oversight

Institute for Defense Analyses Employees Fringe Benefits

Published by the Government Accountability Office on 1971-07-08.

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

                            C~M~ROLJJR       GENERAL       OF      -i-WE   k&J’
                                          wASHIOIGTtJi4.    D.C.      -8




    ~-135058

    Dear ii.??. Gross   :



           This is in response to your letter    of February 4, 191,          in which
    you asked the General Accounting      Office to determine      whether,     at any                   ,
,   time since 1$X%, the Institute     for Defense'Analyses       has made expendi-
    tures or has provided    to its employees fringe     benefits    similar     to
    those mentioned in a July 1%6 newspaper article         forwarded      with your
    request.    The source of the information    on which the article         is based
    is a report   dated February 18, 1966, by the Surveys and Investigations
     Staff of the House Committee on Appropriations.

            As a part of our audit,           we have reviewed-the          Institute's        regular
    fringe     benefits--such        as retirement      and life,      disability,       and health
     .
    insurance--which          are funded jointly       by deductions        from employees* pay
    and contributions          from the Institute,          We also screened the miscella-
    neous reimbursements           to Institute     officials       for entertainment          and
    other out-of-pocket           expenses they had incurred             on behalf of the
    Institute,         We examined the Institute's            policies     concerning       reimburse-
    ments for travel          eqenses     and dislocation        and relocation         allowances
    and examined a representative               number of these reimbursements.

           We have found no evidence that the Institute         regularly      is paying
    any of the personal      expenses of its officers     or is authorizing       any
    unusual type of expense allowance       for them, but we have noted a few
    instances   where employees have received       reimbursements     for out-of-the-
    ordinary   expenditures.      Details of these reimbursements        follow.

    Special dislocation   allowance
    for outgoing presi&nt

           The~Institute          paid   one of it s former presidents      approximately
    $14,475 to cover his cost of moving from Boston,                  Massachusetts,         to
    Washington,       D, C., to assume the Institutess          presidency,        Approxi-
    mately $9,000 of this amount -47,000               cash and $2,000 in withholding
    tax--was    paid to him as a special dislocation              allowance,     and payment
    was made from funds the Institute              had received     as management fees.
    'Rae authorization        approving     the allowance mentions,'       as justification
    for the payment, the unusual costs associated                with obtaining         housing
    in Washington,       renting    out the Cambridge, Massachusetts,            house, and
    providing     for private      schools for the two children          to minimize the
    disruption      in their     education,     The actual costs incurred          by the
    former president        were not itemized,       however, and the Institute             was
    not able to furnish          us with documentation       supporting     the actual
    expenditures.
        ti addition      to the $9,000 special dislocation         allowance,    the
former president         received    $3,600 for.round-trip     travel   for himself
amd his family between Boston and Washington and for the cost of
transporting       his household goods from Boston to Washington and re-
t-.        Furthermore      he was reimbursed      $1,875 in accordance     with the
InstiB;ute's      policy    of providing    a dislocation   allowance of up to
one half of a month's salary to incoming staff               members.

        Institute       officials   informed us that a special dislocation
allowance        of up to $11,538 was authorized        for this individual     in
1964 when he assuxed the presidency            but that this allowance was
settled      at $g,OUO in August 1%.          Therefore     the Institute   was
committed        to the allowance before the House Committee on Appro-
priations        report    was issued in February   1%.

Special   payment    to division    director,

        The Institute     tie   a special. payment of about $3,900 to the
director    of its Conxmmications        Research Division   in November 1970
as reimbursement        of expenses for enrolling     his daughter in a pri-
vate school.         The Cmunications      Research Division   is located on
the Princeton       Univex.ity    campus,

       ReimPrurseent       was made on the basis of 'the director's           cl&
that,   because of his association          with the Institute,        his daughter
'had become a target         of abuse by the children        of local radicals    and
by the radical       faculty    ne&ers    of the public high school that she
-attended.      Consequently,       after consultation     with a psychiatrist,
 the director      decided to enroll      her in a private       school.   He then
requested     reirubursemelat     for the tuition      and other charges and claimed
 that the additional         expense was a direct       consequence of his eiqloy-
2nent at the Institute.

        The board of trustees    approved a reimbursement   to net the
director    $2,175 after   taxes in recognition    of the unusual and un-
zx-peeted nature of the cqenses        incurred and in view of the commu-
aity situation.      The payment was made from funds the'kstitute      had
received    as management fees and did not appear as a direct      or
imdirect    charge against    any Government contract.

