Unallowable Costs

In response to a congressional request, GAO examined whether eight defense contractors charged campaign contributions either directly or indirectly to federal government contracts, focusing on: (1) the allowable cost categories the contractors charged the contributions to if they did claim the contributions as contract costs; (2) whether the federal government is reimbursing the contractors for the contributions through progress payments; and (3) whether the contractors are receiving profits based on allowable costs.

GAO noted that federal regulations provide that contributions are not allowable costs under government contracts. GAO found that: (1) the eight contractors used corporate funds to make the contributions; (2) seven contractors allocated the contributions to accounts which they designated as unallowable contract costs; and (3) although the eighth contractor did not designate the account to which it charged the contribution as expressly unallowable, it did not include the contribution in its contract claims. GAO also found that: (1) the federal government will not reimburse contractors through progress payments if they do not include contribution costs in their contract claims; (2) contractors do not make a profit if they do not include these costs in their contract claims; and (3) the eight contractors did not submit claims to the federal government for reimbursement for campaign contributions.