Cost Accounting Standards Board Budget Estimates for Fiscal Year 1973

Published by the Government Accountability Office on 1977-02-22.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                                        HOUSEQF REP'REDNTATIVES

                                        COST ACCOUNT!k STANDARDSBOARD
                                     BUDGETESTIMKIES FOR FISCAL YEAR 1973


                      1 am appearing      before you to&q            iir the capacity           of Chairman of

                the Cost Accounting       Standard% E&k                 discuss      the budget estimates                  for

                Board operations      during      FiscaT Y&r        T4T3.

                      Before getting      into      the budgetzry       details,      I would like           to take

                a few minutes      to provide       a bit    of background.         The Board was authorized

                  in 1970 by Public Law 91-379.. ti January of 1971, acting pursuant to
      -. -- -_-__. _-, -~ .-.
                  the lzti, I 'appointed four-members,--Mr.. Herman I?I. Bevis, Mr. Charles A.

     _~_.-___--__-.. -._.    Mr. Robert K. Mautzr and the Honorable
                        -. __--                                                    Robert C. Moot.            The

                membership has remained unchang&,,                 an-d all     members, with           the exc‘eption

                of Mr. Ma&z,       are principal?&          engac@i'n         the same capacities            as I

              ' reported    on March 30, 1971, when 1 appeared before                         this    Subcommittee.

                Mr, Glautz has recently          left   hfs poszt a&the          University          of Illinois          to

                associate   with    the accounting          firm   ozFErnst      and Ernst.

                      Tn the year of operation              tin=    the Board's       first          meeting on

                      February 8, 1971, several mattEFrs of significance have been achieved.
    _-_ ._.-i: - ----_ .- _
                      Most notable has been the pubTication in the Federal Register on

             ..- December 30, 1971, for public              con-men-t,,of four proposals               consisting          of:
                       1.    A 1egislative    requirement that defense contractors
                             disclose their cost accounting practices       and then                        1
                             follow those pract-ices consistently.       The disclosure                    '
                             requirement will permit establishment       of a data bank
                             of contractors'    practices--by  class of contractor;
                             --by dollar volume of business with the Government
                             in relation   to total busfners;--by    size of contractor,
                             etc.    This kind of data does not exist anywhere in
                             the United States.      With such information,   the Govern-
                             ment will be in a better position to develop Cost
                             Accounting Standards.

                       2.     A standard on the subject of "Consistency in Charging
                             -and Allocating    Costs Incurred for the Same Purpose."
                             This is designed to elSmirrate instances in which the
                              same cost is charged, in the same time period, to a
                              contract both as a ds’rect cost and as a share of
                              indirect   costs.   This practice commonly is termed
                              “double counting."

                        A standard on the subject of "Consistency in
                        Estimating,  Accumulating and Reporting Costs"--to
                        require consistency between the manner in which
-- ---m-------contractors-present             cost data in pricing proposals
                        and the manner in which they record the actual cost of
                        contract performance.

                       4.    A contract clause implementing rules, regulations,   and .                         '
                             standards promulgated by- the Board that will become part.
                             of the regular language, or "boilerplate,"   for appro-
                             priate Government contracts..
               -----PubTi-c response to publicatian               of these items is due by February 4,

              1972.         Comments received      by then wT"TT be evaluated         and any suggested

              improvements        in the proposed issuances          that     should be made will     be

              accomplished        in the next few weeks.          Then, about the first         of March,

                  - -- _           submitting      the finished     product     to Congress as required

         ' by Public           Law 91-379.       The material     promulgated     by the Board will         take

              effect        at the beginning      of the fiscal     quarter     following   sixty   days of

              continuous        session   of the Congress unless both Houses pass a concurrent

----- .w---__.resolution
                    __ ._ _ stating       that    the Conq~ss      does not favor      the proposed Standards
                                                                                                   .~         ---   _-
              and regul ati ons .

           .-Y_-..       --.-I-I-          _   ..--
  I   .-


                                               Looking now to the work that                  is in process and planned,                        there        is,

                                     of course,             a large number of subjects              that     must be considered                 for potential

                                     development             as Standards.          There is also the administrative                      work involved

                                     in obtaining,             collating,      and evaTuating          responses to the Disclosure                            State-

                                     ment requirement.                  AdditionalTy,       there will         be a continuing            effort            to

                                     evaluate            the effectiveness          of the Disclosure              Statement,        the Standards,

                                     and our rules             and regulations          in bringing         aboutthe         desired     improvements

                                     and consistency                 in cost accounting        practices           under defense contracts.

                                                More specifically,            we antftipate         that      we will        concentrate         efforts

                                     during            the forthcoming       year in the development of Cost Accounting

                                     Standards             covering     the following       subjects:           allocation           of overhead,

                                       contractor     research and deveTapment, contract termination,  personal services,
- --- -----                         - -----..-    ____ ___...__._ _ _
                                       materials,     depreciation , segregation of unallowed costs, and others.  Some

                                    -.of..these subjects               may prove susceptible            to a single           Standard,         most will
                                     have to be subdivided                  into    seueraT Standards.                                                 l

                                                 Mr. Chairman, our budget estimate                    for      Fiscal    Year 1973 is $1,650,000

                              ---    to-carry             out the provisions          af Section      719 of the Defense Production                               Act.

