Cost Accounting Standard 414:

How DOD's Budget Profit Policy and Contractors' Investments Relate to Standard 414

NSIAD-88-41BR: Published: Nov 3, 1987. Publicly Released: Nov 17, 1987.

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In response to a congressional request, GAO reviewed the relationship of Cost Accounting Standard (CAS) 414 to the Department of Defense's (DOD) budget request and contractor profits to: (1) assess Army, Air Force, and Navy treatment of CAS 414 procurement funds in the budgeting process; (2) identify the amount of funds the services negotiated under CAS 414; and (3) identify which contractors received the largest amounts of these funds.

GAO found that: (1) the portion of the military services' budget requests associated with CAS 414 are identifiable only at the start of the budget review and approval process; (2) a general estimate of CAS-414-related funds showed an annual average for the services ranging from 2.4 to 3.3 percent from 1981 through 1986; and (3) during this period, the Air Force negotiated $1.93 billion, the Navy $1.97 billion, and the Army $567 million in CAS 414 funds. GAO identified 9 firms with whom the services negotiated the largest amounts and found that they: (1) did not keep records of their profits on facilities that they negotiated; and (2) received an estimated $1.82 billion, while their records showed that they made capital investments of about $2.76 billion. GAO also found that contractors believe that the: (1) cost recovery elements of CAS 414 reduce the risks associated with capital investment; and (2) DOD profit policy improves the viability of their projects.

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