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GAO: Withhold Title XI funds until MarAd cleans up program

GAO: Withhold Title XI funds until MarAd cleans up program

   The U.S. Government Accounting Office recommends that Congress withhold new funds for the Maritime Administration’s ship construction and shipyard modernization loan guarantee program until substantial improvements are made.

   “MarAd does not operate the program in a businesslike fashion,” said GAO in a report requested by Sen. John McCain, R-Ariz., chairman of the Senate Commerce, Science and Transportation Committee. “Consequently, MarAd cannot maximize the use of its limited resources to achieve its mission, and the program is vulnerable to fraud, waste, abuse and mismanagement.”

   Title XI of the 1936 Merchant Marine Act is intended to help promote modernization of the U.S. merchant marine. During the past 10 years, MarAd has committed to guarantee more than $5.6 billion in loan guarantees to the industry.

   Since 1993, the program has suffered nine loan defaults totaling more than $1.3 billion. One of the largest loan defaults incurred by MarAd was from American Classic Voyages Co., and has been the heated topic during hearings by the Senate Commerce Committee and House Armed Services Committee.

   “While MarAd generally complied with requirements to assess an applicant’s economic soundness before issuing loan guarantees, MarAd did not ensure that shipowners and shipyard owners provided required financial statements, and it disbursed funds without sufficient documentation of project progress.”

   GAO recommended to Congress that MarAd update its default and recovery assumptions to “more accurately reflect costs.” The watchdog agency also said MarAd should undertake several reforms to improve its program management.

   The Transportation Department, which oversees MarAd, has reviewed the GAO’s report and agrees with most of its findings.

   “MarAd recognized that aspects of the Title XI program’s operation need improvement, and it is working closely with OIG (Office of the Inspector General) to fine tune program operation and create additional safeguards,” DOT said to GAO.

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