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Project on Government Oversight

POGO urges the Cost Accounting Standards Board to further financial transparency in accounting for the cost of Employee Stock Ownership Plans (ESOPs) sponsored by government contractors

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September 20, 2005

Mr. David Capitano
Cost Accounting Standards Board
Office of Federal Procurement Policy
Office of Management and Budget
725 17th Street, N.W.
Room 9013
Washington, D.C. 20503

Via E-mail: casb2@omb.eop.gov
Via Facsimile: 202-395-5105

Re: CASB Docket No. 00-03A

Dear Mr. Capitano:

Thank you for the opportunity to comment on the Cost Accounting Standards (CAS) Board’s Notice of Proposed Rulemaking (NPRM) on “Accounting for the Cost of Employee Stock Ownership Plans (ESOPs) Sponsored by Government Contractors” (70 FR 42293, July 22, 2005). The Project On Government Oversight (POGO) is a non-partisan, non-profit organization that has, for nearly a quarter of a century, investigated, exposed and worked to remedy abuses of power, mismanagement and subservience to special interests by the federal government. POGO has a keen interest in government contracting matters, especially those relating to the ongoing activities of the CAS Board.

POGO's comments on the NPRM are brief and to the point, inasmuch as we have previously commented on both the Board's Staff Discussion Paper and the Advance Notice of Proposed Rulemaking.

Interest Expense as Component of ESOP Cost

POGO strongly recommends that the CAS Board make one important change to the NPRM to further financial transparency in government contract cost accounting. The CAS Board should specifically require, in any final rule adopted, that the components of contractor ESOP expense be separately identified. Specifically, that portion of ESOP expense that represents employee compensation should be identified separately from other components of the cost of maintaining an ESOP. For leveraged ESOPs, the cost of interest expense should be separately identified from that portion of expense that represents employee compensation.

In this day and age of increasing financial transparency, there is simply no reason -- either from an accounting perspective or from any administrative perspective why interest expense (for leveraged ESOPs) should not be separately identified as a component of overall contractor ESOP costs. After the financial scandals involving Enron, WorldCom, Tyco and numerous other companies, the CAS Board would be remiss if it did not promote the type of government contractor financial transparency that POGO recommends. This data is already available to contractors and is routinely reviewed by auditors, financial lenders and others. In light of the current state in which much of the public views both the government contracting process, as well as the state of accounting transparency, we cannot envision the CAS Board doing anything less.

Thank you for your consideration of this comment. If you have any questions, you may contact Scott Amey, General Counsel at (202) 347-1122.

Sincerely,

Danielle Brian
Executive Director

cc: CAS Board Members
Director of Research, CAS Board

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