B-106305, FEB 26, 1952

B-106305: Feb 26, 1952

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WITH THE REQUEST THAT AN ADVANCE DECISION BE RENDERED AS TO WHETHER PAYMENT THEREON IS AUTHORIZED. THE VOUCHER COVERS THE RECLAIM OF CERTAIN AMOUNTS WHICH WERE COLLECTED FROM THE CONTRACTOR. UNDER THE TERMS OF THE CONTRACT IT WAS AGREED THAT THE CONTRACTOR WOULD MANUFACTURE AND DELIVER TO THE GOVERNMENT CERTAIN AIRPLANES AND SPARE PARTS THEREFOR IN CONSIDERATION OF PAYMENT OF THE FIXED FEE PROVIDED FOR THEREIN AND REIMBURSEMENT FOR THE COST OF THE WORK. WHICH WAS TO BE DETERMINED IN ACCORDANCE WITH THE REGULATIONS CONTAINED IN TREASURY DECISION NO. 5000. "(B) ELEMENTS OF COST. - NO DEFINITIONS OF THE ELEMENTS OF COST MAY BE STATED WHICH ARE OF INVARIABLE APPLICATION TO ALL CONTRACTORS AND SUBCONTRACTORS.

B-106305, FEB 26, 1952

PRECIS-UNAVAILABLE

CAPTAIN E.F. SPARKS, SC, U.S. NAVY:

THERE HAS BEEN RECEIVED BY REFERENCE FROM THE BUREAU OF SUPPLIES AND ACCOUNTS YOUR LETTER OF OCTOBER 15, 1951, TRANSMITTING BUREAU VOUCHER NO. 60 IN THE AMOUNT OF $25,745.48, STATED IN FAVOR OF DOUGLAS AIRCRAFT COMPANY, INC., UNDER COST-PLUS-A-FIXED-FEE CONTRACT NO. NOS-91397, DATED APRIL 27, 1942, WITH THE REQUEST THAT AN ADVANCE DECISION BE RENDERED AS TO WHETHER PAYMENT THEREON IS AUTHORIZED. THE VOUCHER COVERS THE RECLAIM OF CERTAIN AMOUNTS WHICH WERE COLLECTED FROM THE CONTRACTOR, THROUGH SET- OFF AND OTHERWISE, AS A RESULT OF EXCEPTIONS ISSUED BY THE GENERAL ACCOUNTING OFFICE TO REIMBURSEMENT TO THE CONTRACTOR FOR A PRO RATA SHARE OF VARIOUS ITEMS OF OVERHEAD EXPENSE INCURRED UNDER THE CONTRACT DURING ITS FISCAL YEARS 1942, 1943 AND 1944.

UNDER THE TERMS OF THE CONTRACT IT WAS AGREED THAT THE CONTRACTOR WOULD MANUFACTURE AND DELIVER TO THE GOVERNMENT CERTAIN AIRPLANES AND SPARE PARTS THEREFOR IN CONSIDERATION OF PAYMENT OF THE FIXED FEE PROVIDED FOR THEREIN AND REIMBURSEMENT FOR THE COST OF THE WORK, WHICH WAS TO BE DETERMINED IN ACCORDANCE WITH THE REGULATIONS CONTAINED IN TREASURY DECISION NO. 5000.

TREASURY DECISION NO. 5000 PROVIDES, IN PERTINENT PART, AS FOLLOWS:

"SEC. 26.9. COST OF PERFORMING A CONTRACT OR SUBCONTRACT. - (A) GENERAL RULE. - THE COST OF PERFORMING A PARTICULAR CONTRACT OR SUBCONTRACT SHALL BE THE SUM OF (1) THE DIRECT COSTS, INCLUDING THEREIN EXPENDITURES FOR MATERIALS, DIRECT LABOR AND DIRECT EXPENSES, INCURRED BY THE CONTRACTING PARTY IN PERFORMING THE CONTRACT OR SUBCONTRACT; AND (2) THE PROPER PROPORTION OF ANY INDIRECT COSTS (INCLUDING THEREIN A REASONABLE PROPORTION OF MANAGEMENT EXPENSES) INCIDENT TO AND NECESSARY FOR THE PERFORMANCE OF THE CONTRACT OR SUBCONTRACT.

