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verifying the existence of employees…” and determining whether adequate timekeeping practices and controls related to timekeeping are in place and working properly. In the current environment with an increase in Work at Home (WAH) employees, will DCAA conduct virtual floor checks? A virtual floor check, (or floor checks by phone), somewhat diminishes DCAA’s approach to floor checks. WAH occurrences do compel a contractor to develop additional documented timekeeping policies related particularly to WAH programs.

As of February 2021, pursuant to the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), which created the Paycheck Protection Program (“PPP”) and supplemental funding such as the Families First Coronavirus Response Act, the United States government has made available an estimated four trillion dollars in relief funds to businesses and individuals, and the Biden administration is proposing roughly two trillion dollars more. (“CDC”) and contract awards for the replenishment of the Strategic National Stockpile (“SNS”); the Department of Labor, Small Business Administration OIG, which is taking the lead in reviewing PPP payments and loans; the Department of Defense OIG; the Department of the Treasury OIG, including the Treasury Inspector General for Tax Administration (“TIGTA”), also involved in review of PPP payments and loans; and the Department of Homeland Security OIG, due in large part to Federal Emergency Management Agency’s (“FEMA”) large role in awarding contracts to respond to the pandemic. The non-DoD agencies have not been as visible with creation of specific guidance or instruction related to the administration and oversight of contractors in receipt of CARES Act funding, but the potential for downstream audits or investigations is real.

The new DCAA MRD regarding audits of COVID-impacted costs focuses on incurred cost proposals and forward pricing. Also, until the loan is actually forgiven, the initial loan amount remains a balance sheet liability item and no accounting treatment is required for incurred cost purposes. When planning the incurred cost audit, the audit team should also refer to Enclosure 2 or below FAQs that address what we believe will be the more common scenarios for CARES Act provisions for loans and paid leave. Likewise, when performing forward pricing audits, the audit team should be aware that most of the relief provisions discussed in this memorandum currently expire in the calendar year 2020, and may or may not have an impact on future pricing audits.

For example, under the potential new DFARS rules, only a material weakness would trigger an inadequate system determination and possible five percent withhold, while a significant deficiency would not. Reasonable thought and analysis will be required to properly categorize internal control gaps and their potential current or future effect on contractors’ government contract compliance programs, specific contracts and various financial reporting requirements to the government. To begin preparation for the change, contractors should inform applicable personnel of the pending change, the shift to a GAAS approach when assessing business systems and internal controls and the high level of professional judgment and subjectivity inherent in the overall process. In the business system internal controls context discussed above, it would behoove contractors to risk assess their business system compliance posture and make reasonable judgments as to the likelihood and severity of potential gaps.