Increased Costs to Government Under the Department of Defense Program to Reduce Audits

PSAD-77-80: Published: Mar 9, 1977. Publicly Released: Mar 9, 1977.

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The Department of Defense's Contractor Weighted Average Share in Cost Risk program, designed to eliminate the evaluations of the reasonableness of contractors' indirect expenses or overhead, such as travel and rent, does not guarantee that costs are controlled effectively.

The program is based on the assumption that good management by industry, properly motivated by competition and fixed-price contracts, more effectively controls costs than detailed reviews and controls by government. These assumptions do not seem valid. At the locations reviewed, the agency audits of indirect expenses have generally been adequate except for limitations on questioning the reasonableness of costs imposed by the program.

Recommendation for Executive Action

  1. Status: Closed

    Comments: Please call 202/512-6100 for additional information.

    Recommendation: The Secretary of Defense should remove the Contractor Weighted Average Share designation from the Armed Services Procurement Regulation for expenses of corporate aircraft, cafeterias, and leasing buildings and equipment and should reconsider the program altogether, since savings have not been proven and eliminating it would probably not materially increase government involvement in contractors' affairs or increase, overall, the Defense Contract Audit Agency's audit work.

    Agency Affected:


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