FAC Explorer

Finding 23106 (2022-002)

-
Requirement
B
Questioned Costs
$1
Year
2022
Accepted
2023-03-29
Audit: 27018
Organization: The Charles Stark Draper Laboratory, Inc. (MA)
Auditor: Pricewaterhousecoopers LLP

AI Summary

  • Core Issue: A $160,960 retirement payment to an executive was made despite the employee not being vested in Draper's Supplemental Retirement Plan, violating the plan's terms.
  • Impacted Requirements: The payment does not comply with FAR 31.205-6(a)(3) and 2 CFR Part 200, as it fails to meet the criteria for allowable costs.
  • Recommended Follow-Up: Review and adjust Draper's compensation practices to ensure adherence to plan terms and prevent similar noncompliance in the future.

Finding Text

2022-002 Special Retirement Payment ? Supplemental Retirement Plan for Corporate Officers a. Condition: We questioned the $160,960 special retirement payment to an executive of Draper on the basis that the costs did not conform to the terms and conditions of Draper?s Supplemental Retirement Plan for Corporate Officers (SRPCO). As a result, Draper did not meet the requirements of FAR 31.205-6(a)(3) for these costs to be considered allowable. The costs result from a one-time payment to an executive of $160,960 as a result of Draper?s termination of the SRPCO. Since this executive was previously $26,689 over the Bipartisan Budget Act of 2013 compensation cap, Draper properly classified it as unallowable, we upwardly adjusted the overhead pool to reflect the fact that this executive will now be under the compensation cap. Draper established the SRPCO to assure that certain key Corporate Officers received a reasonable level of retirement compensation in relation to their level of compensation and length of service at the laboratory. On January 19, 2022 the Draper Human Resources & Compensation Policy Committee voted to terminate the SRPCO and replace it with the Long Term Incentive Plan (LTIP) for executives. As of January 19, 2022, only one employee was eligible for the SRPCO although that employee was not vested in the plan. The questioned costs relate to a one-time payment to this employee as consideration to release Draper from all lawsuits, torts, damages and liabilities, and any and all other claims related to the employees? participation in the SRPCO. The SRPCO contains criteria required for an employee to receive a supplemental retirement payment under the plan, including eligibility and vesting. The plan defines vesting as ?an Eligible Employee's having a nonforfeitable right to receive a Supplemental Retirement Payment, as provided in Section 7.? Section 7 of the plan identifies specific events that are required to occur in order for an eligible employee to become vested in their right to receive a supplemental retirement payment under the plan. The specific events include: remaining an employee until mandatory retirement date; becoming permanently and totally disabled; and being involuntarily terminated without cause (prior to mandatory retirement date, but on or after age fifty-five with at least ten years of employment with the laboratory). We determined none of these specific events occurred for this employee and therefore, the employee is not vested. The plan also includes terms regarding the timing of the Supplemental Retirement Payment and states that an eligible employee will be paid as soon as practical after the employee becomes vested. It specifically states: ?The Supplemental Retirement Payment shall be paid by the Laboratory to the Eligible Employee as a lump sum as soon as practicable after the Eligible Employee becomes Vested, subject to applicable tax and other withholdings?. As discussed above, the plan includes specific events that must occur for an employee to become vested in their right to receive a Supplemental Retirement Payment under the plan ? all of which include the employee no longer being employed by the laboratory. Because the plan was established to provide retirement compensation for certain corporate officers and all events necessary for an employee to become vested in the plan require the employee to no longer be employed by Draper, we determined that payment to a current employee is not consistent with the terms and conditions of the plan. In addition, we also reviewed Draper?s April 5, 2022 agreement letter to the employee, which states the following: ?Draper has the authority to terminate the SRPCO at any time with no obligation to pay out plan participants who have not otherwise vested in the plan. You further acknowledge and agree that as of January 19, 2022 you were not vested in the SRPCO. In consideration for the one-time payment for which you are otherwise not entitled, you agree to release Draper and all of its past, present and future officers, directors, trustees, agents, employees, consultants, attorneys, and insurers (collectively the ?Related Parties?), from all demands causes of action, lawsuits, torts, contracts, agreements, promises, statutory violations, costs, attorneys? fees, damages and liabilities, and any and all other claims of every kind, nature and description, both in law and in equity, which you may now have, or have ever head at any time against the Released Parties as it relates to your participation in the SRPCO.? As noted in the letter, the employee was not vested in the SRPCO plan nor was she even entitled to payment under the plan. As a result, these costs do not meet the requirements of FAR 31.205-6(a)(3), which states that compensation for personal services is allowable if the compensation is based upon and conform to the terms and conditions of the contractor?s established compensation plan or practice. Based on our discussions with Draper, we determined that the employee is eligible for the Long Term Incentive Plan (LTIP), which was recently approved by Draper?s Board of Directors. As discussed above, the LTIP is the replacement plan for the SRPCO. Because the LTIP is a replacement plan for the SRPCO and the employee is eligible for the LTIP, we do not consider it to be reasonable for the employee to benefit from both of these plans. The cause for these questioned expenses results from Draper?s decision to ignore the criteria that was stated in its Supplemental Retirement Plan for Corporate Officers (SRPCO) and pay this employee even though she was not vested in the plan. This audit finding also results in a noncompliance with compliance requirement B (Allowable Cost/Cost Principles) of 2 CFR Part 200, Appendix XI, Compliance Supplement. The questioned costs represent indirect costs, which pertain to all Federal contracts under Draper?s R&D program. We do not consider the questioned Supplemental Retirement Plan for Corporate Officer costs to be subject to penalties in accordance with FAR 42.709. a. Criteria FAR 31.205-6(a)(3) ? Compensation for Personal Services (a) General. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. b. Recommendation: We recommend that Draper perform a more thorough analysis of its claimed compensation costs in order to ensure that only allowable compensation is claimed. c. Draper?s Reaction: Draper?s reaction follows verbatim. Draper concurs with DCAA?s finding and will ensure that only allowable compensation costs are claimed in the future by performing an additional review of claimed compensation costs prior to submittal of the annual Uniform Guidance submission. Issue Coordinator: Jamie Pereira, Director, Government Accounting & Compliance Est. Completion Date: November 2023 d. Auditor?s Response We do not take any exceptions with Draper?s corrective action.

