Contract Pricing: Unallowable Costs Charged to Defense Contracts
NSIAD-93-79
Published: Nov 20, 1992. Publicly Released: Dec 22, 1992.
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Highlights
Pursuant to a congressional request, GAO reviewed the overhead cost submissions of six defense contractors to determine whether those contractors included unallowable or questionable costs in their overhead submissions.
Recommendations
Recommendations for Executive Action
| Agency Affected | Recommendation | Status |
|---|---|---|
| Department of Defense | The Secretary of Defense should clarify FAR by: (1) eliminating the reference to other cost principles in the entertainment cost principle; and (2) adding a statement that costs made specifically unallowable under the entertainment cost principle are not allowable under other cost principles. |
Closed – Implemented
The Federal Acquisition Streamlining Act of 1994 (FASA) provided that costs of gifts and recreation for federal contractor employees are expressly unallowable. These same costs are also unallowable under FAR provisions regarding entertainment costs. The FAR was amended on August 16, 1995, to implement this provision of FASA and to provide that costs specifically unallowable under the entertainment cost principle are not allowable under any other cost principle.
|
| Department of Defense | The Secretary of Defense should evaluate the cost principles to determine whether additional guidance is needed concerning the allowability of business meetings at resort locations, especially resort locations outside the United States. |
Closed – Implemented
DOD initiated FAR case 93-11 to evaluate the cost principles to determine whether additional guidance was needed concerning allowability of business meetings at resorts.
|
| Defense Contract Audit Agency | The Director, DCAA, should evaluate the extent to which field offices need to spend more time in transaction testing, especially at nonmajor contractors. GAO recognizes that DCAA does not have the resources to make in-depth reviews at small contractors each year. However, DCAA should consider detailed in-depth reviews of contractors' incurred costs every 3 or 4 years. The potential for an in-depth review would act as an incentive for contractors to ensure that unallowable costs are excluded from their indirect cost submissions. |
Closed – Implemented
DCAA developed new audit guidance for performing incurred cost audits at nonmajor contractors. It included guidance on establishing the scope of the transaction-testing plan.
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Topics
Allowable costsAuditing proceduresContract costsContract oversightContractor paymentsDefense procurementDepartment of Defense contractorsFixed price contractsOverhead costsProcurement regulationsQuestionable procurement charges