Mayfair Electric Utility has excess electrical generating capacity. In order to utilize its excess capacity, Mayfair entered into a five-year contract with the U.S. government to sell Mayfair’s generated excess power to the U.S. power grid. The contract called for Mayfair to sell its excess electrical power at its “lowest reasonable cost.” During the five-year term of the contract, Mayfair charged the U.S. government a total of $80 million. Near the end of the contract term, Jeff, the chief accountant for Mayfair, informed the company’s CEO that he believed the company had overcharged the government for the power it had purchased from Mayfair. The CEO disagreed with Jeff and decided to fire him. Jeff filed a Qui Tam suit against Mayfair alleging it had overcharged the government using six different overcharging methods. The U.S. Justice Department reviewed the Qui Tam suit and decided to litigate four of the alleged overcharging schemes. As the whistleblower, Jeff continued with the other two allegations in the case.

Required:

1. Briefly identify and describe the main issues that the plaintiff (i.e., the U.S. Justice Department and the whistleblower) will evaluate in trying to prove Mayfield has overcharged the government in this case.
2. Assume that Mayfield’s general pricing objective is always to allocate some administrative overhead to all contracts. To accomplish this objective, Mayfield typically assigns 10 percent to each contract billing. Briefly explain whether or not this practice is allowed under Mayfield’s contract with the U.S. government.
3. Assume that the court finds that Mayfair’s billings to the government comprised 40 percent of Mayfair’s fixed facility costs and 60 percent of Mayfair’s variable costs (mostly fuel costs). Do these billing compositions appear to comply with the contract? Briefly explain your response.
4. If the U.S. government (plaintiff ) hired you as a forensic accounting expert for the case, briefly explain the specific items you would want to examine and the issues you would most likely want to address as a forensic accounting expert.