Pursuant to a congressional request, GAO reviewed selected defense contractors' classification of independent research and development (IR&D) expenses, focusing on whether the contractors could classify an industry consortium's activities and member companies' contributions as IR&D expenses.

GAO found that: (1) the Department of Defense (DOD) allowed member companies to treat their contributions to the consortium as manufacturing and production engineering expenses because the consortium's activities enhanced the production process but were not for resale; (2) some consortium activities would be more appropriately classified as IR&D; (3) there was no evidence that the consortium's activities improved member companies' internal manufacturing and production capabilities; and (4) all but one of the member companies charged their entire consortium contributions to overhead accounts other than IR&D.