Cost Accounting Practices at Hydraulic Research Division of Textron, Inc., Valencia, California
PSAD-77-110: Published: Apr 15, 1977. Publicly Released: Apr 15, 1977.
- Full Report:
A determination was made of whether Hydraulic Research Division's cost accounting system resulted in appropriate charges and allocations of expenses to Government prime contracts and subcontracts, and whether Department of Defense (DOD) audit and contract administration offices provided adequate surveillance of the cost accounting system.
Inappropriate timekeeping practices in one department during calendar years 1975 and 1976 resulted in a $128,000 overstatement of manufacturing overhead expenses. Consequently, overhead costs claimed for reimbursement under cost-type contracts were overstated by about $122,000 for the two years. The same practice may have also resulted in overstated costs negotiated into fixed-price contracts. Significant time card changes involved Government subcontracts that were in cost overrun conditions. A high degree of correlation existed between the hours erased from the time cards and the labor hour data recorded on the work requests. One hundred and forty-eight data sheets were reviewed, and only nine instances were noted where employee names and test dates corresponded with card entries after erasures were made; there was a high correspondence between original time cards and test dates. The Defense Contract Auditing Agency (DCAA) is not in the habit of auditing timekeeping procedures on low volume cost-type contracts, and therefore, was not aware of the problem.
Recommendation for Executive Action
Comments: Please call 202/512-6100 for additional information.
Recommendation: DCAA should determine the extent to which the Government may be entitled to price adjustments under the appropriate contracts. Action should be taken to insure (1) downward adjustments in provisional and final billings under cost-type prime contracts are made, (2) adjustments to cost-type subcontracts are passed on as reductions to prime contract prices, and (3) prices of firm fixed-price contracts are adjusted if the forward pricing rates used in negotiations were overstated due to timekeeping irregularities. DCAA should audit the contractor's timekeeping procedures, and conduct floor checks to determine whether adequate controls have been established over the timekeeping function.