Overhead Costs:

Costs Charged by McDonnell Douglas Aerospace's Space Station Division

NSIAD-94-150: Published: Jun 23, 1994. Publicly Released: Jul 15, 1994.

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Pursuant to a congressional request, GAO reviewed a federal contractor's overhead costs, focusing on: (1) whether there were any unallowable costs included in its cost submissions; and (2) the extent to which overhead costs questioned by the Defense Contract Audit Agency (DCAA) were sustained during annual indirect expense rate negotiations.

GAO found that: (1) $251,000 of the contractor's $3.6 million in overhead costs for lobbying, advertising, employee taxes, consulting services, travel, and registration fees were unallowable; (2) about $77,000 in overhead costs were insufficiently documented consulting costs; (3) numerous internal control weaknesses and the contractor's lack of written policies or procedures on screening overhead costs resulted in the significant number of unallowable costs; (4) DCAA did not perform sufficient transaction testing to assess the extent to which the contractor submitted unallowable costs; and (5) the contractor submitted about $348,000 in questionable assignment payments for employee transfer incentives and $1.9 million for questionable employee educational expenses.

Recommendations for Executive Action

  1. Status: Closed - Not Implemented

    Comments: The Office of Federal Procurement Policy is requesting establishment of a Federal Acquisition Regulation case to address this issue.

    Recommendation: The Director, Office of Management and Budget (OMB), should direct the Administrator, Office of Federal Procurement Policy, to initiate action to revise the Federal Acquisition Regulation (FAR) to clearly state that contractor payments of employees' taxes under all forms of domestic incentive compensation, bonus plans, and expense reimbursements are unallowable.

    Agency Affected: Executive Office of the President: Office of Management and Budget

  2. Status: Closed - Not Implemented

    Comments: The Office of Federal Procurement Policy is requesting establishment of a Federal Acquisition Regulation case to address this issue.

    Recommendation: The Director, OMB, should direct the Administrator, Office of Federal Procurement Policy, to initiate action to clarify FAR as to the allowability of employee assignment pay.

    Agency Affected: Executive Office of the President: Office of Management and Budget

  3. Status: Closed - Implemented

    Comments: On August 30, 1994, the Defense Logistics Agency issued a memorandum to the administrative contracting officers discussing GAO's findings on the treatment of educational expenses and emphasizing the need for consideration of advance agreements in this area.

    Recommendation: The Secretary of Defense should direct the Commander, Defense Contract Management Command, to emphasize to contracting officers the need to ensure that there are reasonable limits on the government's liability for contractor employees' educational expenses.

    Agency Affected: Department of Defense

 

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