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NSIAD-94-204R 1 (1994-07-06)

handle is hein.gao/gaobackpg0001 and id is 1 raw text is: 1Y2060 GAO United States General Accounting Office Washington, D.C. 20548 National Security and International Affairs Division B-257649 July 6, 1994 Rear Admiral Leonard Vincent Commander, Defense Contract Management Command Dear Admiral Vincent: In recent years, we have performed a number of reviews of defense contractor overhead costs. This work, along with audits by the Defense Contract Audit Agency (DCAA), shows that contractor submissions of unallowable and questionable costs remain a continuing problem. For example, in March 1994, we testified before the Senate Committee on the Budget that six small and two large defense contractors we reviewed included unallowable and questionable costs in their overhead claims. In addition to almost $1 million in costs identified by DCAA at the six small contractors, we identified about $2 million more in overhead costs that was either unallowable or questionable. Similarly, at the two large contractors, we identified about $4.4 million in unallowable or questionable overhead costs. For fiscal years 1991 through 1993, DCAA questioned over $3 billion in contractor overhead costs. In an attempt to deter contractors from including unallowable costs in their overhead submissions, Congress legislated a penalty provision in the Department of Defense Authorization Act, 1986, 10 U.S.C. 2324. Amended in 1992, in its current form, the penalty provision states, in general, that for all Department of Defense (DOD) flexibly-priced contracts over $100,000, DOD can levy a penalty against contractors for including expressly unallowable costs in their overhead cost submissions. The Chairman of the Senate Budget Committee asked us to ascertain the extent to which DOD uses the penalty provision. However, given the fact that the October 1992 changes to the penalty law have been in effect a short GAO/NSIAD-94-204R Unallowable Costs and Penalties

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