U.S. Army Corps of Engineers: Building Overhead Costs into Projects and Customers' Views on Information Provided
Published: 2013-06-19T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: The Corps spends billions of dollars annually on projects in its Civil Works program. Part of the cost of doing business with the Corps involves paying for overhead--costs that do not directly relate to a specific project or activity but more generally support agency operations. Overhead costs are included in the amount that Congress appropriates for specific Corps projects and the amount that customers pay for Corps' services. The Corps provides services to customers including other Department of Defense units, federal agencies, state and local governments, Indian tribes, and foreign governments. The Corps' Civil Works program is organized around its headquarters, 8 divisions, and 38 districts nationwide. Only district overhead is charged to projects; overhead for headquarters and divisions is not.
GAO was asked to review the Corps' process for building overhead costs into projects. This report examines (1) how the Corps builds overhead costs into its projects and (2) customers' views on overhead information. To accomplish this, GAO reviewed Corps' documentation of its overhead and billing processes, interviewed officials at Corps headquarters, 2 divisions, and 4 districts based on geographic location, and interviewed 16 of the highest paying federal and nonfederal Corps' customers in fiscal year 2012. The results of these interviews cannot be generalized to all customers but provided insights.
GAO is not making recommendations in this report. The Department of Defense did not provide comments.
section_title: What GAO Found
paragraphs: The U.S. Army Corps of Engineers (Corps) uses a multistep process to build overhead costs into projects. At the foundation of this process, Corps policy establishes two categories of costs to calculate overhead--general and administrative overhead expenses associated with district administrative offices, such as resource management, and technical overhead expenses associated with district technical offices, such as engineering. Using these two categories as a starting point, the Corps next calculates overhead rates as part of its annual budget process. Specifically, each district administrative and technical office develops operating budgets with overhead estimates, which are then consolidated and routed through district and division management, resulting in a final division-wide operating budget and overhead rates. The Corps then bills projects for overhead costs based on the number of hours its staff charge to projects. Overhead charges are not applied to hours worked by contracted labor, which represent a substantial amount of work. The Corps reports that it contracts out most of its design work and all of its construction work to private sector entities, such as architectural and engineering firms and construction companies. Finally, the Corps periodically monitors overhead costs and makes any necessary adjustments such as changing overhead rates, reducing expenditures, or providing rebates to customers. The Corps is able to monitor overhead because it tracks overhead costs separately from other project costs in its financial management system through specific overhead accounting codes.
Corps customers' views varied on whether overhead information is accessible and understandable. Half of the 16 highest paying customers GAO interviewed said overhead information is generally accessible and understandable. For example, one federal customer said that the Corps provides overhead information in monthly bills, and the information is understandable. One of the 16 highest paying customers said overhead information is not accessible and understandable. For example, this nonfederal customer and the Corps could not agree on whether overhead information requested by the customer had been provided, leaving the customer unable to understand Corps costs, including overhead information. The remaining 7 highest paying customers had no opinion on accessibility and/or understandability. While offering no opinion on one aspect of overhead information, such as accessibility, they generally offered a positive opinion on the other aspect, understandability. For example, one federal customer had no opinion on whether the information was accessible but said that the information was understandable because the Corps explains how it builds overhead into its projects during project meetings. Conversely, a nonfederal customer told GAO that he has requested and received overhead information from the Corps--stating that overhead information is accessible, but he offered no opinion on understanding it. Among customers GAO interviewed, there were common views about overhead information. Specifically, some customers indicated that overhead information is important, but that overall project costs are more important than overhead costs. They also said that good communication is important to understanding overhead information.

section_title: Letter
paragraphs: The U.S. Army Corps of Engineers (Corps) is responsible for  investigating, developing, and maintaining water resource projects and  spends billions of dollars annually on a variety of projects in its Civil  Works program. As with private sector businesses, part of the cost of  doing business with the Corps involves paying for overhead—costs that  do not directly relate to a specific project or activity but more generally  support agency operations. Examples of such costs include resource  management, building security staff, rent, and information technology.  Overhead costs are included in the amount that Congress appropriates  for specific Corps projects and the amount customers pay for Corps’  services. The Corps provides services to an array of customers including  other Department of Defense units, other federal agencies, state and  local governments, Indian tribes, and foreign governments. These  services include engineering and construction services, environmental  restoration and management services, research and development  assistance, management of water and land related natural resources,  relief and recovery work, and other management and technical services.
