Unallowable Costs:

Improved Cost Principles Should Reduce Inconsistent Treatment of These Costs

NSIAD-87-11: Published: Oct 10, 1986. Publicly Released: Oct 10, 1986.

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Pursuant to a legislative requirement, GAO evaluated the Department of Defense's (DOD) efforts regarding unallowable contract costs.

GAO found that: (1) DOD has made significant efforts to comply with congressional intent by prescribing new and amended cost principles within the prescribed time period; (2) while allowability criteria cannot always be written in such a manner as to remove all ambiguity, DOD has directly addressed the allowability of certain costs; and (3) DOD could still improve provisions regarding entertainment and lobbying costs.

Recommendations for Executive Action

  1. Status: Closed - Not Implemented

    Comments: Action on this recommendation would lead to the disallowance of many long-accepted employee morale and relations costs that are normal in American business. Many of these allowable costs could be construed as falling within the broad definition of unallowable entertainment. If DOD was prohibited from taking into account the language of other cost principles, such costs could not be reimbursed.

    Recommendation: The Secretary of Defense should remove the reference to other cost principles from the entertainment principle and insert a statement that costs made specifically allowable under FAR subsection 31.205-14 are not allowable under other subsections of FAR subpart 31.2.

    Agency Affected: Department of Defense

  2. Status: Closed - Not Implemented

    Comments: Although DOD shares the GAO desire for consistency, it should be tempered by consideration of fairness and practicality. The DOD original intent in developing this cost principle was to parallel the Legislative Lobbying principle. DOD reviewed the legislative history and met with congressional staff in an effort to discern the intent of Congress.

    Recommendation: To achieve consistency in the treatment of lobbying costs, the Secretary of Defense should structure the executive lobbying principle in a manner similar to the legislative lobbying principle.

    Agency Affected: Department of Defense

 

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