Quality Control Review of Grant Thornton LLP and the Defense Contract Audit Agency The CNA Corporation Fiscal Year Ended September 30, 1996.

We are providing this report for your information. The Vienna, Virginia, office of Grant Thornton LLP Grant Thornton, and the Defense Contract Audit Agency DCAA, performed the single audit for The CNA Corporation CNA, Alexandria, Virginia, a nonprofit organization. The audit is required by Office of Management and Budget 0MB Circular A-i 33, Audits of Institutions of Higher Education and Other Nonprofit Institutions. For the fiscal year ended September 30, 1996, the CNA reported total Federal expenditures of 46,896,000 representing 44,021,000 for the Department of Defense DoD, and 2,873,000 for other Federal agencies. The Grant Thornton audit report is dated November 20, 1996. Grant Thornton issued an unqualified opinion on the financial statements, Schedule of Federal Awards, internal controls and compliance requirements. The DCAA audit report on incurred costs is dated October 31, 1997. The audit report was issued to determine allowability of direct and indirect cost rates for the period from September 23, 1995, through September 22, 1996. CNA submitted its indirect cost proposal and its Certificate of Indirect Costs on December 31, 1996. The DCAA questioned 265,743 related to general and administrative expenses and 117,818 related to other direct costs. Specifically, the questioned costs were due to noncompliance with cost principles and standards and inadequately supported andor unallowable costs claimed by CNA.