Adequacy of HEW's Audit of Parke, Davis, and Company's Swine Flu Vaccine Manufacturing Costs

Audits were made by the Department of Health, Education, and Welfare (HEW) on the swine flu vaccine manufacturing costs claimed by four manufacturers. This report is concerned with the audit work at Parke-Davis, and Company. HEW encountered a problem in determining how to evaluate the reasonableness of over $200,000 of claimed general and administrative expenses, and it was proposed that HEW consider using the cost of goods sold as a basis for evaluation. Parke-Davis included in its cost claim about $1.4 million for producing a Shope strain vaccine which was mistakenly produced for the swine flu program. The HEW contracting officer determined that these costs are ineligible for reimbursement because the vaccine failed to meet contract specifications. Parke-Davis has appealed the contracting officer's decision to the Armed Services Board of Contract Appeals. As a result, Shope vaccine costs were not subject to audit. The negotiation process could take several months for each manufacturer because the HEW auditors recommended major cost disallowances on each contract.