You asked us to review the Corps’ process for building overhead costs  into projects. This report examines (1) how the Corps builds overhead  costs into its projects and (2) Corps customers’ views on overhead  information.
To determine how the Corps builds overhead costs into its projects, we  reviewed Corps documentation regarding its overhead and billing  processes including, among other things, overhead guidance for  headquarters and the eight Corps divisions that conduct civil works  activities. We interviewed officials at Corps headquarters and two division  and four district offices—selected based on geographic location—about  the overhead process and information used to estimate, allocate, and bill  overhead to projects. We did not evaluate the accuracy or legal  sufficiency of the Corps’ overhead formulas and calculations. We  received an agency demonstration of how the Corps’ financial  management system tracks overhead costs separately from other project  costs, reviewed selected Corps customers’ bills provided by the Corps  and some Corps customers, reviewed Corps overhead documentation,  interviewed Corps officials knowledgeable about how the Corps tracks  and bills overhead costs, and interviewed selected Corps customers. To  assess Corps customers’ views on overhead, we interviewed the 16  highest paying federal and nonfederal customers in fiscal year 2012 for  each of the eight Corps divisions that conduct civil works activities. Our  questions covered the importance the customers place on obtaining  overhead information, availability of and access to such information, and  how understandable the customers find the overhead information the  Corps provides. The interview results are not generalizable to all Corps  civil works customers but provide illustrative examples for the 16  customers. In addition to these 16 customers, we interviewed 8 other  Corps customers who represented geographic variation and different  funding mechanisms to gather their views on the Corps’ overhead  information. Appendix I contains more detailed information on our  objectives, scope, and methodology and appendix II contains the  questions from our interview with the 16 highest paying customers.
We conducted this performance audit from July 2012 to June 2013 in  accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.
subsections: section_title: Background
paragraphs: The Corps is one of the world’s largest public engineering, design, and  construction management agencies. The Civil Works program employs  about 23,000 full-time equivalents, with staff in headquarters; 8 divisions,  which were established generally according to watershed boundaries and  are headed by a division commander, who is a military officer; and 38  districts nationwide. The program covers hundreds of civil works projects  nationwide and comprises water resource development activities,  including flood risk management, navigation, recreation, and  infrastructure and environmental stewardship. Headquarters and divisions  generally establish policy and provide oversight, and districts implement  projects. See fig. 1 for the locations of Corps civil works divisions and  districts.
More than 85 percent of Corps civil works staff work in the districts, which  have a planning and executing role for Corps’ projects. Each district office  is headed by a district commander, who is also a military officer, and each  district has a number of administrative and technical offices.  Administrative offices, such as resource management, security, and  general counsel, provide general administrative support. Technical  offices, such as engineering, construction, and real estate, provide  technical services to customers on specific projects.
Corps districts vary widely in the number of full-time equivalents they  employ for civil works activities. Following are full-time equivalent data (in  parentheses) for the two largest and two smallest districts, as well as two  medium-sized districts, as reported by the Corps.
The two largest districts: New Orleans (1,295) and Portland (1,155).
Two medium-sized districts: Kansas City (530) and Fort Worth (515).
The two smallest districts: Charleston (123) and Honolulu (64).
Only district overhead is charged to projects; headquarters and division  overhead is not. The Corps receives an appropriation that covers  overhead expenses incurred by the Corps’ headquarters and divisions.  Districts, however, do not receive an appropriation to fund their overhead,  so to cover those costs, districts must include overhead as part of project  costs and bill those costs directly to customers.
Districts use the Corps’ revolving fund—a permanent appropriation  established by the Civil Function Appropriations Act of 1954—to finance  their overhead costs, then reimburse the fund with overhead payments  received from project appropriations and customers. In this way, the  revolving fund, which maintains a number of accounts to which district  staff charge their time, allows the financing of agency activities because  the Corps charges for services and uses the proceeds to finance its  spending, usually on a self-sustaining basis. Corps-wide policy includes a  goal that each division’s overhead account achieve a balance of zero at  the end of each fiscal year. Corps policy states that a balance within plus  or minus 1 percent of actual expenses is considered the equivalent of a  zero balance and, therefore, acceptable.
