DEFICIENCIES WERE FOUND TO EXIST IN PRICING PRODUCTS, DETERMINING MANUFACTURING COSTS, PURCHASING MATERIALS, MAINTAINING INVENTORIES, COLLECTING ACCOUNTS RECEIVABLE, AUTHORIZING AND REIMBURSING TRAVEL, AND INTERNAL REPORTING OF FINANCIAL INFORMATION. THESE PROBLEMS AFFECT THE EFFICIENCY OF FPI'S OPERATIONS AND ITS NET PROFIT. THIS AUDIT, ALONG WITH THE FINDINGS OF DEPARTMENT OF JUSTICE AND FPI INTERNAL AUDITORS, SHOWED THAT THE PROBLEMS OFTEN OCCURRED BECAUSE FPI FACTORY STAFF DID NOT COMPLY WITH ESTABLISHED POLICIES AND PROCEDURES. IN SOME INSTANCES, HOWEVER, POLICIES AND PROCEDURES DID NOT PROVIDE SUFFICIENT GUIDANCE FOR FACTORY STAFF TO FUNCTION EFFECTIVELY. ADDITIONAL FACTORY GUIDELINES SHOULD BE DEVELOPED TO ENSURE THAT SELLING PRICES ARE BASED ON MARKET PRICES, ACCUMULATED COST DATA ARE COMPLETE AND ACCURATE, AND COST VARIANCES ARE ANALYZED AND APPROPRIATE CORRECTIVE ACTION IS TAKEN. FURTHER, OVERHEAD ACCOUNTING PROCEDURES SHOULD BE REVISED TO ENSURE THAT NONMANUFACTURING COSTS, SUCH AS PERMANENT CHANGE OF STATION COSTS, ARE NOT INCLUDED AS MANUFACTURING OVERHEAD. SUCH A REVISION SHOULD ALSO PROVIDE FOR THE DEVELOPMENT OF STABLE OVERHEAD RATES. ONE APPROACH WOULD BE TO REQUIRE ANNUAL OVERHEAD RATES WHICH COULD BE ADJUSTED TO RECOGNIZE SIGNIFICANT CHANGES IN OVERHEAD COSTS OR LEVELS OF ACTIVITY. (AUTHOR ABSTRACT MODIFIED--RCB)