STATEMENTOF ELMER B. STAATS, COlWTROLLERGENERALOF THE UNITED STATES EEFCTRETHE LEGISLATIVE SUBCOMMITTEE,AWROPRfATIONS COMMITTEE HOUSEQF REP'REDNTATIVES COST ACCOUNT!k STANDARDSBOARD BUDGETESTIMKIES FOR FISCAL YEAR 1973 Illlllllllllllllllllllllllll LM091289 MR. CHAIRMANAND MEMBERSOF l-HE SU&QIMMITTEE: 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. - I Dana, _~_.-___--__-.. -._. 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." 3. 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, -we-anticipate - -- _ 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 . -3, .-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, -3- 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 $100,000 unc&Tigated. The way our work is evolviimq, however, we continue to believe that to man the job fully we are 9ofm;g tu need the additional 4 professional P employees. We have several people under consideration. It appears that ouFSSffih$ 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 -4- Statement requirements and Standards which will have been promulgated. It also reflects the continuing need for travel to obtain on-site -1 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 approach. 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 c ~-------need-for-them arises only for-s&.@ of specific subjects. 1 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 Standards. ~_..__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. , ___ --- - ..-. -6- .^_. _ _ _.. - - 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. --. --- .- - - .__ __ .- - --. ~- -~--_------ - -----_----- -2- :. 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 follows: 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. .- .-._. -- .__. -3- 23.0 Rent, Communications, and Utilities. This estimate covers the costs of rental of office space, equipment, telephones, postage, etc. 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. -- .._.__ ------ - -- -- .- _
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)