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NSIAD-85-81 1 (1985-05-07)

handle is hein.gao/gaobabnre0001 and id is 1 raw text is: r , %, '01-' I L UNITED STATES GENERAL ACCOUNTING OFFICE , ) G 9 WASHINGTON, D.C. 20548 NATIONAL SECURITY AND INTERNATIONAL AFFAIRS DIVISION MAY 7 1985 B-218788 IIIP The Honorable Caspar W. Weinberqer 126925 The Secretary of Defense Dear Mr. Secretary: Subject: Improvements Needed in Department of Defense Procedures -Th Prevent Reimbursement of Unallowable Costs on Government Contracts (GAO/NSIAD-85-81) On April 24, 1985, we testified before the Subcommittee on Oversight and Investigations, House Committee on Enerqy and Com- merce, on the need to improve the Department of Defense's (DOD'S) system to prevent payment of defense contractors' unallowable overhead costs. This hearing focused on question- able overhead billings by major defense contractors. Our testi- mony was based on our review of Administrative Contracting Offi- cer's (ACO's) final overhead cost settlements at 12 major DOD contracting activities. Enclosed is a copy of our testimony which provides additional details on our discussion of defense contractors' unallowable overhead costs. Our review noted that there were numerous instances where the Defense Contract Audit Agency (DCAA) was challenging, as unallowable expenses, significant amounts of contractor costs, but the ACOs were overruling DCAA and allowing a significant percentage of the costs questioned by DCAA. For example, at the 12 contracting activities we reviewed, $31 million of costs challenged by DCAA as unallowable were introduced into negotia- tions. In the ensuing negotiations, the ACOs allowed into over- head $16.5 million, or 53 percent. Ambiguities in the Federal Acquisition Regulation (FAR) cause contractors, DCAA, and contracting officers to have different interpretations on allowability. If a contractor believes a specific cost item is subject to interpretation, the contractor generally includes the cost in overhead. DCAA, in performing its overhead audits, uses the same FAR criteria but often arrives at a different interpretation and, therefore, questions the costs. If the contractor does not concede the questioned costs, they will be introduced into negotiations between the contracting officer and the contractor. (396107)

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