DCAA Audits Post COVID-19

Government contracting is a highly regulated business. Compliance with the legislation and regulations on how to do business with the U.S. Government allows contractors to continue working with the government.  Due to the Coronavirus national emergency, two new pieces of legislation were enacted to help government contractors deal with the impact of COVID-19.  On December 11, 2020, the Defense Contract Audit Agency (DCAA) released a memorandum titled “Audit Alert on Coronavirus Legislations and Regulations” providing guidance to its auditors on what they need to do when performing audits of government contractors regarding the new legislation.

The first piece of legislation enacted was the Families First Coronavirus Response Act (FFCRA).  This program, enacted on March 18, 2020, provides relief to employees and employers through expanded employee leave and a variety of employer tax credits.  The second was the Coronavirus Aid, Relief, and Economic Security (CARES) Act.  This program, enacted on March 27, 2020, provides aid and relief in response to the national health emergency.  It includes four sections that may be used by government contractors: 1) Paycheck Protection Program (PPP) loan; 2) Paid Leave Reimbursement; 3) Employee Retention Credit; and 4) Payroll Taxes Deferral.

With 2020 ending, government contractors may begin preparing for upcoming incurred costs and forward pricing audits.  Both the FFCRA and the CARES Act may impact these audits performed by DCAA.  Due to the unique circumstances of the pandemic, some government contractors have chosen to utilize one or both relief opportunities.  If your company is one of them, it is imperative that you take extra steps in preparing for your audit to include the following:

1. Gather documentation of Coronavirus relief opportunities utilized and why.
2. Provide COVID-19 Policies and Procedures documenting changes to the way your company operates during the national pandemic, as well as any changes or exceptions that were made to existing policies and procedures that were already in effect before the pandemic.
3. When planning incurred cost audits and performing forward pricing audits, address impacts that were made by utilizing the relief opportunities.

Although most government contractors are working to understand the parameters of these newly enacted legislations, the DCAA memorandum includes guidance in the form of frequently asked questions.  Guidance includes, but is not limited to, the following subjects:

• FAR Part 31 will apply for forgiven loan amounts; credits are applicable to costs in the same manner as the loan funds were used.
• PPP credits received that are allocable to costs allowed under a contract should result in a credit or reduction in billing for the same amount from the contractor back to the government.
• Credits used to pay indirect expenses would impact the indirect cost pool resulting in a reduced rate that would be returned to the government via a rate variance invoice.
• The contractor’s incurred costs proposal should claim allowable costs in the year incurred even if loan forgiveness is expected.
• There is no enacted legislation that extends the CARES Act into 2021.
• Allowable, allocable, and reasonable costs associated with paid leave for COVID-19 are valid charges to a contract.
• COVID-19 may impact the contractor’s certified cost or pricing data.
• The contractor’s Forward Pricing Rate Agreement, if impacted, should be evaluated and updated for the most accurate, current and complete rates.
• Contractor’s should consider all provisions, class deviations and existing FAR and DFARS flexibilities and the impact they may have on indirect cost bases.

The bottom line is that the pandemic has changed the way contractors do business with the government.  Let us help you get prepared.  The BMSS Government Contracting services group specializes in all aspects of government contracting compliance.  Our services include: DCAA compliant accounting services, monthly government contract accounting, contract management and administration, regulations compliance, proposal support and development, assist in audits, and preparation of government contracts policies and procedures.  In all we do, BMSS strives to provide you, our customer, with peace of mind.