Audit of Incurred Cost for
the Period July 1, 1999, through June 30, 2000
August 2004
Reference
Number: 2004-1C-138
This
report has cleared the Treasury Inspector General For Tax Administration
disclosure review process and information determined to be restricted from
public release has been redacted from this document.
August 9, 2004
MEMORANDUM FOR DAVID A. GRANT
DIRECTOR OF PROCUREMENT
INTERNAL REVENUE SERVICE
FROM: Daniel R. Devlin /s/ Daniel R. Devlin
Assistant Inspector General
for Audit (Headquarters Operations and
Exempt Organizations
Programs)
SUBJECT: Audit of Incurred Cost for the Period
July 1, 1999, through June 30, 2000
(Audit #20041C0238)
The
Defense Contract Audit Agency (DCAA) examined the contractor’s November 13,
2000, incurred cost proposal and related books and records for reimbursement of
Fiscal Year 2000 incurred costs. The
purpose of the examination was to determine allowability of direct costs and to
establish audit-determined indirect cost rates for the period July 1, 1999,
through June 30, 2000. The proposed
rates apply primarily to the contractor’s flexibly priced contracts.
The
DCAA opined that, except for the overhead expense rate, the contractor’s indirect
rates are acceptable as submitted.
However, the claimed final overhead rate is acceptable as adjusted by
the DCAA’s examination. The DCAA
questioned .24 percent of the contractor’s claimed final overhead rate. The DCAA’s evaluation showed the contractor
included unallowable costs in its overhead expense pool. The contractor agreed with the final
overhead rate. Additionally, claimed
direct costs are acceptable and are provisionally approved pending final
acceptance.
Further,
the DCAA indicated the contractor’s accounting system is considered inadequate
in part for the accumulation, reporting, and billing of costs on Federal
Government contracts. According to the
DCAA, the contractor’s forward pricing proposals and incurred cost submissions
may be overstated because of a lack of policies and procedures to identify and
exclude unallowable costs.
The
DCAA qualified its audit report because results of the assist audits for the
subcontract costs had not been received.
The results of the assist audits are considered essential to the
conclusion of the audit and may disclose additional questioned costs.
This
DCAA report was issued in September 2001; however, the Treasury Inspector
General for Tax Administration (TIGTA) did not receive the report until July
2004. The Internal Revenue Service
(IRS) previously received a copy of the report directly from the DCAA. We are transmitting the report to you to
enable the IRS to track any financial accomplishments derived from negotiations
with the contractor based on the results of this DCAA report.
The
information in this report should not be used for purposes other than those
intended without prior consultation with the TIGTA regarding their
applicability.
If you have any questions, please
contact me at (202) 622-8500 or John R. Wright, Director, at (202) 927-7077.
Attachment
NOTICE:
The Office of Inspector General for Tax Administration has
no objection to the release of this report, at the discretion of the
contracting officer, to duly authorized representatives of the contractor.
The contractor information contained in this report is
proprietary information. The
restrictions of 18 U.S.C. § 1905 must be followed in
releasing any information to the public.
This report may not be released without the approval of
this office, except to an agency requesting the report for use in negotiating
or administering a contract with the contractor.
The TIGTA seal was removed due
to its size.