DOCUMENT RESUME 02479 - [A1732718] (Restricted) (Settlement of Noncompliance Cases Involving Cost Accounting Standards at Northrop Corporation]. March 1, 1977. 2 pp. Report to Brig. Gen. M. W. Baker, Commander, Headquarters, Department of the Air Force: Air Force Contract Management Div. Kirtland AFB, NM; by J. T. Hall, Jr., Regional Manager, Field Operations Div.: Regional Office (Los Angeles). Issue Area: Accounting and Financial Reporting (2800). Contact: Field Operations Div.: Regional Office (Los Angeles). Budget Function: Miscellaneous: Financial Management and Information Systems (1002). Authority: A.S.P.R. 3-1212. A determination was made of wheth'er the administrative contracting offices of the Air Force Plant Representative Office, Northrop Corporation, took timely and appropriate action in settling reported cases of contractor noncompliance with cost accounting standards. Findings/Conclusions: The administrative contracting officer indicated noncompliance on two Air Force contracts in the preparation of cost performance report.; (CPR) for aircraft sales to Saudi Arabia. Specifically, propov.ed labor and related expenses were accounted as direct, rather than indirect, costs. Air Force legal counsel determined that noncompliance was unwarranted and should not be issued. The contractor was then informed by the administrative contracting officer that direct charging of preparation costs was acceptable to the Saudi Arabia effort. If the Saudi Arabia requirement had been negotiated with Northrop on a separate Air Force contract, the costs of the CPR would have been accounted for as an indirect expense, in line with the company's normal procedures. Recommendations: The Air Force should reconsider this matter, and should advise GAO of any action taken. (DJM) UNITED STATES GENERAL ACCOUNTING OFFICE REGIONAL OFFICE. C&A d> lL IT[ 1010. WORLD ThaDs CIII IlO CUTH PIGUEOA S"TRer #1~~ \ a, 1,=e . . CALIFORNIA C 0071 -'Do Eot ti i keS aVitllablei'diig08R o 1 ' Brigadier General M. W. Baker C)\ - C(ommander, Headquarters , Air Force Contract HManagement Division -KXirtland Air Force Base 6 4 New Mexico 87117 Dear General Baker: The Los Angeles Regional Office has recently completed a survey of the settlement of noncompliance cases involving Cost Accounting Standards (CAS) at the Air Force Plant Representative Officec-Northrop Corporation, Hawthorne, California. The objective of the survey was -to determine whether the administrative contracting officer (ACO) took timely and appropriate action to settle reported cases of contractor noncompliance with CAS during 1975 and 1976. We found that timely and appropriate action had been taken by the ACO in processing noncompliance cases in accordance with the requirements of the Armed Services Procurement Regulation 3-1212. One case, however' was settled on the basis of direction from higher headquarters, which we believe requires reconsideration by your staff. The details of the noncompliance case is presented as follows: The ACO had requested that the resident Defense Contract Audit Agency determine whether expenses incurred in the preparation of cost performance reports (CPR's) for F-5E/F aircraft under Foreign '1illtary Sales contracts for delivery to Saudi Arabia were recorded in a manner consistent with applicable CAS requirements. The auditor advised the ACO on ,iay 7, 1976, that the contractor was in noncompliance with CAS 402, Consistency in allocating Costs Incurred for the Same .Purpose. The noncompliance involved two Air Force contracts in which proposed labor and related expenses for preparation of CPR's was estimated as direct costs. The contractor's established practice was to account for such expenses as indirect costs. The ACO made an initial determination of noncompliance on Nay 17, 1976. In commenting on 'this matter, the contractor stated that the CPR's in question were special requirements directed by the Air Force and were in addition to the cost reports provided on other contracts. ___e, __o, JAe Ad COOL -w- MAR 1 1977 Sinc, the contracts in question required splitting one CPR into reports, the contractor felt justified two in proposing and accounting f3r the expenses of the second set of reports as direct costs. Subsequently, the ACO prepared compliance and submitted it to a draft determination of no.- the AFCMD Staff Judge Advocate recomnmendation and guidance. for Air Force Systems Command StaffThe matter was then referred to the Judge Advocate. The ACO was advised by Systems ConmAnd on October 7, 1976, that the noncompliance unwarranted and should not be was issued. The basis was that CPR's relating'to aircraft sales to Saudifor the decision Arabia were specifically required by the contracts The ACO promptly notified the to serve a peculiar purpose. contractor that direct charging the CPR preparation costs was of acceptable for the Saudi Arabia provided that the CAS Disclosure effort, Statement was revised and consistently followed. File documentation obtained from your resident contract administra- tion personnel at Northrop strongly serve the same purpose, that is, supports the 'iew that the CPR's to enhance Air Force management capability in the identification If the Saudi Arabian requirements and analysis of program problems. had been negotiated with Northrop on a separate Air Force contract, been accounted for as an indirect the costs of the CPR would have expense in accordance with the company's normal procedures. We would appreciate it if your would reconsider this matter and staff advise us of any action taken planned. or We would like to take this opportunity courtesy and cooperation provided to acknowledge the by your resident staff during this survey. A copy of this letter is being provided to the Regional Tanager, Defense Contract Audit Plant Representative, Northrop, Agency, Los Angeles, and Air Force for information purposes. Sincerely yours, J. T. Hall, Jr. Regional !Ianager cc: Regional Manager, DCAA, Los Anrt .es AF'PR, Northrop
Settlement of Noncompliance Cases Involving Cost Accounting Standards at Northrop Corporation
Published by the Government Accountability Office on 1977-03-01.
Below is a raw (and likely hideous) rendition of the original report. (PDF)