        'IEs director also is continuing          to rcceive.reimbursement
fro?& management fees for the cost of his annual mem3ership dues
at the EBassau Club.      This matter ori@KLly           was reported      by the
Surveys and Investigations         Staff of the House Committee on Appro-
;?riations   in their report     of February 18, 19%.            The director
r:usrently   is being reixbursed       because he asserts membership in the
<:lub is maintained    enti;:ely    for Institute     business pur~scs.


                                                                            -2-
Family travel  expenses
to summer study program

       The Institute      is continuing     to reimburse        its employees for
expenses incurred       in transporting       their    families      to summer study
programs,       For exam@e, the Institute           paid approtiately           $8,546
to transport      employees'    fsmilies    to ID Jolla,        California,       for a
1969 summer study program.            A similar     example, involving          the ex-
penditure     of $6,000 to transport        the families        of participants        for
a summer study program held in England, was included                       in the report
of the Surveys and Investigations             Staff of the House,Committee               on
Appropriations.        The Institute     usually     conducts two summer study
programs each year.

        Three Government employees --two from the Navy Ship Systems
Command and one from the National.Aeronautics                     and Space Adminis-
tration--took         leave of absence from their            Government positions
and accepted appointments              as temporary     Institute    employees for
the l-month duration             of the La Jolla study program.          As Institute
employees they were authorized               to receive up to $25 a day for
subsistence        expenses, as opposed to the $16 maximum then payable
to Government employees.               One of the Navy employees received           $25
a day and the other received               $24 a day,      In addition,    the National
Aeronautics        and Space AMnistration           employee, who had seven
children,       was paid a subsistence         rate of $32 a day to defray the
additional        expense involved       in securing housing for such a large
fsmily.       'Two  of   the   three   Government   employees were accompanied
by their      families       and were reimbursed      for the cost of their
families'       travel     to the summer progrm         location,

       We noted that other Government employees and military     personnel
attended   the study program and were not reimbursed    by the Institute.
Presumably these individuals   were reimbursed  by their   agencies at
the normal Government per diem rate.

Out-of-the-ordinary         relocation     allowances

        The Institute's      policy     is to reimburse new staff members for
relocation       expenses.     Until recently       the Institute    has paid a
special dislocation         allowance,      not to exceed one half of a month's
salary,     for certain     nonrecurring       costs incident     to the relocation.
Within this limitation          a new employee could be reimbursed              for the
cost of a house-hunting           trip,   the storage of household effects,
temporary      subsistence,     or other special moving expenses.               There are
instances      in which the latter        included      the shipment of a boat, a
horse, and special housiqq costs,               such as recording      fees, transfer
taxes,     and title    search and insurance.            Within the limitation,       a
new employee also could be reimbursed                 for the tax liability        on those
relocation       costs which were taxable income to him.

                                                                                   -3s
        Our review showed that the Institute          occasionaUv      had reimbursed
incoming employees for expenses in excess of one half-of                 a month's
 salary and for other expenses not providkd            for specifically       in its
regulations,        We found two instances      in which incoming employees
had been reimbursed         for realty fees incident      to disposal    of their
homes.      Reimbursement for this type of expense was not provided                for
in the? Institute's       regulation.    Furthermore,     the mounts of reim-
bursements paid to these employees--$2,0'70            and $2,&O--were        in
excess of the salary limitation,           On the basis of their        starting
 salaries,    the employees would have been entitled           to reimbursements
of $875 and $1,200.

       In another instance   involving   reimbursements for housing ex-
penses, an employee received       $19388 for realty expenses incurred    in
acquiring   a new home and about $&O for house-hunting       trips,  but,
under the limitation.,    he would have been entitled   to a maximum of
$950.
       We noted another instance            in which an incoming employee had
received     $4,680 in temporary subsistence             while awa+y from his
peri3anent residence.           !lhe subsistence      was for a period of 358-%
days between,Pebruary           1, 1968, and January 25, l$g,          and was paid
because the employee did not change his permanent residence                     to the
Washington,      D.C., area when he accepted a permanent position                 with
the Institute.          The employee's      temporary    subsistence   was terminated
when he received         the l-year    maximum alloT~*~ble under the Institute's
regulations,        In accordance with the Armed Sertices             Procurement
Regulation,      however, only 30 days of such subsistence              are allowable
contract     costs.      Therefore    the Institute's       management fee probably
will bear the cost of the remaining               328-$- days, which amounts to
appro&mately        $4,270.       This sme employee received         $283 for a
house-hunting       trip and approximately          $2,640 as reimbursement       for
the income-tax        liability     he incurred     on the subsistence     allowance,,

         The Institute       justified     payment of realty     fees on the basis
that the reimbursements              had been offered   to the prospective           em-
ployees in lieu of additional               salary as an inducement to accept
Institute      employment,          In other instances    the Institute        elected
to reimburse        employees in excess of the established              limitation,
because of misunderstandings               between the Institute      and the employees
as to their        entitlements        and, in the case of the tax reimbursement,
because the emp,loyee had not been told his temporary                     subsistence
payments were taxable income.

