It started in April 2007 when $95,000 in corporate sponsorship money raised for Navy's appearance in the 2006 Meineke Car Care Bowl football game was placed into a newly created contingency fund.
Over the next two years, Naval Academy administrators deposited an additional $200,000 in bowl game sponsorship money into the account, tapping it to pay for "invitation-only" tailgate parties, several catered receptions and $863 in necktie gifts for football coaches.
But this off-the-books "slush fund" never should have been created, according to a newly released report from the Office of the Naval Inspector General. The report concluded that the expenditures, some of them "extravagant and wasteful," did nothing for the intended beneficiaries — the academy's midshipmen.
The report's outcome "was a factor" in Vice Adm. Jeffrey L. Fowler's pending retirement as Naval Academy superintendent after three years, said a Navy spokesman, Rear Adm. Denny Moynihan. He noted, however, that Fowler made no financial gain, and the report said there was no evidence he was "specifically aware of any of the improprieties related to the actions of his subordinates in this matter."
Moynihan said "appropriate administrative actions" were taken against Fowler, though he would not go into detail. In addition, Robert Parsons, the academy's deputy for finance, was suspended without pay for five days, and Moynihan said "corrective measures" were taken against another academy employee whom he would not identify.
The inspector general's report also found that Parsons and another academy official violated contracting regulations and misused funds as part of a $3.7 million deal with a California film company to produce recruiting commercials. But the investigation found no evidence that Fowler "unduly pressured" his subordinates to commit the violations.
In addition, it found that Parsons improperly accepted personal gifts and solicited Naval Academy gifts from a close friend and donor.
"As superintendent of the Naval Academy I am responsible and accountable," Fowler said in a statement. "I and the academy's leadership take this report seriously."
Fowler added: "With the help of Navy experts, the academy has identified — and has either completed implementation of, or is [in] the process of implementing — improvements in order to ensure more thorough compliance with Navy and [Department of Defense] financial management policies."
Moynihan, in an interview, said areas of improvement included accounting practices, "asset control," invoicing and contracting, and that the vice chief of naval operations was receiving monthly progress reports. "The Navy has thoroughly reviewed the allegations, took appropriate corrective action and as a result the Naval Academy is better prepared to avoid such incidents in the future," Moynihan said.
Fowler's successor, Rear Adm. Michael H. Miller, was confirmed May 28 by the Senate. No date has been set for the change of command, Moynihan said.
Fowler was nominated to be superintendent in March 2007 by President George W. Bush and took over in the summer of 2007. Despite serving during wartime, Fowler has led the academy to major increases in applications, including those from minority candidates.
The inspector general's investigation grew out of a handful of complaints dating to the fall of 2008. The resulting 110-page report was completed in November but released only this month in response to a Freedom of Information Act request by the publication Navy Times.
The report is harshly critical of the contingency fund. "Its existence is a sham," the report said. It went on to say: "In this case, there was no accountability, because the fund was unknown to the assigned Government auditor and it was held outside of any authorized system of Government accounting."
The report's authors said they did not question that Parsons and colleagues had "what they believed were the best interests" of the Navy and Naval Academy in mind. Yet "they nonetheless acted in a reckless and irresponsible manner," the report claims.
The fund was the brainchild of an academy official whose name is redacted in the report. Moynihan declined to identify the official "given the grade and position of the employee, as well as that person's relative responsibility in this matter."
Parsons approved the plan to divert $94,969 that had been received from the Naval Academy Athletic Association. The sum was the business services division's share of corporate sponsorship money for the 2006 bowl game. The money was intended to offset costs of a tailgate event for midshipmen attending the game.
But instead of going into the normal operating account, the money was put into a newly opened Navy Federal Credit Union account — the "slush fund" decried by investigators. By June 2009, the account had received $301,000 in deposits, with recorded expenditures of $172,000, leaving a balance of about $129,000.