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A financial audit of the Veterans Administration (VA) contract with the National Academy of Sciences (NAS) for a study of the VA health care system showed that costs claimed to have been incurred under the contract and billed to the VA were adequately supported, properly accounted for, and allocable under the terms of the contract and Federal Procurement Regulations. However, certain NAS policies and practices warrant attention. The NAS should: revise its policy of applying a full-fringe benefits rate for hourly employees who are not eligible to participate in the NAS full-fringe benefits program, time the withdrawal of funds against letters of credit to be consistent with actual cash requirements, and adequately document the bases for approving subcontractors' overhead rates.

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