        At the time of our review,         the Institute    was revising      its regu-
lation    for the special      dislocation    allowance and was operating          under
a proposed regulation         which appeared to be less liberal          and made no
 specific    provision     for reimbursement     of a number of expenses formerly
reimbursed.        Probably the most significant         of the deletions       is the
provision      for reimbursing      new members for income-tax      liability      on

                                                                              -4-
I    .




     those relocation        reimbursements       which are taxable income.     Because
     the Institute      was in the process of revising          its regulation,   we did
     not attempt     to uncover all the questionable',payments           made under the
     pretious    regulation.        We believe,     however, that we have included
     the more signifioant         instances     in this letter.

     Summary of reimbursements

            Moat of ths,out-of-the-ordinary      reimbursements     discussed        in this
     report   were madei from funds which the Institute        had  received        as manap,e-
     merit fees, rather     than from those received     RS reimbursements          under
     Government contracts,         A tabulation showing the nature of the            expendi-
     tures and the sources of the funds used follows.

                            --Out-of-the-ordinary     Expenses

                                                                 -~ Amount
                                                                   Raid from   Charged to
                                                                  management   Government
                                                        Total          fees    contracts  ,
     Special dislocation   allowance            for
       an outgoing president                          $ 9,000      $ 9,000      $     -
     E$ee%al payment to a division
       director for dauggter*s    schooling             3,877        3p77

     l'~a~9m.u C!lub dues                                 140          140

     Sumner study program:
       Family travel                                    8,5M         8,5&
       Goverrtiraent employee       per diem            1,oooa          212          788

     Relocation    expenses:
       Realty fee                                       2,070        2,070
       Realty fee                                       2,460        2,460            .C
       Realty fee                                       1,388        1,388
       To.mpora.l-y subsistence                                                  4,2;Ob
       Income-tax    liability                                       2,640

             TOLEd.                                   $357 391     $30,333      $59058
    aThe amount of the out-of-the-ordinary     expense was calculated    as the
     difference  between the mount these individuals      received   and the
     amouut th:y were entitled     to receive as Government employees.

    bThe .Cnst4tute     charged this expenditure  to its Government contracts;
     hox~:~~*:r, the Defense Contract    Audit Agency informed us they were
      que:.i.ioning  this a.mount, because only 30 days of temporary    subsistence
     wercf allowable     in accordance with the Armed Services   Procurement
     R~~~~%ation.

                                                                                    -5-
Conclusion

        The use of management fees by nonprofit              organizations,         such as
the Institute,     to pay certain        costs and expenses is not subject to
control    by tEne Government.        Further,     under current      Department      of
Defense procedures,       the manner in which fees are eqended is not
a consideration      in the negotiation         of contracts      with nonprofit
organizations.       These matters,        with appropriate       recmendations,
were reported     previously     to the Congress in our report              entitled
“Need For Improved Guidelines            in Contracting      For Research With
Government-Sponsored        Nonprofit      Contractors”     (B-lb-681q,     Feb. 10,
@PI, a copy of which is enclosed.


      We trust  that this information       is responsive   to your request,
We plan  to make no further     distrib%t%on     of this report   unless
copies are specifically     requested,    and then-we shaJ.l make distribu-
tion only after    youp agreement has been obtained        or public announce-
ment has been madg by you concerning          the contents  of the report.

                                                 Sincerely    yours,

                                                                   -A-- w-c4
                                                                fi+&gpf~
                                                              1
                                                          er General.
                                                 of the United States

Enclosure



The Honorab3.e H. R, Gross
House of Representatives




                                                                                -6-
DEFENSE   DlVlSlORB                                                 /
              ~-16 5961                                             i‘- llllilllllllllllllllllllllllllll~ll
                                                                               LM095604