"(B) ELEMENTS OF COST. - NO DEFINITIONS OF THE ELEMENTS OF COST MAY BE STATED WHICH ARE OF INVARIABLE APPLICATION TO ALL CONTRACTORS AND SUBCONTRACTORS. IN GENERAL, THE ELEMENTS OF COST MAY BE DEFINED FOR PURPOSES OF THE ACT AS FOLLOWS:

"(3) GENERAL EXPENSES, WHICH ARE THE SUM OF INDIRECT ENGINEERING EXPENSES, USUALLY TERMED 'ENGINEERING OVERHEAD' (SEE PARAGRAPH (F) OF THIS SECTION) AND EXPENSES OF DISTRIBUTION, SERVICING AND ADMINISTRATION (SEE PARAGRAPH (G) OF THIS SECTION); ***

"(G) EXPENSES OF DISTRIBUTION, SERVICING, AND ADMINISTRATION. - EXPENSES OF DISTRIBUTION, SERVICING, AND ADMINISTRATION, WHICH ARE TREATED IN THIS SECTION AS A PART OF GENERAL EXPENSES IN DETERMINING THE COST OF PERFORMING A CONTRACT OR SUBCONTRACT (SEE PARAGRAPH (B) OF THIS SECTION), COMPREHEND THE EXPENSES INCIDENT TO AND NECESSARY FOR THE PERFORMANCE OF THE CONTRACT OR SUBCONTRACT, WHICH ARE INCURRED IN CONNECTION WITH THE DISTRIBUTION AND GENERAL SERVICING OF THE CONTRACTING PARTY'S PRODUCTS AND THE GENERAL ADMINISTRATION OF THE BUSINESS, SUCH AS -

"(4) OTHER EXPENSES. - MISCELLANEOUS OFFICE AND ADMINISTRATIVE EXPENSES, SUCH AS *** EMPLOYEES' WELFARE EXPENSES; ***.

"AMONG THE ITEMS WHICH SHALL NOT BE INCLUDED AS A PART OF THE COST OF PERFORMING A CONTRACT OR SUBCONTRACT OR CONSIDERED IN DETERMINING SUCH COST, ARE THE FOLLOWING: ENTERTAINMENT EXPENSES; DUES AND MEMBERSHIPS OTHER THAN OF REGULAR TRADE ASSOCIATIONS; *** TAXES AND EXPENSES ON ISSUES AND TRANSFERS OF CAPITAL STOCK; ***.

"(J) ALLOCATION OF INDIRECT COSTS. - NO GENERAL RULE APPLICABLE TO ALL CASES MAY BE STATED FOR ASCERTAINING THE PROPER PROPORTION OF THE INDIRECT COSTS TO BE ALLOCATED TO THE COST OF PERFORMING A PARTICULAR CONTRACT OR SUBCONTRACT. SUCH PROPER PROPORTION DEPENDS UPON ALL THE FACTS AND CIRCUMSTANCES RELATING TO THE PERFORMANCE OF THE PARTICULAR CONTRACT OR SUBCONTRACT. SUBJECT TO A REQUIREMENT THAT ALL ITEMS WHICH HAVE NO RELATION TO THE PERFORMANCE OF THE CONTRACT OR SUBCONTRACT SHALL BE ELIMINATED FROM THE AMOUNT TO BE ALLOCATED, THE FOLLOWING METHODS OF ALLOCATION ARE OUTLINED AS ACCEPTABLE IN A MAJORITY OF CASES:

"(3) ADMINISTRATIVE EXPENSES (OR 'OVERHEAD'). - THE ALLOWABLE EXPENSES OF ADMINISTRATION (SEE PARAGRAPH (G) OF THIS SECTION) OR OTHER GENERAL EXPENSES EXCEPT INDIRECT ENGINEERING EXPENSES, BIDDING AND GENERAL SELLING EXPENSES, AND GENERAL SERVICING EXPENSES SHALL ORDINARILY BE ALLOCATED OR DISTRIBUTED TO THE COST OF PERFORMING A CONTRACT OR SUBCONTRACT ON THE BASIS OF THE PROPORTION WHICH THE SUM OF THE MANUFACTURING COST (SEE PARAGRAPH (B) OF THIS SECTION) AND THE COST OF INSTALLATION AND CONSTRUCTION (SEE PARAGRAPH (E) OF THIS SECTION) ATTRIBUTABLE TO THE PARTICULAR CONTRACT OR SUBCONTRACT BEARS TO THE SUM OF THE TOTAL MANUFACTURING COST AND THE TOTAL COST OF INSTALLATION AND CONSTRUCTION DURING THE PERIOD WITHIN WHICH THE CONTRACT OR SUBCONTRACT IS PERFORMED."

