REPORT TO llllllllllllllllllllllllllllllll LM095478 Audit Of Payments From Special Fund To Lockheed Aircraft Corporation For C-5A Aircraft Program uring The Quarter Ended September 30, 1971 B-162578 Department of Defense 3 . BY THE COMPTROLLER GENERAL OF THE UNITED STATES COMPTROLLER GENERAL OF THE UNITED STATES WASHINGTON, D.C. 20548 B-162578 To the President of the Senate and the r,/ Speaker of the House of Representatives c This is our second report on the audit of payments from the special fund to Lockheed Aircraft Corporation for the C-5A aircraft program. 32 .- This report covers the quarter ended September 30, 1971. This audit was made pursuant to section 504, Public Law 91-441, which authorized $200 million of interim funding for the C-5A aircraft program to be paid through a special bank account. These funds may be expended only for the reasonable and allocable direct and indirect costs incurred by Lockheed on the C-5A aircraft program. The law also pro- vides that these funds shall not be used to reimburse Lockheed for inter- company profits, bid and proposal costs, independent research and de- velopment costs, other unsponsored technical costs, and depreciation and amortization expenses. Under the law the General Accounting Office is required to audit payments from the special bank account on a quarterly b-and to submit a report to the Congress not more than 30 days after the close of each quarter. Since June 16, 1971, the Air Force paid Lockheed $125,166,211 from the special bank account. (See appendix for the cumulative expenditures through September 30, 1971.) The amounts deposited in and withdrawn from the special fund and the special bank account for the quarter ended Sep- tember 30, 1971, were as follows: Special bank $200 million account fund / Balance as of July 1, 1971 $ 1,002,503 $178,594,489 i Deposits 104,645,816 . Withdrawals 104,645,816 CA Labor $19,066,763 ., Overhead 31,838,554 " Material and other charges 54,489,940 Intercompany transactions: Charges $4,359,211 Credits -4,991,265 -632,054 104,763,203 Balance as of September 30, 1971 $ 885.116 $ 73.948.673 LABOR COSTS During the quarter ended September 30, 1971, the Air Force paid Lockheed $19,066,763 for labor costs incurred. Due to the shortage of wing assemblies created by a work stoppage at a subcontractor's plant, 50 TH ANNIVERSARY 1921-, 1971 B-162578 the Lockheed-Georgia,Company suspended, effective September 20, 1971, essentially all C-5A aircraft assembly operations and temporarily laid off about 2,400 employees. The subcontractor resumed work on October 18, 1971, and expected to begin delivery of wing assemblies early in Novem- ber. Because of the disruption of production due to the temporary lack of wing assemblies and the approaching completion of subassemblies for all C-5A aircraft, we are giving increased attention to the reasonableness of labor charges. OVERHEADEXPENSES During the quarter overhead expenses totaling $31,838,554 were paid to Lockheed from the special bank account on the basis of negotiated pro- visional overhead rates. Lockheed and the Air Force negotiate provi- sional overhead rates for use in costs reimbursement contract billings. Actual overhead costs are to be negotiated as of December 26, 1971, the end of the company fiscal year. The provisional overhead rate was reduced to exclude those costs which are unallowable under Public Law 91-441. Such costs amounted to $3,183,663 for the quarter ended September 30, 1971. MATERIAL AND OTHERCHARGES During the quarter material and other charges totaling $54,489,940 were paid to Lockheed from the special bank account. To ensure prompt payment to vendors, Lockheed is not reimbursed for amounts owed to vendors which have not been paid within 30 days. At September 30, 1971, $885,116 had not been paid within 30 days, and this amount was deducted from the final reimbursement voucher for the quarter. Intercompany transactions During the quarter intercompany costs totaling $4,359,211 charged to the special bank account were more than offset by intercompany cred- its of $4,991,265. The credits represent the excess of amounts paid for delivered items plus progress payments for undelivered items over actual costs incurred prior to May 31, 1971, when the contract was converted to a cost-reimbursement type. We noted that intercompany transactions were not being reconciled and processed for inclusion in reimbursement vouchers on a timely basis. Reconciliation of intercompany transactions essentially involves identi- fying and resolving differences between the records of the Georgia 2 B-162578 company and other Lockheed companies. A Lockheed-Georgia Company offi- cial stated that about 81 percent of the amount involved had been rec- onciled as of October 4, 1971. Lockheed has agreed to intensify efforts to reconcile and complete the accounting for intercompany transactions. SCOPEOF AUDIT Our review was made at the Lockheed-Georgia Company, Marietta, Geor- gia; Lockheed Aircraft Corporation and Lockheed-California Company, Bur- bank, California; Lockheed Aircraft Service Company, Ontario, California; and Lockheed Electronics Company, Plainfield, New Jersey. Our audit of labor costs included tests to determine whether those costs appeared reasonable and applicable to the C-5A aircraft program. In our review of overhead costs, we examined into the reasonableness of provisional overhead rates and the costs eliminated to comply with Public Law 91-441. We reviewed selected material and other costs shown on reimbursement vouchers and traced the amounts to such documents as purchase orders, re- ceiving reports, vendors' invoices, and work orders to determine the ac- curacy and propriety of the amounts paid. Our review of costs incurred on the C-5A aircraft program by other Lockheed companies was directed at testing the accuracy and allowability of labor, material, and overhead costs charged in intercompany billings. We reviewed also the Defense Con- tract Audit Agency audit of payments from the special bank account for labor, overhead, and material and other costs and tested the work per- formed. Our review revealed no payments to Lockheed Aircraft Corporation from the special bank account during the quarter ended September 30, 1971, that were contrary to Public Law 91-441. As indicated earlier in the re- port, however, we are giving increased attention to the reasonableness of the labor costs. Copies of this report are being sent to the Director, Office of Man- agement and Budget; the Secretary of Defense; and the Secretary of the Air Force. Comptroller General of the United States 3 APPENDIX TOTAL AMOUNTSDEPOSITED AND WITHDRAWN FROMTHE SPECIAL BANK ACCOUNTAND $200 MILLION FUND AS OF SEPTEMBER 30, 1971 Special bank $200 million account fund BEGINNING BALANCE AS OF JUNE 16, 1971 (note a) $ - $200,000,000 DEPOSITS 126,051,327 WITHDRAWALS 126,051,327 Labor $23,860,659 Overhead 38,755,521 Material and other charges 67,593,406 Intercompany transac- tions: Charges $ 7,453,242 Credits -12,496,617 -5,043,375 125,166,211 BALANCE AS OF SEPTEMBER30, 1971 $ 885.116 $ 126.96.36.1993 aDate of first payment from special bank account. l
Audit of Payments From Special Fund to Lockheed Aircraft Corporation for C-5A Aircraft Program During the Quarter Ended September 30, 1971
Published by the Government Accountability Office on 1971-11-17.
Below is a raw (and likely hideous) rendition of the original report. (PDF)