The Corps receives the bulk of its funding from Congress. The Corps’  fiscal year 2012 appropriations for the Civil Works program totaled about  $6.7 billion—about $5 billion in regular appropriations and about $1.7  billion in disaster appropriations. The appropriation covering headquarters  and division overhead expenses was $185 million. According to Corps  officials, Congress provided about 73 percent of the Corps’ civil works  funding in fiscal year 2012. The remaining 27 percent—about $2.5  billion—was provided by the Corps’ federal and nonfederal customers.  Specifically, the Corps reported receiving about 17 percent of its fiscal  year 2012 funding from federal customers on a reimbursable basis, about  6 percent from nonfederal customers on a cost share basis, and about 4  percent from federal customers on a direct fund basis, whereby the  customer pays for Corps services in advance. Information on these  federal and nonfederal customers is provided in table 1.
section_title: The Corps Uses a MultiStep Process to Build Overhead Costs into Its Projects
paragraphs: The Corps uses a multistep process to build overhead costs into projects.  First, Corps policy establishes two categories of costs to calculate  overhead. Second, the Corps calculates annual overhead rates for the  two cost categories as part of its annual budget process. Third, the Corps  bills projects for overhead costs based on the number of hours its staff  charge to projects. Finally, the Corps monitors overhead costs and makes  any necessary adjustments to overhead rates.
subsections: section_title: Corps Policy Establishes Two Categories of Costs to Calculate Overhead
paragraphs: Corps policy establishes two categories of costs to calculate overhead— general and administrative (G&A) overhead expenses associated with  district administrative offices and technical overhead expenses  associated with district technical offices. These two categories serve as  the foundation for building district overhead into projects. Corps policy  defines G&A overhead as costs of a general or administrative nature, and  all G&A overhead charges are based on a single rate per division.
Examples of G&A overhead include costs to run the district resource  management or security offices, such as employee salaries and benefits  and utilities. Corps policy defines technical overhead as costs within a  technical office—such as engineering or construction—that cannot be  directly identified as part of or readily chargeable to a specific program or  project. Examples of technical overhead are the hours spent by the head  of the engineering office providing general supervision to engineering  staff and the prorated portion of rent for the office space of the  engineering staff. All technical overhead charges are based on four  different rates per division—consolidated technical overhead, emergency  management, operations, and regulatory. Corps headquarters officials  said that the four technical overhead rates reflect four distinct types of  services rendered as follows:
Consolidated technical overhead: This rate applies to state, local, and  tribal governments working with the Corps to build new water  resource projects.
Emergency management: This rate applies to services rendered to  the Federal Emergency Management Agency and state and local  emergency management entities.
Operations: This rate applies to state, local, and tribal governments  receiving Corps services for the operation and maintenance of  existing water resource projects.
Regulatory: This rate applies to customers seeking Corps’ permits to  build on lands that might impact a wetland.
Using calculations based on the G&A rate and the applicable technical  rates, districts build overhead costs into projects. This multistep process  is outlined in fig. 2.
Using the two categories of overhead defined in Corps policy as its  starting point, each district administrative and technical office—with  assistance from district budget staff—develops its own operating budget  with estimated overhead for the year. For administrative offices, officials  estimate annual expenses, and most of their employees’ time is charged  as G&A overhead. For technical offices, officials estimate annual  revenues and expenses and also calculate the portion of technical office  labor costs that will be charged directly to projects and the portion that will  be charged to overhead. For example, a district’s construction office  operating budget might estimate that a project manager would spend 85  percent of his/her time charging directly to projects and spend the  remaining 15 percent of the time charging to overhead for activities such  as attending training and staff meetings. The administrative and technical  offices’ operating budgets also include costs for centrally provided  services, such as information technology, as well as certain expenses  with imposed caps, such as employee awards.