THE ITEMS OF EXPENSE IN QUESTION AND THE CONCLUSIONS OF THIS OFFICE RELATIVE TO THE CONTRACTOR'S RIGHT TO BE REIMBURSED THEREFOR UNDER THE TERMS OF THE CONTRACT ARE AS FOLLOWS:

CORPORATE EXPENSE - $806.06

THE EXPENSE IN QUESTION INCLUDES SUCH ITEMS OF COST AS ANNUAL MEETINGS AND PROXIES, PRINTING AND MAILING OF ANNUAL REPORTS, PROXY STATEMENTS, PROXY SOLICITATIONS, STOCKHOLDERS' LISTS, TRANSFER AGENTS' COSTS AND STATUTORY REPRESENTATION FEES.

THE CONTRACTOR, IN AN "EXPLANATION OF ITEMS RECLAIMED," SUBMITTED IN SUPPORT OF THE VOUCHER INVOLVED, CONTENDS THAT THE EXPENSES IN QUESTION ARE GENERAL ADMINISTRATIVE EXPENSES REIMBURSEMENT FOR WHICH IS EXPRESSLY PROVIDED FOR IN PARAGRAPHS (A), (B)(3), (G)(4) AND (J)(3) OF SECTION 26.9 OF T.D. 5000, SUPRA. IN THIS CONNECTION, THE CONTRACTOR CONTENDS THAT THE EXPRESS EXCLUSION UNDER PARAGRAPH (G)(4) OF "TAXES AND EXPENSES ON ISSUES AND TRANSFERS OF CAPITAL STOCK" MUST BE HELD TO MEAN THAT ALL OTHER CORPORATE EXPENSES WERE INTENDED TO BE ALLOWABLE, CITING NORTH AMERICAN AVIATION, INC. V. UNITED STATES, 107 C. CLS. 69. IN THAT CASE, THE COURT OF CLAIMS HELD THAT THE EXCLUSION UNDER SAID PARAGRAPH (G)(4) OF FEDERAL AND STATE INCOME AND EXCESS PROFITS TAXES FROM REIMBURSABLE COSTS IMPLIED THAT THE CAPITAL STOCK TAX WHICH THE CONTRACTOR WAS REQUIRED TO PAY UNDER THE CONTRACT THERE INVOLVED - WHICH INCORPORATED T.D. 5000 - WAS CONSIDERED AS AN ALLOWABLE ITEM OF COST THEREUNDER.

IRRESPECTIVE OF THE LOGIC TO BE FOUND IN THE ANALOGY DRAWN BY THE COURT OF CLAIMS IN THE CITED CASE, THERE WOULD APPEAR TO BE NO SOUND BASIS FOR THE ANALOGY SOUGHT TO BE DRAWN BY THE CONTRACTOR IN THE INSTANT CASE. MOREOVER, THE TERMS OF THE CONTRACT, AS QUOTED ABOVE, SHOW CLEARLY THAT, IN ORDER FOR ANY EXPENSE TO QUALIFY FOR REIMBURSEMENT THEREUNDER, IT WAS REQUIRED TO HAVE BEEN NECESSARY AND INCIDENT, IN SOME WAY, TO THE PERFORMANCE OF THE CONTRACT. ANY EXPENSE INCIDENT TO KEEPING THE STOCKHOLDERS INFORMED OF THE PROGRESS, OPERATIONS AND ACTIVITIES OF THE CORPORATION, AS WELL AS THE OTHER EXPENSE INVOLVED, OBVIOUSLY WAS INCURRED FOR THE CONTRACTOR'S OWN BENEFIT AND IT CAN IN NOWISE BE REGARDED AS AN EXPENSE WHICH WAS "INCIDENT TO AND NECESSARY FOR" THE PERFORMANCE OF THE INSTANT CONTRACT, OR REIMBURSABLE TO THE CONTRACTOR THEREUNDER.

