Federally Sponsored Contracts

CH2M Hill, an engineering firm that cleans up toxic waste sites under a contract with the Environmental Protection Agency (EPA), improperly billed the government almost $2.3 million in "overhead" costs for items such as ballgame tickets, liquor at company parties, spouse travel, and flying company aircraft. GAO testified that these unallowable and questionable indirect costs to the government arose from inadequate contractor internal controls, insufficient oversight by federal agencies, and subjective allowability criteria. CH2M Hill has begun changing its accounting controls and is instituting more complete review of some expenses, such as lodging costs. In GAO's view, however, the problems identified call for two types of federal action. The first is improved oversight by EPA, the agency responsible for reviewing the firm's charges. Second, a number of subjective areas in the Federal Acquisition Regulations, such as employee morale and welfare expenses, may need tightening.