Once each district administrative and technical office completes its  operating budget, the offices forward them to the district resource  manager—who essentially serves as the chief financial officer for the  district. The district resource manager reviews and verifies information  from each office and then consolidates the submissions into a single  district operating budget. A district advisory committee—known as the  Program Budget Advisory Committee—reviews and recommends the  budget to the district commander for approval. District operating budgets  include proposed G&A and technical overhead rates for the district. Each  overhead rate is determined by dividing the total estimated overhead  costs for the category of overhead, such as G&A, by the total estimated  direct labor expected to be charged to projects. For example, if a division  estimated that the total G&A costs for all of its districts would be $200  million and estimated that the total district labor charges expected to be  directly billed to projects would be $1 billion, then the division’s G&A rate  would be .20 ($200 million/$1 billion).
Once district commanders approve their district’s operating budget, the  district resource manager submits it to the division’s resource manager  who reviews and verifies information and then consolidates all of the  district operating budgets into a division-wide operating budget with a  proposed single set of G&A and technical overhead rates for the division.  As is the case with the districts, a division advisory committee—known as  the Regional Program Budget Advisory Committee—reviews and  recommends the budget to the division commander for approval. With  limited exceptions, each division and district carries out this process  annually, with the result being a single set of G&A and technical overhead  rates charged each year for each Corps division. Overhead rates may  vary from division to division due to a number of factors, such as cost of  living (e.g., rent is higher for the San Francisco District than the  Albuquerque District) and composition of the workforce (e.g., a district  with more senior level staff has higher salaries than a district with more  junior level staff).
section_title: The Corps Bills Projects for Overhead Costs Based on the Hours Charged by Corps Staff for Work Performed
paragraphs: Once overhead rates have been calculated in the budget process, district  staff perform their work and charge their time to various project and  overhead revolving fund accounts. Those accounts are then reimbursed  either through project appropriations or through bill payments from  customers. Districts build overhead into projects using the rates provided  in the approved division operating budget. Overhead charges are  applied to each project based on the hours charged by Corps staff;  overhead charges are not applied to hours worked by contracted labor,  which can represent a substantial amount of work. The Corps reports that  it contracts out most of its design work and all of its construction work to  private sector entities, such as architectural and engineering firms and  construction companies.
Within each division, a single G&A rate is applied to all projects, whereas  technical rates are applied depending on the technical office staff  charging to the projects. For example, for an employee in the regulatory  office, overhead charges would include both the technical overhead  regulatory rate, along with the G&A rate, for each hour charged to a  specific project. Fig. 3 shows the components of the hourly rate charged  to Corps’ customers, along with an example of rates and associated  costs.
According to Corps billing officials, customers who fund the Corps  through a reimbursable or direct fund basis typically receive standard  invoices or statements that include a breakout of these G&A and  technical overhead costs. The billing for customers who share the costs  of a project with the Corps, on the other hand, is handled by each  individual district. According to the Corps, district project managers  determine what is included in the billing information provided to  customers.
section_title: The Corps Monitors Overhead Costs and Makes Any Necessary Adjustments
paragraphs: Periodically throughout the year, Corps headquarters, divisions, and  districts monitor actual overhead expenses incurred, compare them with  budgeted overhead estimates, and adjust rates charged to customers, if  necessary, to help ensure the difference between budgeted and actual  overhead is as close to zero as possible by the end of the fiscal year.  Corps guidance calls for reviews of expenses and income no less than  quarterly to determine whether budget projections and the existing  overhead rates are on track. Corps officials told us that district staff,  including those from resource management and budget, meet at least  quarterly to review their actual expenditure of funds under a given budget.  Corps officials further stated that division resource management and  other officials meet at least quarterly with district staff to help ensure that  actual expenses align with budgeted amounts. Moreover, Corps officials  stated that, in a process known as the Directorate Management Review,  Corps headquarters reviews overhead for all divisions on a quarterly  basis to determine if there are any differences between budgeted and  actual overhead that fall outside of targeted tolerance levels and the  reasons for such differences. Based on these reviews, division  commanders are responsible for ensuring that appropriate action is taken,  such as adjusting overhead rates, reducing expenditures, or providing  rebates to customers. Corps headquarters officials said that if the Corps  takes in more revenue than was budgeted, this “income” is factored into  the calculation of overhead rates for the next fiscal year, potentially  resulting in lower overhead rates. The opposite is true if the Corps takes  in less revenue than was budgeted.
