Federal Research

GAO found no indication during its review that the opinion of Price Waterhouse on SEMATECH's 1991 financial statements, its report on internal control structure, or its report on compliance with laws and regulations cannot be relied upon. In its report on SEMATECH's 1990 financial statements, GAO recommended that the Pentagon require funds to be disbursed through a letter of credit instead of being disbursed in advance through quarterly payments to SEMATECH. The Defense Department has agreed to modify its procedure in January 1993, when it revises the grant agreement, by providing advance payments to SEMATECH on a monthly basis. Five member companies acknowledge including part of their SEMATECH contributions as overhead costs on government contracts that they held. Although allowable under government cost accounting principles, reimbursing members' contributions through overhead serves indirectly to increase the government's overall support for SEMATECH. GAO notes, however, that even if the amounts included as overhead were added to federal and state government contributions, member companies would still have paid their required 50 percent of SEMATECH's costs.

GAO found that: (1) the SEMATECH 1991 financial statements were fairly presented in conformance with generally accepted accounting principles; (2) there were no material internal control weaknesses or noncompliance with laws and regulations; (3) DOD has agreed to modify its procedure for disbursing funds to SEMATECH in January 1993 by providing advance payments to SEMATECH on a monthly basis; (4) five member companies included a portion of their SEMATECH contributions as overhead costs on government contracts that they held; and (5) the Defense Advanced Research Projects Agency planned to revise its procedures in January 1993 to provide advance payments to SEMATECH on a monthly basis using SEMATECH quarterly expenditure projections.