                                     This estimate                 is the same as our estimate               for    Fiscal      Year 1972 and is

                                     $150,000 more than the amount uTtimately                               appropriated.            It will      be allocated

                                     essentially             as follows:

                                                      $1,113,000     for safaries       and related         benefits         of the Board, permanent

                                     professional            staff     (including       the Executive          Secretary),           part-time             consult-

                                    -ing       assistance           and supportive       clerical     staff.

                                                      $212,000 for travel          of the Board and its             staff.

                                                      $250,000 for contract          services , reimbursements                 for    computer services,

                  administrative          and personal        services,             and reimbursements              to other Govern-

                  ment agencies.

                           $75,000 Other--rent,             commun%zati'ons, utilities,                     printing         and repro-

                --duction,      supplies       and materials           and equipment.

                           We estimate       that     our staffing            requirements        will      necessitate             filling

          .---- ??5-professiona?           and 12 clerical             positians.          We have been very selective

                  in recruiting          the professional             stuff        of the Board because we believe

                  that     in such a small           organization.,           it    ds especially          important         that      these

                  positions      be filled          by individuals            who are well        qualified           in cost accounting

                  and Government contracting.                   After         considering        about 600 applications                       and

                  conducting       more than 100 intervieus,                       we have thus far selected                  21 profes-

                  sional      people.      These people come from Government,                             industry,      the public

          ----accounting-profession                   and the-academic               community;          fourteen      are certified

_I                public      accountants,          four   are lawyers,             and three     come from controller's

                  offices      of major defense cantractors..                        Our seiective          recruiting          has been

                  a factor      in the reduction            helm! OUP estimated                 level      of expenditures               for

                I fiscal      year T972.           We anticipate         that       by the end of this              Fiscal      Year,
     -_     _
                  there will       be about $100,000 unc&Tigated.

                           The way our work is evolviimq,                     however, we continue              to believe             that

                  to man the job fully               we are 9ofm;g tu need the additional                           4 professional
                  employees.        We have several            people under consideration.                          It appears that

                  ouFSSffih$            requirenrents~Kll~b~-essentially                        complete by the beginning

                  of Fiscal      Year 1973.

                            Our travet      estimate       reflects       our judgment that                there will         be a

                  need for      field      trips     to evaluate         the effectiveness                of our Disclosure

                      Statement requirements            and Standards which will               have been promulgated.

                      It also reflects          the continuing        need for travel          to obtain       on-site
                      information       at contractors'         offices       regarding      cost accounting           practices
                      in our effart       to assure that          futire      Standards give due consideration

                      to the requirements           of contractors           as well     as the Government.             In this

                ----regard,     the Board has established                   a policy     of earnestly       seeking advice

                      and assistance          from Government, industry,                and professional        accounting

                      organizations           in the research        and development          of Cost Accounting

                      Standards.        This policy         has produced beneficial             results      in the work

                      that has been done to date and we plYan to continue                           this    cooperative


                             Our contract         service     estimate       includes     an amount to be used to

                      secure the services           of people with           special     qualifications        to deal with
     1           ~~r~~l-~-technical---aspects                     of cost accounting.‘            In most cases,          this

                      will   involve     engaging individt&s               who either      are not available            for

                  permanent employment or whose serv+ces are so specialized                                    that     the
         ~-------need-for-them  arises only for-s&.@   of specific subjects.

                             The contract         service     estimate       aTso reflects       anticipated          costs   for
,i               ..
                      development of computer applications                     that will      facilitate       analysis       of
                      the data received           in compliance       wi'th Disclosure          Statement      requirements.

                      We believe       that     such analyses wiTT assist               in identification        of areas

                      in which Standards           are particuTarTy           desirable      and will       also expedite

                      the research needed to establish                     a firm   foundation      for individual

               ~_..__fn_a_d_d_i_tion_t_o.the                contractua'l      services
                                                                          noted above, we are.
                                                                                       --- ---. _ .___ ~.                           --
                      continuing       to operate under a Ffemurandum of Understanding and Agreement
-with the General Accounting                Office     (GAO), whereby GAO will          provide

administrative          services        such as printing,      payroll     reporting,      budget,

personnel,         security      investigations,        and office    services    to the Board

on a reimbursable             basis.      I might note in passing          that   the Memorandum

also provided          for legal        services     to be provided      by GAO. As Board

activities         developed,      it    became apparent that the need for services

in this       area were of such magnitude as to require                    establishment      of a

legal     office      as part     of the Eoard staff.

          E believe       this    covers,     in general,      what we have done thus far

and what we propose to accomplish                     during   the upcoming Fiscal         Year.

I will       be glad to answer any questions.

                                                                                                             ___ --- - ..-.

                                                                                                                         .^_.   _   _ _..   -   -   J

    .       .