The Corps is able to monitor overhead because it tracks overhead costs  separately from other project costs in its financial management system by  using specific accounting codes to identify overhead. According to  Corps officials, district staff are responsible for entering project activity  data into the headquarters’ financial management system using these  codes. We reviewed one district’s expense reports and found that  overhead costs were broken out separately from other project costs using  categories such as training and rent. We also reviewed examples of the  Corps’ standard billings to customers and found that they all included a  breakdown of G&A and technical overhead. According to Corps officials,  tracking overhead costs is essential to meet the tolerance level goals set  by the Corps for each fiscal quarter.
section_title: Customers’ Views on Overhead Information
paragraphs: Customers’ views on whether overhead information is accessible and  understandable varied. Half of the 16 highest paying customers we  interviewed said overhead information is generally accessible and  understandable; 1 of the 16 said overhead information is not accessible  and understandable; and the remaining 7 had no opinion on accessibility  and/or understandability. For those customers who offered no opinion on  one aspect of overhead information, such as accessibility, they generally  offered a positive opinion on the other aspect of information,  understandability. Like these 16 customers, the views of the 8 other  Corps customers we interviewed varied. In addition, customers we  interviewed provided some common views on overhead information,  stating that overhead information is important, but that overall project  costs are more important than overhead costs. They also emphasized the  importance of good communication with the Corps to understanding  overhead information.
subsections: section_title: Customers’ Views Varied on Whether Overhead Information Is Accessible and Understandable
paragraphs: Customers’ views fell into three broad categories: (1) overhead  information is generally accessible and understandable, (2) overhead  information is not accessible and understandable, and (3) no opinion on  whether overhead information is accessible and/or understandable.
In our interviews with the highest paying federal and nonfederal  customers in each of the 8 Corps divisions in fiscal year 2012, 8 of 16  customers said overhead information is generally accessible and  understandable. For example, one nonfederal customer said overhead  information is accessible and easy to understand because the information  is included in its project agreement with the Corps, which is signed prior  to the start of a project. Another federal customer we interviewed said that  the Corps provides overhead information in monthly bills and that this  information was also understandable. Moreover, that customer pointed  out that, if more overhead information was needed, she could ask the  Corps for such information and the Corps would provide it.
While half of the highest paying customers said overhead information is  generally accessible and understandable, seven of them noted that  understanding overhead information required some work. For example,  one federal customer said it sometimes takes several e-mail exchanges  with the Corps to understand overhead terminology. While generally  understanding overhead information, this customer said he would like to  review bills with the Corps to better understand what is charged as  overhead on a project. Another federal customer said that a customer  must be familiar with the Corps and its processes to understand the  overhead billing. Moreover, two federal customers said that they do not  have a complete understanding of overhead charges because the Corps  does not provide a detailed breakdown of overhead costs throughout the  course of the project.
One of the 16 highest paying customers said that overhead information is  not accessible and therefore was unable to assess whether it is  understandable. This nonfederal customer said that a Corps district had  denied a request for overhead rates and a detailed breakdown of  overhead costs by Corps employee. Asked about this, district officials  said they had reached an agreement with the customer to provide  detailed overhead information and provided a sample report  demonstrating the overhead information, but that the customer did not  respond to the Corps’ request to accept this information. However, this  customer disagreed and said the overhead information request is still  unresolved, making it difficult to manage ongoing projects without  knowing how the Corps spends project funds or what it charges for  overhead. Neither the customer nor the Corps provided us written  documentation substantiating the resolution of the overhead information  request.
In addition to our interviews with the highest paying customers, we  interviewed eight additional customers. Two of these customers— customers we identified as potentially having concerns about the Corps’  overhead process—said the Corps provides them with little or no  overhead information and that what overhead information they do receive  is difficult to understand. One of those customers told us that the Corps  had not provided overhead information when it was requested. Corps  officials said that although they do not have a formal written policy on  providing overhead information to customers, overhead information is  available to any customer upon request.
Seven of the 16 highest paying customers did not have an opinion on  accessibility and/or understandability of overhead information. Those that  offered no opinion on one aspect, such as accessibility, generally offered  a positive opinion on the other aspect, understandability.