Categories

Questioned Costs Allowable Costs / Cost Principles

Other Findings in this Audit

Programs in Audit

ALN Program Name Expenditures
12.RD Lockheed Martin - Sunnyvale $20.25M
12.RD Interstate Electronics CORP $7.90M
43.RD Johnson Space Center $6.11M
12.800 Wright Laboratory $4.62M
99.U99 Uuv Aa Sponsor $4.31M
12.RD Naval Undersea Warfare Center Newport $2.82M
12.RD Mriglobal $2.44M
12.RD Dese Research INC $2.28M
12.300 Office of Naval Research $2.11M
12.RD Ussocom $1.91M
12.RD Northrop Grumman Mission Systems $1.84M
99.U99 Leidos, Inc. $1.78M
81.RD Lawrence Livermore National Laboratory $1.75M
12.RD Spawar Systems Center San Diego $1.39M
12.RD USA Medical Research Acquisition Actvty $1.36M
12.420 USA Medical Research Acquisition Actvty $1.29M
99.U99 Confidential Industrial Partner $1.28M
12.910 Defense Advance Research Projects Agency $1.18M
12.RD Naval Information Warfare Center Pacific $1.15M
12.RD Rutgers University $1.13M
12.RD Air Force Research Laboratory $979,029
99.U99 Systems & Technology Research, LLC $855,465
12.RD Eo Vista LLC $817,406
12.RD Textron Systems Corporation $801,635
12.RD Strategic Systems Programs $782,805
12.RD Gird Systems, INC $729,743
12.RD Applied Research Associates INC $625,216
12.RD Leidos, Inc. $611,941
93.RD US Food and Drug Administration $596,507
12.RD W6qk Acc-Apg Natick $497,919
12.RD Natick Soldier Systems Center $473,077
93.350 National Institutes of Health $466,010
12.RD Naval Surface Warfare Center Dahlgren $458,642
12.RD Usaf/afmc/aflcmc $380,419
12.RD Systems Planning and Analysis, Inc. $365,066
12.RD Space Development Agency $363,647
12.RD Systems & Technology Research, LLC $361,584
12.RD U S Government $335,622
12.RD Office of Naval Research $326,885
12.RD Cfd Research Corporation $317,719
12.RD Dynetics Technical Solutions, Inc. $315,595
12.RD Physical Sciences Incorporated $309,622
12.RD Defense Threat Reduction Agency $302,637
12.RD Hq Ussocom Sordac-K $290,703
12.RD The Mil Corporation $285,102
12.RD Sri International $279,164
12.RD The Pennsylvania State University $273,446
12.910 University of Massachusetts Worcester $270,596
99.U99 U S Government $253,936
93.RD University of Illinois at Chicago $225,341
12.RD Kbr $184,759
12.RD Lockheed Martin - Palmdale $153,340
12.RD Bae Systems $143,009
12.RD Flir Systems Inc. $141,455
12.RD Lockheed Martin - Littleton $129,611
93.RD Vox Biomedical LLC $125,673
81.RD Sandia National Laboratories $101,356
93.837 National Institutes of Health $96,485
12.RD Raytheon - Tuscon $86,823
47.RD The National Science Foundation $74,204
12.RD Natick R&d Center $70,647
12.RD Serco INC $69,962
12.RD Missile Defense Agency $65,355
12.RD Resonant Sciences LLC $64,274
43.RD NASA Shared Services Center $62,019
43.RD Massachusetts General Hospital $55,597
43.RD Kbr $51,889
12.RD Skyline Nav Ai INC $46,550
12.RD Johns Hopkins Univ Applied Physics Lab $40,653
99.U99 Budget & Finance Systems Activity (bfsa) $38,002
12.RD Radiation Monitoring Devices, Inc. $25,512
12.RD Assett, Inc. $19,080
12.RD Charles River Analytics $17,976
12.431 Partners Healthcare Research Management $16,074
43.RD Analytical Mechanics Associates, Inc. $10,512
15.RD Leidos, Inc. $9,234
12.RD Ball Aerospace and Technologies Corp. $8,723
