The Bureau of Business and Economics Research (BBER) at Western State University has contracted with the Fiscal Planning Office (FPO) of the state legislature to do economic analyses and forecasting. Most of the work involves computer operations using a large planning model and databases that the state Department of Commerce has assembled.

The contract calls for payment of all direct costs of personnel with limits on the amount of chargeable time per quarter. An overhead rate is applied to personnel charges at 60 percent of direct personnel costs. This rate is developed by the university to cover common costs of operating the university plus personnel benefits of the persons working on the project.
Data processing costs are reimbursed on a cost basis and include additional equipment needed to perform the analyses, purchase of modeling software, computer time, and data storage.
An auditor from the state’s Auditor General’s Office has just finished a routine audit of this contract and has written a report critical of the BBER. Among the items noted are:
(1) A large copy machine was leased by the BBER to prepare reports for the FPO and charged to the contract. The BBER uses the machine for preparing many other reports for the university, including course materials.
(2) Computer time is billed at the “average cost of computing time at priority level.” This rate is approximately eight times the rate faculty and students are charged for work done on the university’s mainframe. The same rate is used for other outside customers of the computer center.
(3) Personnel time was billed to the contract using a rate based on the contracting faculty person’s annual salary divided by 250 work days. But the auditor found that the work was actually done by a graduate student earning about 20 percent of the faculty person’s salary.
(4) The software model purchased for FPO contract use has been adapted at low cost to perform analyses for several other BBER corporate clients. It is also used by two faculty members who are doing outside consulting on their own. Corporate clients are charged for the use of the model. The faculty use the model at night and on weekends when the model is not otherwise used.

Required:
1. Identify the parties that have an economic interest in these issues.
2. Does the BBER appear to be costing the contract with the FPO fairly? Evaluate each issue given the information available.