Pentagon Research Agency Faces U.S. Conflict-of-Interest Audit

The U.S. Defense Department Inspector General has begun an audit of contracting practices at the Pentagon’s top research and development agency in response to questions about a potential conflict of interest involving the agency’s director.

The audit will “determine the adequacy” of the contracting process used by the Defense Advanced Research Projects Agency, according to a letter from the inspector general’s office to the Project on Government Oversight, a nonprofit independent watchdog group.

The group raised concerns in May that the defense agency had awarded about $1.75 million in contracts to RedXDefense LLC since July 2009, when the company’s co-founder and former chief executive, Regina Dugan, became director of the Pentagon agency.

Dugan’s continued financial and familial relationships with RedXDefense “raise concerns as to whether DARPA effectively prevents conflicts of interest,” wrote Danielle Brian, executive director of the Project on Government Oversight, in a May 9 letter requesting the audit.

The inspector general’s office agreed to conduct an audit of all agency contracting and a separate review of contracts the agency awarded to RedXDefense.

Utmost Scrutiny

“DARPA’s dealings with RedXDefense deserve the utmost scrutiny, and we’re glad that the IG is taking this step to protect the integrity of the federal contracting process,” Brian said in a written statement. “Conflicts of interest -- even if they’re only perceived conflicts -- undermine the public’s trust in government.”

RedXDefense spokeswoman Chris Haney said the company had no comment. DARPA agency spokesman Eric Mazzacone declined to comment on the audit, referring questions to the inspector general’s office.

Dugan has recused herself from participating in any decisions affecting RedXDefense, according to the Project on Government Oversight’s letter requesting an audit. Even so, the group said, “a recusal may not be enough to ensure integrity in the contract process.”

Dugan’s 2010 financial disclosure form shows RedXDefense owed the DARPA director $250,000 for a “loan/note,” and that she held $151,000 to $305,000 in assets and income from RedXDefense, according to the Project on Government Oversight.

The audit will examine how the agency awarded and managed all contracts and grants for research and development projects in fiscal years 2010 and 2011, according to a July 26 Pentagon memo announcing the audit signed by Bruce Burton, deputy assistant inspector general for acquisition and contract management.

RedXDefense, based in Rockville, Maryland, “is focused on novel approaches to explosives detection and protection that address the unique needs of the military, businesses and homeland security,” according to the company’s Web site.

To contact the reporter on this story: David Lerman in Washington at dlerman1@bloomberg.net

To contact the editor responsible for this story: Mark Silva at msilva34@bloomberg.net

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