DIRECTORS' FEES - $616.42

IN THE "EXPLANATION OF ITEMS RECLAIMED," THE CONTRACTOR CONTENDS THAT THE SERVICES OF ITS BOARD OF DIRECTORS WERE RESPONSIBLE FOR THE EFFICIENT MANNER IN WHICH THE CONTRACT WAS PERFORMED; THAT THEY WERE AS DIRECTLY RELATED TO THE COST OF CONTRACT PERFORMANCE AS ANY OTHER ADMINISTRATIVE COST; THAT IT HAS BEEN ADMINISTRATIVELY DETERMINED THAT THE COMPENSATION PAID TO THE DIRECTORS WAS FAIR AND REASONABLE; AND THAT THE INTENTION OF THE ARMED SERVICES TO REIMBURSE SUCH COSTS IS APPARENT FROM THE PROVISIONS OF SECTION VI, PARAGRAPH 213, OF TM 14 1000. THE QUESTION AS TO THE PROPRIETY OF REIMBURSING THE CONTRACTOR FOR DIRECTORS' FEES UNDER CERTAIN OTHER CONTRACTS INCORPORATING T.D. 5000 AS A CRITERION FOR DETERMINING REIMBURSABLE COSTS WAS CONSIDERED IN OFFICE DECISION OF JANUARY 25, 1946, B-53933, WHEREIN IT WAS HELD THAT THE CONTRACTS CONTAINED NO PROVISION FOR REIMBURSEMENT FOR FEES PAID TO DIRECTORS AND THAT THE REFERRED-TO PROVISIONS OF TM 14-1000, PURPORTING TO AUTHORIZE REIMBURSEMENT OF DIRECTORS' FEES, WERE INAPPLICABLE; THAT IT IS GENERALLY RECOGNIZED THAT THE SERVICES OF THE DIRECTORS OF A CORPORATION IN HOLDING REGULAR DIRECTORS' MEETINGS AND IN OTHERWISE PERFORMING THEIR DUTIES AS SUCH OFFICERS RELATE PRIMARILY TO THE HANDLING OF PROBLEMS OF INTERNAL CORPORATE MANAGEMENT - RESULTING LARGELY FROM THE CORPORATE FORM IN WHICH THE CONTRACTOR CHOOSES TO DO BUSINESS - RATHER THAN TO THE WORK BEING PERFORMED UNDER A PARTICULAR CONTRACT AND, IN ANY CASE, THAT THEY ARE SO INDIRECTLY ASSOCIATED WITH THE CONTRACT WORK THAT THE EXPENSE THEREOF MAY NOT PROPERLY BE REGARDED AS A REIMBURSABLE COST UNDER THE TYPE OF CONTRACT INVOLVED. FOR THE REASONS SET FORTH IN SAID DECISION, REIMBURSEMENT TO THE CONTRACTOR FOR THE DIRECTORS' FEES HERE INVOLVED IS NOT AUTHORIZED.

PUBLIC RELATIONS EXPENSE - $3,674.98

REIMBURSEMENT TO THE CONTRACTOR FOR THE EXPENSE INVOLVED, REPRESENTING 71.54447 PERCENT OF THE TOTAL SALARIES, WAGES AND RELATED PAY ROLL TAXES OF THE PUBLIC RELATIONS EMPLOYEES OF THE CONTRACTOR'S GENERAL OFFICE FOR THE FISCAL YEAR 1942, WAS EXCEPTED TO FOR THE REASON THAT A LIKE PERCENTAGE OF TOTAL PUBLIC RELATIONS MISCELLANEOUS EXPENSE EITHER HAD NOT BEEN CLAIMED BY THE CONTRACTOR OR HAD BEEN ADMINISTRATIVELY DISALLOWED.

SINCE IT APPEARS FROM THE RECORD THAT THERE IS NO DIRECT RELATIONSHIP BETWEEN THE UNALLOWABLE MISCELLANEOUS ITEMS OF COST AND THE SALARIES HERE INVOLVED, AND THAT NO ADDITIONAL SALARY EXPENSES ACCRUED TO THE GOVERNMENT AS A RESULT OF THE INCURRENCE OF SAID UNALLOWABLE COSTS, REIMBURSEMENT TO THE CONTRACTOR FOR THE ITEM OF EXPENSE INVOLVED IS PROPER.

