Reserve Affairs and the President of the Naval Postgraduate School entered into a memorandum of agreement. The memorandum of agreement called for the Naval Postgraduate School to develop a state-of-the-art video game for the Army. The Naval Postgraduate School engaged their Modeling, Virtual Environments and Simulation (MOVES) Institute to perform the research and development work. The Army's purpose for having the game developed was to educate potential recruits on the Army's missions and functions and enhance recruiting opportunities. The game simulates the highly technological nature of modern U.S. Army warfare. The Army believed the game would stimulate interest and assist in meeting enlistment goals.
In March 2004, the Naval Postgraduate School received a memorandum from the Army that cited allegations of project mismanagement. As a result, the Naval Postgraduate School management contacted the Naval Inspector General and requested they look into the allegations raised by the Army. However, since the issues surrounding the allegations involved an Army organization and the project in question was funded by the Army, the Naval Inspector General referred the issue to the Office of the Deputy Inspector General for Auditing.
Results. The MOVES Institute made 45 improper charges totaling nearly $500,000 to the Army Game Project and an Air Force Project. Specifically, it charged Army Game Project expenses to the Air Force Project, overcharged the Army Game Project for software licenses that benefited other projects, and misallocated contract labor costs between the Army Game Project and the Air Force Project. Consequently, the MOVES Institute did not charge customers the proper amount for goods and services provided and violated the provisions of 31 United States Code 1301(a). The Naval Postgraduate School should take actions to correct the improper charges, develop and implement controls to prevent future improper charges, and train Naval Postgraduate School managers in appropriations law and hold them accountable for full compliance (finding A).
The Naval Postgraduate School accepted a project order from the Army even though they lacked the capability to perform a major portion of the work on the project. The DoD Financial Management Regulation requires that an activity accepting project orders perform a major portion of the work in-house to prevent the practice of one DoD organization acting as a general contracting agent for another DoD organization. As a result, the Naval Postgraduate School violated the Financial Management Regulation requirements on project orders and gave the appearance that they were acting as the Army's general contractor. The Naval Postgraduate School should not accept project orders if they do not have the resources to perform a major portion of the work ordered and should also monitor compliance with the Financial Management Regulation (finding B).
Internal control was not adequate to effectively manage and safeguard resources at the MOVES Institute. As a result, appropriations law was violated, pilferable property was not adequately safeguarded, travel regulations were not always complied with, and there was the appearance of nepotism. The Naval Postgraduate School needs to develop new controls and fully implement existing controls to ensure that all resources are safeguarded, to emphasize the need to comply with travel regulations, and to prevent employees being assigned to either supervise or be supervised by family members. Further, both the Navy and the Naval Postgraduate School should revise their guidance on accountability over pilferable property to be consistent with DoD guidance (finding C). We also reviewed the management control program as it related to the MOVES Institute and the Army Game Project . The conditions described in findings A and C were the direct result of the control weaknesses discussed in Appendix A. Implementation of the recommendations in this report should prevent recurrence of the conditions.
Management Comments. The Navy concurred with the findings and recommendations; therefore, no additional comments are required. See the Findings section and Appendix A of the report for a discussion of management comments and the Management Comments section of the report for the complete text of the comments.
Management Actions. Throughout the audit we worked closely with the staff at the Naval Postgraduate School , and we commend the staff for their cooperation and aggressive approach to implementing corrective actions.
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