Contract Pricing: Unallowable Costs Charged to Defense Contracts

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Report Type	Reports and Testimonies
Report Date	Nov. 20, 1992
Report No.	NSIAD-93-79
Subject	Auditing procedures Contract costs Contract oversight Contractor payments Defense procurement Department of Defense contractors Fixed price contracts Overhead costs Procurement regulations Questionable procurement charges Allowable costs

Summary:

In reviewing overhead costs submitted by six defense contractors, GAO discovered that contractors did not identify and exclude all unallowable costs, as required. For example, in addition to nearly $1 million in costs questioned by the Defense Contract Audit Agency, GAO noted another $2 million in unallowable or questionable overhead costs. Federal regulations governing entertainment, employee morale and welfare, and business meeting costs are so vague that they are being interpreted broadly by some of the contractors GAO reviewed. Limited transaction testing--tracing expenditures back to supporting documentation and evaluating their allowability--of contractor overhead cost submissions by the Defense Contract Audit Agency may have also contributed to unallowable or questionable costs going unchecked. In GAO's view, transaction testing is a key step to ensuring that contractor internal controls are excluding unallowable costs from bills submitted to the Defense Department.

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Contract Pricing: Unallowable Costs Charged to Defense Contracts