U.S. Paid Boeing for Paper Plane Contest : Defense Auditors Cite Funding as Example of Waste in Loopholes

The military procurement system has so many loopholes that the Boeing Co. was able to collect $5,875 from the Pentagon for sponsoring the World Paper Airplane Championship, government auditors told a congressional panel Wednesday.

The payment to Boeing, the fifth-largest defense contractor, with $4.4 billion in contracts, was one of scores of examples cited by a special team of auditors in its report on a two-month review of the billings by seven companies for “indirect costs” associated with their defense contracts.

The review found that the seven contractors in recent years had claimed nearly $4.3 billion in such costs and that Pentagon auditors had challenged nearly $110 million. Contracting officers then allowed payment of $40 million of the disputed billings.

Legislation Drafted

Rep. Bill Nichols (D-Ala.), chairman of the House Armed Services investigations subcommittee, said the findings had prompted him to draft legislation to clarify procurement regulations and to impose financial penalties on contractors for submitting unallowable costs.

Rep. Charles E. Bennett (D-Fla.), chairman of the Armed Services sea power subcommittee, which jointly sponsored the review, agreed that legislation was needed because “very serious problems” disclosed by the auditors may provide ammunition “to those who argue the defense budget should be cut.”

In citing the payment to Boeing, subcommittee investigator Williston Cofer said the company had sought $11,750 on grounds the event “provides the public an opportunity to test their engineering skills in designing and flying paper airplanes.” The contracting officer allowed 50% of the claim, he said.

‘Community Relations’

In Seattle, Boeing spokesman Harold Carr said that proceeds of the annual event go to the Boys and Girls Clubs of America and that the company viewed its claim as “an appropriate community relations activity.”

Boeing also submitted to the congressional panel a statement asserting that federal procurement regulations “are not always clear” and that “we make every effort” to submit “only those costs that are prudent and allowable.”

Cofer testified that the review found that claims for reimbursement included such items as $100 for a disco dancer, $10,000 for operation of an executive barbershop, $105 for parking tickets and $959 for a golf outing.

He said the Pentagon is so swamped with company claims that it is an average of five years behind in reviewing them and, in one case, has yet to clear up submissions made 13 years ago. Even then, he said, auditors usually make only random checks of the submissions rather than looking at each item.

Resistance to Auditors

At times, Cofer testified, auditors have encountered resistance by contractors and government contracting officers when they seek further documentation. As an example, he cited a case in which Rockwell International is claiming $128,000 as the “fair market value” of computer items with a “bill of sale amount of $10.”

“The contracting officer approved the request without the benefit of an audit,” he said. “Given the contracting officer’s approval, and absent audit access to the accounting records, the contractor will be able to claim $128,000 via the depreciation process rather than the bill of sale amount of $10.”

At Rockwell headquarters in Pittsburgh, company spokesman James Vallela said that any allegation of overcharging is untrue.

“The company established to the satisfaction of the contracting officer the fair value of the equipment to be $128,000,” he said. “The equipment was acquired in a settlement of litigation which set a nominal value of $10, a fact which was misinterpreted by the auditors.”