Government Contractors

Pursuant to a congressional request, GAO reviewed whether a major defense contractor found any contract cost misclassifications at one of its locations similar to those it uncovered at two other locations in 1984, focusing on: (1) the extent of the contractor's internal audits; (2) the extent of external audits of the contractor's government business; and (3) whether the external auditors audited the contractor's classified contracts.

GAO found that: (1) the contractor made no improper charges; (2) the contractor found no problems in its internal reviews, but the Defense Contract Audit Agency (DCAA) found some misclassified labor charges, and the contractor was appealing the DCAA determination; (3) the contractor's internal auditors did not often evaluate controls in areas of special interest to the government; (4) the contractor hired additional audit staff in 1987 and upgraded its audit program by widening its coverage of its defense businesses; (5) although there were no indications that the external auditor violated generally accepted auditing standards or that its opinion was improper, the audit provided little assurance that the contractor's controls were functioning properly to ensure compliance with federal requirements; and (6) the contractor took actions to strengthen its internal controls and improve charging practices.