Overhead Costs

GAO reviewed the overhead cost submissions of the Rockwell Corporation's Rocketdyne Division--a major NASA contractor--and found that about $222,000 of the costs in Rocketdyne's fiscal year 1990 and 1992 overhead submissions were unallowable. This amount represents about five percent of the $4.8 million in overhead costs reviewed and 2.6 percent of the $8.6 million charged in total to the reviewed accounts. These percentages of unallowable costs cannot be generalized to the total overhead charges of $8.66 million because GAO reviewed only those accounts that it believed were more susceptible to unallowable charges. Rocketdyne included the unallowable costs in its overhead submissions mainly because accounting personnel did not have accurate instructions on allowable membership fees and because of weaknesses in Rockwell and Rocketdyne procedures for handling outside legal services. Rocketdyne would have been reimbursed for the fiscal year 1990 unallowable costs in part because the Defense Contract Audit Agency (DCAA) did not review the company's legal expenses and did not follow up on information it did obtain on membership fees. At the time of GAO's review, DCAA had not audited Rocketdyne's fiscal year 1992 submission.

GAO found that: (1) about 2.6 percent of the costs charged to the reviewed accounts from fiscal years (FY) 1990 and 1992 were unallowable; (2) the unallowable costs included charges for legal fees, lobbying, public relations, contributions, employee education, and training for consultants; (3) the contractor included the unallowable costs primarily because its accounting personnel lacked accurate instructions on allowable membership fees and weaknesses in the contractor's procedures for handling outside legal services costs; (4) the contractor is revising its accounting procedures to ensure that unallowable costs are properly recorded in the future; (5) the contractor would have received reimbursement for its FY 1990 unallowable costs partly because DCAA did not review its legal expenses and did not follow up on membership fee information it did obtain on certain membership fees; (6) DCAA has not yet audited the contractor's FY 1992 submission; and (7) DCAA did not question any costs in the contractor's FY 1988 and FY 1989 overhead submissions.