Federal Research:

Assessment of the Financial Audit for SEMATECH's Activities in 1989

RCED-91-74: Published: Apr 30, 1991. Publicly Released: Apr 30, 1991.

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In response to a legislative requirement, GAO reviewed a certified public accountant's audits of the financial statements of the Semiconductor Manufacturing Technology Consortium (SEMATECH), a consortium of 14 U.S. semiconductor manufacturers and the Department of Defense (DOD).

GAO found that: (1) at least two SEMATECH member companies have included a portion of their SEMATECH contributions for reimbursement as government contract overhead costs, and while this is in accordance with government cost accounting principles, it indirectly increases the federal government's overall support for SEMATECH research and development (R&D) activities; (2) SEMATECH declined to disclose that it was making postemployment payments to its former chief operating officer, citing their immateriality to the financial statements; (3) SEMATECH erroneously computed depreciation using the double declining balance method instead of the straight-line method for $44 million of $175 million it spent on manufacturing and research facilities; (4) SEMATECH understated depreciation expenses for specialized manufacturing equipment in 1989 because it applied different depreciation methods for the equipment's installation costs, instead of depreciating installation costs in the same manner as the installed capital; and (5) the records presented fairly the financial position of SEMATECH in conformance with generally accepted accounting principles.

Matter for Congressional Consideration

  1. Status: Closed - Implemented

    Comments: S. 1327 was introduced which addresses cost reimbursement for members of the critical technology consortia. The GAO report entitled Federal Research: SEMATECH's Technological Progress and Proposed R&D Program (GAO/RCED-92-223BR) surveyed all 14 SEMATECH member companies. It found that member company efforts to seek reimbursement for their SEMATECH contributions was not a major problem.

    Matter: If federal participation in SEMATECH is reauthorized, Congress may wish to take into account, in determining the appropriate level of federal funding, the indirect cost reimbursements that some SEMATECH members receive for their SEMATECH contributions. Congress also may wish to consider this issue for any other jointly funded consortium that includes federal contractors or grantees.

 

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