Defense Firms in Overbilling Case Repay Portion : Negotiation: Pentagon works out a deal with O.C.-based Sparta Inc. and SRS Technologies to recover questionable expenses.
The Pentagon’s contracting agency has negotiated with two Orange County defense companies to recover a small portion of the funds paid by the government as a result of alleged overbilling, the agency said.
Sparta Inc. in Laguna Hills and SRS Technologies in Newport Beach allegedly billed hundreds of thousands of dollars to the government for a variety of unallowable overhead costs, including alcoholic beverages, trips to resorts and Christmas parties, according to a report released in March by a government watchdog agency.
Of the $748,103 considered as questionable expenses, the two companies repaid a total of $47,851 to the Pentagon, according to reports obtained under the Freedom of Information Act from the Pentagon’s Defense Logistics Agency.
The allegations of overbilling surfaced in March when the General Accounting Office, Congress’ investigative agency, released a 1992 report that criticized Sparta and SRS Technologies for their billing practices. The subsequent investigation showed no evidence of fraud, the Pentagon said.
The GAO questioned $626,601 in costs that the Pentagon paid to Sparta in the fiscal years 1988 and 1989, and $121,502 that the Pentagon paid to SRS in fiscal 1990.
Those costs included reimbursements for the companies’ annual Christmas parties, personal use of company cars, unexplained consultant fees and trips to resorts.
But a follow-up investigation by auditors at the Defense Logistics Agency resulted in recovery of only a small amount of those funds. The rest, which had been described by the GAO as questionable, were legal under federal regulations.
The DLA said it could not recover costs for years that were considered closed unless it brought fraud charges against the contractors or the contractors willingly reopened the books.
The contractors refused to reopen the books, and the agency said it found no evidence of fraud. The agency said that the companies cooperated with the auditing process and that it will prohibit the companies from billing questionable costs in later years.
“As the GAO made its results available, the contractors took steps to strengthen their internal cost controls and screen out unallowable costs,” said Phil Rogers, spokesman for the Defense Contract Audit Agency in Alexandria, Va.
Based on the final audit, Sparta overbilled the government for $13,698 in inappropriate business conference costs, $17,295 for private use of company cars, $12,639 for unallowable depreciation costs, $1,382 for alcoholic beverages at parties and $2,102 for unallowable travel expenses. After negotiations, Sparta paid back $17,062, the Defense Logistics Agency said. Sparta officials did not return calls seeking comment.
For SRS, the final audit showed that the company overbilled the government for $6,299 in inappropriate business conference costs, $9,023 for unallowable depreciation costs, $1,762 in unallowable travel, $14,895 for unallowable legal costs (in which SRS sued the government), and $475 in subscriptions and dues.
SRS also overbilled the agency for $8,247 for “employee morale,” a category that covers events such as Christmas parties and trips to resort areas.
Mohindar Sandhu, president of SRS Technologies, said his company has complied with government regulations and after negotiations last year paid back $13,494 to the Pentagon, paid a $13,494 penalty and another $3,801 for interest.
“We have not done anything illegal,” Sandhu said. “The government’s regulations are subject to different interpretations, even among the auditors. We try to be very fair. There is no pending investigation.”
Sandhu said that the GAO report was flawed and that the company has cooperated with the agencies involved.
The companies, as well as four other defense contractors, were criticized in the report for billing the government for overhead costs. The report also criticized the Pentagon for having paid the bills.
Rogers said the General Accounting Office audited Sparta’s bills to the Pentagon for 1986 through 1989, a period in which the Defense Contract Audit Agency had not questioned any costs.
He said the defense audit agency is reviewing recommendations from the GAO to make its regulations more specific about limiting overhead costs related to employee morale.
“The GAO audit is useful,” he said, “in that contractors will pay more attention to certain costs before submitting a claim to the government.”
