White House Does Not Want DoD to Commercialize its Incurred Cost Audits

After the House passed its version of the fiscal year 2018 NDAA (National Defense Authorization Act), the White House issued its "Statement of Administration Policy" listing provisions it liked and many more that it did not like.

One of the provisions the White House does not like is the one requiring the Department of Defense to subcontract out 25 percent of required incurred cost audits (and related provisions). See Transitioning from Government Auditors to Commercial Auditors for Incurred Cost Audits and 2018 NDAA Passes House - Now On to the Senate to read more details about these provisions.

Here's what the White House has to say:

Performance of Incurred Cost Audits: The Administration objects to multiple provisions in section 802. Mandating the acceptance of the claimed costs in their entirety if audit findings are not issued within one year of proposal receipt, restricting the use of multi-year audits, mandating that an arbitrary 25 percent of incurred costs be audited by qualified private auditors in lieu of a data-driven process, and mandating materiality thresholds will result in significant inefficiencies in the DOD audit process and result in significant unallowable costs being paid to contractors. Further, the materiality thresholds are significantly more prescriptive and detailed than defined in commercial or Government audit standards and are not risk-based.

As a reminder, there are no similar provision in the Senate's version of the 2018 NDAA so the differences will need to be compromised in committee. With the Administration's objections on the table, there is some doubt that these provisions will make it into the final bill. Perhaps a watered-down version is still possible.