             Dear Mr, Slecretary:
                    On October 22, 1970, we sent you a draft report for comment,
             which dealt with Navy procurement of publication         services for the
             retision    of technical manuals under indefinite-quantity-type        con-
             tracts (OSD case No. 31,96). This report contained the findings
             from OILYrev3.e~ of five contracts awarded by the Navy and Marine
             Corps for such services as typing, editing, proofreading,         writing,
             and illustrating,
                    Our findings were that the Navy had followed the practice of
             awarding an indefinite-quantity-type       contract to the contractor
             who quoted the lowest hourly rate, and then paying the contractor
             at that rate for the hours bilLed by the contractor without check-
             ing the records to determine the actual number of hours that had
             been used to eomplete the work. The Marine Corps had a somewhat
             different    system, but the results were about the same. The Marine
             Corps made awards of indefinite-quantity-type       contracts to several
             of the most technically       qualified contractors who bid the lowest
             hourly rates.      The Lt4arine Corps, however, did not follow its
             policy of hating the several contractors compete for each order,
             Instead, it negotiated fixed-price       orders ahost exclusively with
             one contractor using9 as the basis for the price, the hourly rates
             bid by the contractor and contractor eatbates of the hours that
             would be needed to perform the work, Therefore, the Marine Corps
             was not getting competitive prices.        Further, because it did not
              obtain information as to the hours actually expended doing the
             work, it did not know how the contractorss estimates and actual
             hours compared,
                     TheNavyand      ine Corps' methods of handling these pur-
              chases made it possible for contractors to charge for a substan-
              tially   larger number of hours than actually had been required to
              perform the work. Xn this respect our review of $100,000 worth
              of orders, selected from the $2.1 milLion worth then placed under
              the five contracts,   showed that the contractors had received
    .L       -=




         .
L




                  pa$nnats for 22,000 hours, although only 12,000 hours had been used
                  in perfo                  During discussions held with Navy and
                  Marine Corps officials, we were advised that, where amropriate,
                  recovery action would be taken against the contractors for over-
                  payments made under the contracts,
                         In view of the substantial      overcharges resulting from this method
                  of contracting,       we recommended that the Navy issue instructions   gov-
                  erning the use of indefinite-quantity-type         contracts to provide the
                  safeguards needed to secure reasonable prices for the Government and
                  that the Armed Services Procurement Regulation (ASPS) Ccznmittee con-
                  sider revising ASPS, to require improved control over the use of
                  indefinite-quantity-type       contracts,
                         We have received two replies to our report from the Deputy Assis-
                  tant Secretary of Defense (Installations        and Logistics),    one dated
                           er 16, l$?O, and the other dated April sp 191,         In these replies
                                        that, with regard to our first recommendation, the
                                                 g eontraets, to establish a ceiltig    price for
                                               st these contracts and to limit the contractor's
                  compensation~to the actual hours expended, not to exceed the cefling.
                  Also the contractors wS.3. ma.intain specific and detailed records of
                  the costs incwered, and the Government till         have the right to audit
                  the ~~t~~~tor~~ records.          In addition, the Havy has issued specific
                  and detailed instructfons        regarding the placinzg of orders under
                  indef%n%te-quantity-type        contracts where the price is established
                  on the basis of estimated time. The Navy has issued also an appro-
                  priate wx%rning to all contracting officers regarding the use of
                  indeftiite-quantity-type        contracts for the procurement of services.
                        With regard to our sgcand recommendation that ASW be revised
                  to r      re imDrov& control over the use of indefinite-quantity-type
                  contracts, we were advised that the current guidance in ASPR was
                  considered adequate.       We were advised also that it was the opinion
                  of the Deputy Assistant Secretary that the problem identified          was
                  mainly one of ensuring the application        of current guidance in the
                  regulations      governing the administration   and payxx& of contracts.
                  The Deputy Assistant Secretary also stated that a s&&Jar situation
                              d3.d not exist in the other setices.       The Air Force indi-
                              t its requir~ents     for such services usually were obtained
                              ition on a fixed-price-per-page     basis* The Army indicated
                  that it buys these services under time-and-material-type         contracts
                  and that, on such contracts, an audit is requested from the Defense
                  Contract Audit Agency prior to final bent.
                        We beUeve that the vigorous action taken by the Navy in
                  response to our report is commendmtble. In view of this action,
                  and the %ndii3atS,ons that the Army and Air Force use other pro-
                   curement methods to obtain these types of publication  services,



                                                                                       -2-
we do not plan to pursue this matter further      at this time.      We plan,
however, to review the results     of the Navy's corrective     action at an
appropriate  time to determine if the action has been effective.
Af%er we have reviewed the results      of the Navy's action,    we will
give further   consideration  to the need for providing     more specific
guidance in ASPR.

       We appreciate   the cooperation extend to members of our staff
by Navy and Marine Corps personnel during our review.      Copies of
this letter    are being sent to the Secretary  of the Navy and the
Office   of Management and Budget.


                                             Sincerely   yours,




The Honorable
The Secretary   of Defense




                                                                  -3-