                                          COST ACCOUNTINGSTANDARDSBOARD

                                                   SALARIES AND EXPENSES

                       For expenses of the Cost Accounting                    Standards Board necessary

                to carry     out the provisions            of Section       719 of the Defense Production

                Act of 1950, as amended (Public                   Law 91-379,    approved August 15, 1970),

                [$1,500,000],       $1,650,000.           (Legislative       Branch Appropriation       Act,   1972.)

                                                Justification        of Estimates

                                                         Fiscal    Year 1973

                         The budget estimates           presented        and the increase     in the estimates

                are for     the first     fiscal       year of full-scale        operations     of the Board.

                         Section   103, title          I, of the 1970 amendment (Public           Law 91-379)       to

                the Defense Production             Act of 1950, established           as an agent of the

                Congress a Cost Accounting                Standards Board.        This legislation       provides
        I       that     the Board shall        consist     of the Comptroller        General of the United

                States     who shall     serve as Chairman and four other members appointed

                by the Comptroller            General.      The Act empowers the Board to appoint

                an Executive       Secretary       at a rate of compensation           not to exceed the

                rate prescribed         for    level     IV of the Federal Executive           Salary   Schedule.

                         In January 1971, the Comptroller                  General appointed     four members

.               to serve on the Cost Accounting                   Standards Board and in March 1971 he

                appointed      an Executive        Secretary.
                               The enabling            legislation          provides          that     three Board members

                       appointed       from private             life     will    receive         compensation              at a rate of

                       one two-hundred-sixtieth                    of the rate prescribed                        for level       IV

                       ($3B,OOO per annum) of the Federal Executive                                      Salary         Schedule for

                       each day in which he is engaged in the actual                                       performance           of duties

                       vested in the Board.                   The enabling              legislation             also provides             that

                       the Comptroller              General (who serves as Chairman) and one member to

                       be named from Government would continue                                  to receive          the compensation

                       of his       regular        position      from the agency employing                         him.      In addition,

                       the Executive              Secretary      receives         compensation              at the annual rate

                       prescribed           for    level      IV of the Federal Executive                         Salary     Schedule.

                               The principal               function      of the Board is to develop and promulgate

                       Cost Accounting              Standards          designed to achieve                  greater        uniformity            and

                       consistency           in the cost accounting                     practices         followed         by defense .

                       contractors           and subcontractors                 under negotiated                 defense procurements

                   '   in excess of $100,000.                    The Standards,               rules,        and regulations                promul-

                       gated are to be followed                    in estimating,               accumulating,              and reporting

                       costs    of defense contracts.
i                                                                                                                                                       --_
                               The budget estimate                 for     Fiscal        Year 1973 is $1,650,000.                          This

                       estimate       is the same as the estimate                         for Fiscal             Year 1972 and is

                       $150,000 more-than                  the amount ultimately                  appropriated.

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                                                         1971                     1972                    1973
                                                        Actual                  Estimate                Estimate

                 Object Classification            (in thousands of dollars)

          Personnel compensation:
  11.1     Permanent positions                            69                         726                      913
  11.3     Positions other than
             permanent                                                               113                      113
  12.1     Personnel benefits:
             Civilian     employees                           5                        71                       87
  21.0     Travel and transportation
             of persons                                       8                       165                     212
  23.0     Rent, communications, and
              utilities                                  110                           25
  24.0     Printing     and reproduction
  25.0     Other services                                 52                          2::
  26.0     Supplies and materials
  31.0     Equipment                                     -7-Y                          1:

  99.0              Total     obl‘igations                -                          820
                                                                                     --                  1,650

          An explanation        of our fund requirements                     by object      classification


          11.1     Permanent Positions.             This estimate              covers the salary, costs

  for 40 permanent positions                 in Fiscal        Year 1973.         These positions
. include      three Board members, an Executive                         Secretary     (at level       IV),     24

  other      professional      positions,       and 12 supportive               clerical      positions.

          12.1     Civilian      Personnel Benefits.                 This estimate          covers the

  Board contributions            to the retirement,               life     insurance,       and health

  benefit      funds.

          21.0     Travel     and Transportation              of Persons.            This   estimate      covers

  the cost for travel            of the Board and its                staff     to obtain      on-site

  information       of contractors'           offices      and for attendance               at meetings         and

  conferences       regarding      Board programs.
     .- .-._.                                                                                                         --   .__.

                                  23.0     Rent, Communications,            and Utilities.            This estimate      covers

                       the costs          of rental       of office     space, equipment,            telephones,     postage,


                                  24.0     Printing       and Reproduction.         This estimate          covers the cost

                       of day-to-day           printing      requirements,       i.e.,       stationery,     envelopes,        etc.,

                       and the cost of publishing                  a Disclosure          Statement     form and Cost Accounting

                       Standards          promulgated       by the Board.

                                  25.0     Other Services.            This estimate        covers the costs         for contract

                       services,          development of computer applications,                      and reimbursements         to

                       other Government agencies for administrative                            and personal        services.

                                  26.0     Supplies       and Materials.        This estimate          covers the cost of

                       day-to-day          operating       supplies     and materials.

                                  31.0     Office     Furniture       and Equipment.          This estimate        provides     for

                       the cost of typewriters,                 adding machines , calcul'ators              and other office
                       machines and for office                 furniture,      technical       books and publications.

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