Overhead Costs

In reviewing $3.6 million in overhead cost submissions from McDonnell Douglas Aerospace's Space Station Division for 1991-92, GAO discovered about $251,000 in unallowable expenses and about $77,000 in insufficiently documented consultant costs. The Space Station Division's controls are not adequate to identify and segregate unallowable costs. Also, the Defense Contract Audit Agency did not perform adequate transaction testing of the costs included in the company's overhead submissions. The Space Station Division's overhead submissions also included about $53,000 for employee state and federal taxes under an employment referral program, $348,000 in assignment payments to induce employees to transfer to new work locations, and $1.9 million for employee education. Clarification of the Federal Acquisition Regulation on such expenses may be needed.

GAO found that: (1) $251,000 of the contractor's $3.6 million in overhead costs for lobbying, advertising, employee taxes, consulting services, travel, and registration fees were unallowable; (2) about $77,000 in overhead costs were insufficiently documented consulting costs; (3) numerous internal control weaknesses and the contractor's lack of written policies or procedures on screening overhead costs resulted in the significant number of unallowable costs; (4) DCAA did not perform sufficient transaction testing to assess the extent to which the contractor submitted unallowable costs; and (5) the contractor submitted about $348,000 in questionable assignment payments for employee transfer incentives and $1.9 million for questionable employee educational expenses.

Recommendations

Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.

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