12.RD Advanced Technology International (ati) $8,636
12.RD Picatinny Arsenal $8,545
12.RD Space & Missile Systems Center $8,278
12.RD Lincoln Laboratory $6,524
43.RD Deep Space Systems Inc. $5,884
12.RD Northrop Grumman Space Technology $5,329
12.RD US Army - Aberdeen Proving Ground $5,217
99.U99 Science Applications International CORP $3,804
12.RD Booz Allen & Hamilton $2,957
12.RD Wright Laboratory $2,789
99.U99 Sandia National Laboratories $2,737
12.RD Cybrix Group INC $2,689
12.RD Lockheed Martin - Mitchel Field $2,588
12.RD Saf/aqcs $2,470
12.RD Naval Undersea Warfare Center Keyport $2,131
43.RD Smithsonian Astrophysical Observatory $2,057
12.RD Maxentric Technologies LLC $1,820
12.RD Army Research Laboratory $1,783
12.RD Northrop Grumman Systems Corporation $1,730
12.RD Chemring Detection Systems $1,701
12.RD Air Force Research Laboratory - Rome Ny $1,654
43.RD Southwest Research Institute $1,573
99.U99 Lockheed Martin Is&gs Hanover MD $1,484
12.RD Integrated Solutions for Systems, INC $1,407
12.RD Lockheed Martin - Riviera $1,373
12.RD Par Government Systems Corporation $1,364
12.RD Hq United States Air Force / A2i $1,355
12.RD Naval Surface Warfare Center Carderock $1,341
12.RD Eglin Air Force Base $1,307
12.RD Lockheed Martin - Orlando $1,295
12.RD Navy Engineering Logistics Office $1,075
12.617 State of Connecticut $899
12.RD Army Contracting Command - Redstone $788
12.RD Novawurks Inc. $757
81.RD Battelle Energy Alliance, LLC $728
12.RD Defense Advance Research Projects Agency $663
12.RD Eoir Technologies, INC $656
11.RD Noaa/national Weather Service $653
12.RD Battelle $628
12.RD Northrop Grumman Electronic Systems $608
12.RD Boeing Company $563
12.RD Mayflower Communications INC $499
12.RD Next Century Corporation $494
12.RD US Army Rdecom Cont Ctr - Adelphi $489
97.RD Department of Homeland Security $477
12.RD Lockheed Martin Advanced Technology Labs $428
43.002 National Space Biomedical Research Inst $398
93.173 Akouos, LLC $384
12.RD US Army Rdecom Acq Ctr $353
12.RD Air Force Material Command - Hanscom $338
12.RD Digital Infuzion $331
43.RD Ames Research Center $299
12.RD Navmar Applied Sciences Corporation $289
93.113 Northwestern University $262
12.RD The Mitre Corporation $186
12.RD Aosense, Inc. $167
12.RD Sp Global, Inc. $164
12.RD Science Applications International CORP $157
12.RD University of Dayton Research Institute $151
99.U99 Johns Hopkins Univ Applied Physics Lab $135
43.003 NASA Shared Services Center $135
12.RD Doolittle Institute, Inc. $132
12.RD The Perduco Group, Inc. $128
12.RD Intelligent Fusion Technology, Inc. $80
81.RD Radiation Monitoring Devices, Inc. $74
12.RD Proactive Technologies, Inc. $69
12.341 Northeastern University $63
12.RD Raytheon Bbn Technologies CORP $46
12.RD Teledyne Scientific & Imaging, LLC $36
12.RD Alion Science & Tech $35
93.RD The University of Texas at Dallas $34
47.050 The National Science Foundation $28
12.RD Neany, Inc. $21
43.001 Johns Hopkins Univ Applied Physics Lab $17
12.RD Naval Surface Warfare Center Crane Div $15
43.RD Orbital Sciences Corporation $14
93.853 National Institutes of Health $12
43.007 NASA Shared Services Center $8
12.RD Vencore Services and Solutions, Inc. $6
12.351 Defense Threat Reduction Agency $5
12.RD Vescent Photonics, Inc. $1