DUES AND SUBSCRIPTIONS - $564.24

THE DUES AND SUBSCRIPTIONS INVOLVED INCLUDE SUCH ITEMS AS DUES TO VARIOUS CHAMBERS OF COMMERCE, BETTER BUSINESS BUREAU, WESTWOOD COMMUNITY CLUB, WESTWOOD VILLAGE BUSINESS MEN'S ASSOCIATION, NATIONAL INDUSTRIAL CONFERENCE, CALIFORNIA MANUFACTURER'S ASSOCIATION, LOS ANGELES AND THE NATIONAL CREDIT MANAGER'S ASSOCIATION AND CALIFORNIA SOCIETY OF PUBLIC ACCOUNTANTS.

THE PROPRIETY OF REIMBURSING A CONTRACTOR FOR EXPENSES OF THE TYPE IN QUESTION UNDER A CONTRACT INCORPORATING T.D. 5000 WAS CONSIDERED IN OFFICE DECISION OF AUGUST 13, 1947, B-66962, AND IT WAS HELD THEREIN, IN PERTINENT PART, AS FOLLOWS:

"*** THE EVIDENCE OF RECORD FAILS TO DISCLOSE THAT THE SERVICES PURPORTED TO HAVE BEEN RENDERED TO THE CONTRACTOR BY THE VARIOUS CHAMBERS OF COMMERCE AND OTHER BUSINESS ASSOCIATIONS INVOLVED WERE CONTINGENT UPON OR ASSURED BY MEMBERSHIP THEREIN, OR THAT ANY ADDITIONAL SERVICES WERE RENDERED BY REASON OF SUCH MEMBERSHIPS. FURTHERMORE, IT WAS POINTED OUT THAT PARAGRAPH (G)(4) OF SECTION 26.9 OF T.D. 5000, SUPRA, SPECIFICALLY EXCLUDES FROM THE COST OF PERFORMING A CONTRACT DUES AND MEMBERSHIPS OF ANY KIND OTHER THAN IN A REGULAR TRADE ASSOCIATION, WHICH IN THE COMMON AND ACCEPTED USE OF THE WORD MEANS AN ASSOCIATION OF EMPLOYERS IN THE SAME TRADE."

HENCE, REIMBURSEMENT OF AMOUNTS EXPENDED FOR DUES AND SUBSCRIPTIONS IS NOT AUTHORIZED.

MEDICAL PLAN (GENERAL OFFICE AND SANTA MONICA PLANT) - $1,443.84 MEDICAL PLAN (EL SEGUNDO PLANT) - $4.75

IDENTICAL COSTS TO THOSE HERE INVOLVED, NAMELY, THE EXPENSE OF PROCESSING EMPLOYEE PAY ROLL DEDUCTIONS IN CONNECTION WITH THE ADMINISTRATION OF THE DOUGLAS MEDICAL PLAN, WERE HELD REIMBURSABLE TO THE CONTRACTOR AS CONSTITUTING "EMPLOYEES' WELFARE EXPENSES" UNDER CERTAIN OTHER CONTRACTS INCORPORATING T.D. 5000 IN OFFICE DECISION OF OCTOBER 25, 1948, B-79269. IN VIEW THEREOF, REIMBURSEMENT TO THE CONTRACTOR FOR THE ITEM HERE IN QUESTION MAY BE CONSIDERED AS AUTHORIZED.

UNAUDITABLE MILEAGE - $1,089.22

THE COSTS OF MILEAGE EXPENSES INCURRED IN THE FISCAL YEAR 1943 WERE QUESTIONED FOR THE REASON THAT 17 PERCENT OF THE MILEAGE CHARGES WERE UNAUDITABLE IN THAT THEY WERE NOT SUBSTANTIATED BY EVIDENCE OF THE DISTANCE TRAVELED. HOWEVER, A PRO RATA PART OF THE MILEAGE EXPENSE IN QUESTION WAS HELD PROPER FOR REIMBURSEMENT TO THE CONTRACTOR UNDER CERTAIN OTHER CONTRACTS IN OFFICE DECISION OF DECEMBER 22, 1948, B 80059. IN VIEW THEREOF, REIMBURSEMENT TO THE CONTRACTOR FOR THE ITEM HERE INVOLVED IS AUTHORIZED.