Two of the seven highest paying customers did not express an  opinion on whether overhead information is accessible and  understandable. One nonfederal customer told us that he did not  request overhead information from the Corps, in part because he  accepts the Corps’ overhead rates and charges as a given. Because  he does not request overhead information, this customer could not  comment on whether overhead information is accessible and  understandable. Another nonfederal customer said he was more  concerned about the overall costs of the project than the overhead  charges and, therefore, had no opinion on the accessibility and  understandability of overhead information. In additional interviews with  eight federal and nonfederal customers, one nonfederal customer was  not concerned about overhead information, explaining that he agreed  to project costs up front with the Corps and from that point on both  parties are responsible for their share of the costs.
Three of the seven highest paying customers stated that overhead  information is accessible but had no opinion on whether the  information is understandable. For example, one nonfederal customer  said that overhead information is available, if needed, but this  customer does not request such information because he has a good  working relationship with the Corps and trusts that the Corps is  building overhead into projects appropriately. This customer did not,  however, offer an opinion on whether overhead information is  understandable. Another nonfederal customer told us that he has  requested and received overhead information from the Corps, but he  offered no opinion on understanding overhead information.
Two of the seven highest paying customers expressed no opinion on  the accessibility of overhead information but stated such information  was understandable. For example, one federal customer said that  while he has not requested overhead information, the Corps explained  how it builds overhead into its projects during project meetings and  that he understood this information. Another federal customer said  that while he has no opinion on the accessibility of information, he is  able to understand overhead using his agencies’ in-house expertise.
section_title: Customers Provided Additional Views on Overhead Information
paragraphs: Of the 24 customers we interviewed, a number expressed common views  regarding overhead information. Specifically, these included:
Overhead information is important. Most customers told us that  overhead information is important and that knowing those costs up  front is also important. Specifically, some customers told us that  knowing overhead costs up front helps their organizations determine  whether costs are reasonable before starting a project with the Corps.  In some cases, customers said they could secure services from a  source other than the Corps, so overhead information is important in  determining whether to select the Corps to manage their projects.  Some customers said due to the direct impact of overhead costs on  the project’s total cost, knowing those costs up front allows their  organizations to plan project funding appropriately.
Overall project cost is more important than overhead costs. Some  customers we interviewed said they were more interested in the  overall project cost than specific overhead charges. Ten of 16 highest  paying customers said they had requested a detailed breakdown of  project costs including overhead charges. This was the most frequent  type of information requested from the Corps, according to our  interviews. In substantiating what we learned from customers, Corps  headquarters officials told us that customers are more interested in  the overall project cost than overhead costs, and customers typically  do not ask for overhead information. Specifically, Corps officials said  that customers who pay for Corps services on a reimbursable basis— typically federal agencies—receive regular bills or statements that  include a breakdown of overhead charges and, therefore, may be  more aware of overhead costs and any rate changes.
Good communication is important to understanding overhead  information. Four of the highest paying customers that expressed  positive views on the accessibility and understandability of overhead  information said their organizations have good communication and  working relationship with the Corps. For example, one of the  nonfederal highest paying customers said that his organization  communicates frequently with the Corps and has developed a positive  working relationship with the Corps over decades that could serve as  a model for other organizations. Three of the highest paying  customers added that communication such as discussions of  overhead at regular project meetings or a fact sheet would help them  better understand overhead information.
section_title: Agency Comments and Our Evaluation
paragraphs: We provided a draft of this report for review and comment to the  Department of Defense. Because the report does not contain any  recommendations, the department did not provide written comments. The  department did provide technical comments, which we incorporated into  the report as appropriate.
As agreed with your office, unless you publicly announce the contents of  this report earlier, we plan no further distribution until 7 days from the  report date. At that time, we will send copies to the Secretary of Defense,  the Chief of Engineers and Commanding General of the U.S. Army Corps  of Engineers, the appropriate congressional committees, and other  interested parties. In addition, the report will be available at no charge on  the GAO website at http://www.gao.gov.
