Federally Sponsored Contracts: Unallowable and Questionable Indirect Costs Claimed by CH2M Hill

GAO discussed the indirect costs that one of the Environmental Protection Agency (EPA) Superfund Program's largest contractors charged to the government. GAO noted that the contractor: (1) provided engineering services related to water, wastewater, transportation, and hazardous waste management under Superfund contracts, and its 1990 direct federal contracts amounted to about 16 percent of its gross revenues; (2) claimed an overhead rate of 150 percent for 1990, one of the highest charged by engineering firms on Superfund remedial contracts; (3) charged the government for about $2.3 million in clearly unallowable indirect costs relating to the use of the firm's aircraft, employee home sale incentive payments, and alcoholic beverages and sports events; (4) charged about $266,500 in questionable indirect costs involving employee parties and picnics, general advertising, travel clubs, and relocation costs; (5) did not adjust its charges to reflect differences between federal regulations and company policy; (6) kept inaccurate and incomplete records for justifying its charges; and (7) has begun to change its accounting controls, has made some adjustments to its inappropriate charges, and has voluntarily reduced some of its indirect costs charged to the government. GAO also noted that EPA: (1) does not perform adequate oversight to ensure the appropriateness of charges; (2) as of January 1992, was nearing completion of auditing the contractor's charges between 1987 and 1989; and (3) has not ensured that the contractor is taking corrective actions regarding identified problems.