DEPRECIATION - $1,107.06

EXCEPTION WAS TAKEN TO REIMBURSEMENT TO THE CONTRACTOR FOR THE EXPENSE IN QUESTION ON THE GROUND THAT THE RECORD INDICATED THAT THE FACILITIES INVOLVED EITHER WERE NOT IN EXISTENCE OR WERE IN EXCESS OF THE NEEDS OF THE CONTRACTOR. HOWEVER, THE CONTRACTOR, IN ITS "EXPLANATION OF ITEMS RECLAIMED," STATES THAT THE DESIGNATION OF CERTAIN ASSETS BY THE TERM "INVENTORY LOSS" WAS A MISNOMER AND THAT THE ASSETS IN QUESTION WERE SEMI- PERISHABLE AND WERE SEGREGATED AND TRANSFERRED TO A SPECIAL ACCOUNT FOR AMORTIZATION OVER A PERIOD OF FIVE YEARS. THE CONTRACTOR FURTHER STATES THAT THE ASSETS WHICH THE RECORDS INDICATED TO BE IN EXCESS OF ITS NEEDS ACTUALLY WERE "STAND-BY" EQUIPMENT. IN VIEW OF SUCH EXPLANATION AND OF THE FACT THAT THE EXPENSE IN QUESTION HAS BEEN APPROVED BY THE RESIDENT COST INSPECTOR, REIMBURSEMENT TO THE CONTRACTOR THEREFORE IS PROPER. GROUP LIFE INSURANCE - $904.10

THIS ITEM OF EXPENSE RELATES TO THE EL SEGUNDO PLANT OF THE CONTRACTOR. PREMIUMS ON THE INSURANCE WERE PAID AT THE RATE OF $.5865 PER THOUSAND PER MONTH, OF WHICH THE EMPLOYEE PAID $.56 PER THOUSAND PER MONTH. DOUGLAS PAID THE BALANCE OF $.0265 PER THOUSAND, AND INCLUDED ITS OWN CONTRIBUTION IN OVERHEAD ALLOCATED TO GOVERNMENT CONTRACTS. WHEN THE INSURANCE CARRIER ALLOWED A DIVIDEND ON THESE POLICIES, THE CONTRACTOR PASSED THE ENTIRE AMOUNT OF THE DIVIDEND ON TO ITS EMPLOYEES IN 1942 AND GRANTED THEM AN INCREASED INSURANCE COVERAGE IN 1943 AND 1944, RATHER THAN CREDITING ANY PART OF THE DIVIDEND TO THE GOVERNMENT CONTRACTS WHICH HAD BEEN CHARGED WITH THE CONTRACTOR'S PORTION OF THE PREMIUM.

IN ITS "EXPLANATION OF ITEMS RECLAIMED," THE CONTRACTOR STATES THAT ITS EMPLOYEES WERE PAYING A MUCH LARGER PORTION OF THE PREMIUM FOR SUCH INSURANCE THAN EMPLOYEES OF OTHER AIRCRAFT MANUFACTURERS WERE REQUIRED TO PAY FOR SIMILAR INSURANCE BENEFITS, AND THAT LT. COL. JOHN Y. LATTA, OF THE AIR FORCE INSURANCE BRANCH, STATED BY TELETYPE THAT THE GOVERNMENT APPROVED THE ESTABLISHED PRACTICE OF DOUGLAS AIRCRAFT COMPANY WITH RESPECT TO APPLYING EXPERIENCE REFUNDS OR DIVIDENDS TO THE PURCHASE OF TEMPORARY ADDITIONAL AMOUNTS OF GROUP LIFE INSURANCE AND WAIVED ANY RIGHTS TO EXPERIENCE DIVIDENDS OR REFUNDS.

HOWEVER, SIMILAR ITEMS OF EXPENSE INCURRED AT THE CONTRACTOR'S SANTA MONICA PLANT WERE QUESTIONED BY INFORMAL INQUIRES DATED JULY 3, OCTOBER 23 AND NOVEMBER 16, 1945, AND THE ADMINISTRATIVE OFFICE IN THREE LETTERS DATED NOVEMBER 30, 1945, REPLIED STATING:

"IN ACCORDANCE WITH THE APPROVAL OF CONTRACTOR'S GROUP LIFE INSURANCE PROGRAM BY MAJOR JOHN F. LATTA, INSURANCE CONTRACTING OFFICER, IN LETTER TO CONTRACTOR OF 15 FEBRUARY 1945, RESIDENT AUDITOR WILL APPLY THE REFUND OR DIVIDEND TO OFFSET THE PREMIUM COSTS AND COSTS OF ADMINISTERING THE GROUP INSURANCE PROGRAM BORNE BY THE CONTRACTOR."