If you or your staff members have any questions about this report, please  contact me at (202) 512-3841 or fennella@gao.gov. Contact points for  our Offices of Congressional Relations and Public Affairs may be found  on the last page of this report. GAO staff who made key contributions to  this report are listed in appendix III.
section_title: Appendix I: Objectives, Scope, and Methodology
paragraphs: Our objectives were to examine (1) how the U.S. Army Corps of  Engineers (Corps) builds overhead costs into its projects and (2) Corps  customers’ views on overhead information.
To address the first objective, we reviewed Corps documentation  regarding its overhead determination and billing processes including,  among other things, overhead briefings, budget memos, and guidance  from headquarters and the eight Corps divisions that conduct civil works  projects. We interviewed officials at Corps headquarters, two of eight  division offices (North Atlantic and Northwest), and 4 of 38 district offices  (Baltimore, New Orleans, Portland, and Vicksburg) about the overhead  process and information used to estimate, allocate, and bill overhead to  projects. We selected these offices to ensure geographic variation. We  interviewed eight Corps officials from four Corps districts knowledgeable  about the overhead process, including estimating overhead costs and  setting overhead rates. Specifically, we interviewed four randomly  selected Corps resource managers—a district’s chief financial officer who  oversees the formulation of a district’s operating budget including district  overhead rates—as well as the heads of four Corps technical offices who  oversee the estimates of overhead by employee. We received a  demonstration on how the Corps’ financial management system is  designed to track overhead separately from other project costs, reviewed  examples of Corps billings to customers provided by the Corps and some  Corps customers, reviewed Corps financial management system  documentation, interviewed selected Corps customers, and interviewed  Corps officials knowledgeable about how the Corps tracks and bills  overhead costs. While we generally reviewed the Corps’ methodology to  develop overhead rates, we did not evaluate the accuracy or legal  sufficiency of the Corps’ overhead formulas and calculations. For civil  works projects, we only focused on general and administrative and  technical overhead. Although the Corps charges overhead for military and  civil works projects, we did not review how the Corps charges overhead  to military projects.
In addressing the second objective, we interviewed six Corps customers  from the North Atlantic and Northwest Divisions, respectively, to gather  their views on the Corps’ overhead process, including whether overhead  information is accessible and understandable. Specifically, we  interviewed Bonneville Power Administration, Bureau of Reclamation,  Environmental Protection Agency, Maryland Department of Natural  Resources, Wicomico County Department of Public Works, and a military  customer. We selected these customers to provide geographic variation  and to ensure representation of at least one customer from each type of  funding mechanism—reimbursable, cost share, and direct fund basis. The  views of these customers are not generalizable to all Corps civil works  customers but provide illustrative examples for the six customers. To help  us understand the nature of concerns certain customers had expressed  about the Corps’ overhead to congressional staff and to design a  structured interview protocol, we selected two additional customers to  interview—Southeast Louisiana Floodplain Authority–East and Southeast  Louisiana Floodplain Authority–West. We randomly selected these  customers from an extensive list of potential customers who had  previously expressed concerns to congressional staff. Although these  customers added to the geographic variation and to the variety of funding  mechanisms represented, their views do not represent the views of Corps  civil works customers generally, but rather, are indicative of customers  that had previously expressed concerns to congressional staff. We then  sought to determine views from a broader group of customers by  conducting structured interviews with the 16 highest paying federal and  highest paying nonfederal customers in fiscal year 2012—one in each  category from all 8 Corps divisions. The names of the 16 customers we  interviewed are listed in table 2. Our questions covered the importance  customers place on obtaining overhead information, availability of and  access to such information, and the extent to which the overhead  information they receive is understandable. A detailed list of structured  interview questions is presented in appendix II. The structured interview  results are not generalizable to all Corps civil works customers but  provide illustrative examples for the 16 customers. We conducted  structured phone interviews from January 2013 to March 2013, and we  completed 16 of 16 interviews. Prior to interviewing the 16 customers, we  pretested the structured interview with two customers to ensure that the  questions were relevant, free of bias, clearly stated, and easy to  understand and, based on those results, made adjustments to the  structured interview as necessary. To ensure tabulated responses were  accurate, we checked data recorded during structured interviews. We  also spoke with Corps officials regarding customer views on the  accessibility and understandability of overhead information.
