2018 NDAA - Additional Work for DCAA?

Yesterday we began a four-part series on provisions in the Senate version of the fiscal year 2018 National Defense Authorization Act. (Click here to read Part 1 concerning the provision that might require large contractors to reimburse the Department of Defense for its cost of administering bid protests).

In pursuing the NDAA, we came across a new requirement impacting the Congressionally Directed Medical Research Program (CDRP). The CDRP manages Congressional Special Interest Medical Research Programs encompassing breast, prostate, and ovarian cancers, neurofibromatosis, military health and other specified areas and since 1992, has managed over $7.7 billion in Congressional appropriations. Through fiscal year 2013 (most recent year data is available) approximately 12,423 awards have been made. You can read more about the CDRP program here.

The provision in the NDAA requires a three audits by DCAA (Defense Contract Audit Agency); two before award is made and one before payment is made. The two audits before award include (i) accounting system adequacy and (ii) audit of the proposal. The third audit is an incurred cost audit where the amounts claimed are traced back to the books and records of the awardee.

We don't know what prompted this provision. Perhaps there was an audit that found deficiencies in the way that the Defense Department administered the program. Perhaps scandals were uncovered.

Currently, as far as we can discern, DCAA does not have any guidance on how these audits should be conducted. It is no doubt a new audit area for the Agency and one that will give auditors some work to as commercial auditors begin to take over much of the Agency's traditional incurred cost audits.

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Here's the provision in its entirety:

SEC. 893. OVERSIGHT, AUDIT, AND CERTIFICATION FROM THE DEFENSE CONTRACT AUDIT AGENCY FOR PROCUREMENT ACTIVITIES RELATED TO MEDICAL RESEARCH.
The Secretary of Defense may not enter into a contract, grant, or cooperative agreement for congressional special interest medical research programs under the congressionally directed medical research program (CDMRP) of the Department of Defense unless the contract, grant, or cooperative agreement meets the following conditions:
     (1) Prior to obligation of any funds, review by and certification from the Defense Contract Audit Agency regarding the adequacy of the accounting systems of the proposed awardee, including a forward pricing review of the awardee’s proposal.
     (2) Prior to any payment on the contract, grant, or cooperative agreement, performance by the Defense Contract Audit Agency of an incurred cost audit.