THE CONTRACTOR HAS FAILED TO FURNISH THE DATE OF THE TELETYPE REFERRED TO ABOVE. HOWEVER, SINCE THE ADVICE CONTAINED THEREIN IS ENTIRELY INCONSISTENT WITH THE ADVICE CONTAINED IN THE LETTERS LAST REFERRED TO, THIS OFFICE WOULD NOT BE JUSTIFIED IN AUTHORIZING REIMBURSEMENT OF THE ITEM IN QUESTION ON THE BASIS OF THE PRESENT RECORD.

REPLACED ASSETS NOT CAPITALIZED - $11,232.78

EXCEPTION WAS TAKEN TO REIMBURSEMENT TO THE CONTRACTOR FOR THE COSTS OF REWORKING CERTAIN MACHINERY AND REPLACING AND MAKING CHANGES IN CERTAIN ELECTRICAL FACILITIES ON THE GROUND THAT THE VALUE OF THE ARTICLES OR FACILITIES HAD BEEN SUBSTANTIALLY INCREASED BY THE EXPENDITURES, AND THAT SUCH COSTS SHOULD, THEREFORE, HAVE BEEN CAPITALIZED AND DEPRECIATED OVER A PERIOD OF YEARS, RATHER THAN CHARGED TO OVERHEAD DURING THE PERIOD OF TIME INVOLVED. HOWEVER, IT APPEARS FROM THE INFORMATION FURNISHED BY THE CONTRACTOR RELATIVE TO THE WORK WHICH WAS PERFORMED THAT THE VALUE OF THE ARTICLES OR FACILITIES WAS NOT SUBSTANTIALLY INCREASED BY THE EXPENDITURES AND THAT THE COSTS WERE PROPERLY TREATED AS AN ITEM OF OVERHEAD. HENCE, REIMBURSEMENT TO THE CONTRACTOR FOR THIS ITEM IS PROPER.

EMPLOYEE TOOL SALES - $4,225.18

SINCE THE RECORD ESTABLISHES THAT THE AMOUNT INVOLVED, REPRESENTING DISCOUNT ON EMPLOYEE TOOL SALES, WAS THE SUBJECT OF DUPLICATE COLLECTION FROM THE CONTRACTOR, REPAYMENT THEREOF TO THE CONTRACTOR IS PROPER.

DUES AND SUBSCRIPTIONS - $1.87

OF THE AMOUNT INVOLVED, ALL BUT $0.09 - WHICH COVERS MEMBERSHIP IN THE INGLEWOOD CHAMBER OF COMMERCE AND MAY NOT BE REGARDED AS REIMBURSABLE FOR REASONS STATED ABOVE - REPRESENTS A PRO RATA PART OF THE COST OF A NEWS SERVICE BROADCASTED OVER THE CONTRACTOR'S PUBLIC ADDRESS SYSTEM. THE CONTRACTOR STATES THAT THE NEWS SERVICE WAS BROADCASTED TO EMPLOYEES DURING REST PERIODS AND THAT THIS WAS JUST ANOTHER EFFORT ON ITS PART TO COMBAT ABSENTEEISM DURING THE WAR PERIOD.

IN VIEW OF THE PURPOSE OF THE NEWS BROADCAST, WHICH REASONABLY CAN BE CONSIDERED AS AN EMPLOYEES' WELFARE EXPENSE, REIMBURSEMENT TO THE CONTRACTOR FOR THE ITEM, IN THE AMOUNT OF $1.78, IS PROPER.

VACATION RESERVE - $74.98

EXCEPTION WAS STATED IN THE AMOUNT INVOLVED ON THE GROUND THAT THE RESERVE FOR VACATION AND SICK LEAVE IN THE FISCAL YEAR 1944 WAS IN EXCESS OF ACTUAL COST. HOWEVER, SINCE THE RECORD ESTABLISHES THAT THE AMOUNT INVOLVED WAS THE SUBJECT OF DUPLICATE COLLECTION FROM THE CONTRACTOR, REPAYMENT THEREOF TO THE CONTRACTOR IS PROPER.

ACCORDINGLY, THE VOUCHER, TOGETHER WITH SUPPORTING PAPERS, IS RETURNED HEREWITH AND YOU ARE ADVISED THAT PAYMENT THEREON OF THE VARIOUS ITEMS AS INDICATED ABOVE IS AUTHORIZED, IF OTHERWISE CORRECT.