We conducted this performance audit from July 2012 to June 2013 in  accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.
section_title: Appendix II: Structured Interview Administered to U.S. Army Corps of Engineers’ Customers
paragraphs: We conducted structured interviews with 16 Corps customers that the  Corps identified as the highest paying federal and highest paying  nonfederal customers in fiscal year 2012—one in each category from all  eight Corps divisions. This appendix presents the detailed list of the  structured interview questions we asked.
1. Please briefly describe your current position at your organization, including the number of years you have held that position.  2. Now we’d like you to generally describe your experience working with the Corps within the last 3 years. Specifically:  a.  About how many years has your organization been a customer of the Corps?  b.  How many active projects have you had during this period?
Interview instruction: Base the next question off of the answer in part a. If they said they had 2-3 active projects, than read the  question as is. If they say they had 10-20 or more projects, than ask them to discuss maybe the 2-3 largest ones.     c.  Could you briefly describe these projects? In doing so, we’re looking for the services the Corps provided to those projects and  the current state of the project, such as design or construction.
Thinking of the active projects we just discussed over our 3-year time frame, I’d now like to walk you through a series of specific  questions on Corps overhead. If you need me to repeat anything, please don’t hesitate to stop me.   3. How important, if at all, are each of the following types of overhead information for your organization in conducting  business with the Corps? I will read you a list of 5 types of information and for each of these types of information, please tell me if it is  very important, somewhat important, or not important.
Interview instruction: If the respondent answers not applicable and/or don’t know in question 3 (i.e., how important are each of the  following types of overhead information), then skip question 3a. Otherwise, proceed with question 3a.  3a. Why is overhead information important for your organization in conducting business with the Corps?  4. During the past 3 years, did you request any of the following types of overhead information from the Corps? I will read you a  list of the same five types of information and for each of these types of information, please tell me if you requested it or if you did not  request it.
Interview instruction: If the respondent answers no in questions 3 and 4 (i.e., overhead information is not important to them and they  have not requested it), than skip question 5. Otherwise, proceed with question 5.   5. During the past 3 years, have you received enough of each of the following types of overhead information for your  organization in conducting business with the Corps? I will read you a list of the same five types of information and for each of  these types of information, please tell me if you have received enough, some but not enough, or none for your purpose.
Interview instruction: Base the asking of questions 6 and 7 on the answer to question 5. You may skip one or both depending on the  answers provided. Also, repeat their answers to question 5 in asking each question.
In the previous question, you said that you “received some but not enough” or “received none” of a particular type of overhead  information. What impact, if any, did this have on your organization? And please explain why.  7.  Referring again to your response to question five, you said that you “received enough” of a particular type of overhead information.
What impact, if any, did the availability of overhead information have on your organization? And please explain why.  8.  For the active projects within the last 3 years, do you recall the Corps providing general overhead information prior to signing an  initial project contract or agreement? Y/N Please explain.
11.  Given all of the responses to the questions I’ve already asked, how accessible is information on Corps overhead?
Interview instruction: If the respondent answers not applicable and/or don’t know in question 11 (i.e., how available is overhead  information), then skip question 11a. Otherwise, proceed with question 11a.  11a. Why is overhead information either available and easy to access, available, but hard to access or not available?  12. Given all of the responses to the questions I’ve already asked, how understandable is information on Corps overhead?
Interview instruction: If the respondent answers not applicable and/or don’t know in question 12 (i.e., how available is overhead  information), then skip question 12a. Otherwise, proceed with question 13.  12a. Why is overhead information either easy to understand, understandable, but requires some work, or not understandable?  13.  During the past 3 years, in which of the following ways has the Corps communicated overhead information on your  current active project(s)? I will read you a list of five ways in which the Corps may have communicated this information and for  each way, please tell me if you received it or you did not receive it.
subsections: section_title: GAO Contact
section_title: Staff Acknowledgments
paragraphs: In addition to the individual named above, Vondalee R. Hunt (Assistant  Director), Mark A. Braza, Nkenge Gibson, Mark Keenan, Jeanette  Soares, and Jack Warner made key contributions to this report. Cheryl  Arvidson, Arkelga Braxton, Peter B. Grinnell, Armetha Liles, and Vasiliki  Theodoropoulos also made important contributions to this report.