Preparing for the compliance caveats that accompany CARES Act, PPP

By accepting COVID-19 relief, businesses in most cases must also accept a new set of reporting requirements and other compliance measures. For an indication of just how rigorous and expansive oversight of relief recipients likely will be, consider that the U.S. government allocated a total of $1 billion to the inspector general offices at more than two dozen federal agencies to ensure program funds are used for lawful purposes, according to the accounting, tax, and business advisory firm CohnReznick.

For government contractors and other companies that manage to secure government relief, the big question becomes: What types of accounting, audit, and reporting capabilities must we have to meet the compliance requirements associated with these new programs? As vague as some program reporting requirements have been to this point, what is certain is that companies are going to need much more than simple spreadsheets to stay on top of their compliance responsibilities and deliver the data and information these programs will require.

Companies could be navigating these programs for many months into the future.The demands of complying with new (and in many cases, fluid) regulatory policies puts a premium on capabilities that give businesses enterprise-wide visibility into their finances, their human resources, and their day-to-day operations, with systems that can quickly adapt to shifting policies, changing requirements, and unstable project scopes.

Here’s a look at some of the areas in which companies will need an elevated level of end-to-end visibility to maximize the relief they receive and to meet the new compliance responsibilities that come with it:

Tracking to claim CARES Act workforce retention credits. The CARES Act contains various forms of relief for businesses, including the ability to earn workforce retention credits for keeping workers employed during the crisis. Businesses can earn fully refundable tax credits equal to 50 percent of qualified wages and health plan expenses paid to employees. To take advantage of these measures, a company needs to be able to track the wages and benefits paid to each employee from March 12 through Dec. 31, 2020. To be eligible to claim the credits, an employer must have suspended its operations partially or in full as a result of the pandemic or experienced a significant decline in gross receipts during a calendar quarter of 2020. Clear tracking and reporting in these areas are thus critical to claiming the workforce retention credits.

Tracking emergency paid leave requirements and credits. The Families First Coronavirus Response Act (FFCRA) requires certain employers (based on number of employees) to provide full-time (up to two weeks) and part-time employees (based on normal hours worked) paid sick leave if they contract COVID-19 themselves, must care for someone with the disease, or have a child who is out of school due to the pandemic. Employers can claim a tax credit for 100 percent of the sick leave they pay out from April 1 through Dec. 31, 2020. In order to do so, they need the ability to collect documentation from employees who use the benefit, as well as the sick leave expenses they incur for each employee claiming the benefit. They then must report all this on the new Form 7200, which was developed for employers to claim any advanced refund of employer credits due to COVID-19. This includes credits for paid sick leave and paid family leave under Families First and the employee retention credit under the CARES Act.

Documentation for PPP loans. The CARES Act established the PPP to provide small businesses with loans to help them hold onto employees and remain viable through the pandemic. Loan amounts can reach up to 2 ½ months of a company’s average payroll and can be used to cover payroll and other expenses. The loans are available via the U.S. Small Business Administration through qualified lenders. (As of this writing, the federal government was moving to replenish funding for the PPP). Firms that accept PPP funds thus must be able to provide average payroll figures to the lender, including gross wages as well as payment of vacation, parental, family, medical or sick leave, payment of benefits, and state and/or local taxes, by employees. Once they receive loan funds, they must account for exactly how those funds are spent, because as the SBA notes in guidance about the PPP, the loans will be fully forgiven if the funds are used for payroll costs, interest on mortgages, rent and utilities, and at least 75 percent of the forgiven amount was used for payroll.

Seeking relief as a federal contractor. Companies that do business with the U.S. government have been paying particular attention to Section 3610 of the CARES Act, which provides payroll relief to federal contractors whose work may be disrupted by facility closures or other restrictions. Ostensibly, the provision is designed so government contractors and their workforce remain in a “ready state” even when they are idled by the health crisis. Under Section 3610, a government contractor can seek to modify an existing federal contract to specify that they will be reimbursed by the relevant federal agency for paid leave, including sick leave, provided to employees due to an employee’s inability to work as a result of the COVID-19 crisis. That includes paid leave for employees who are unable to work due to facility closures or other restrictions stemming from the pandemic. Given the scarcity of guidance about how to pursue contractual adjustments under Section 3610, the first step for contractors seeking relief under this provision should be to connect with the contracting officer (CO) overseeing their specific contract for insight on how to apply for relief and the documentation required to support their application.

Here’s another instance where a company with the ability to document which employees are impacted and the expenses associated with keeping them in a state of readiness—essentially, the cost of retaining them while they are idle. While the process for claiming payroll relief under Section 3610 remained uncertain (most agencies were in the process of developing guidelines as of this writing), what is clear is that federal contractors must be able to segregate the costs of keeping employees on the payroll, so the information is readily available to their CO. A business’ ability to provide the CO with clear visibility into the COVID-19-related costs incurred will be key to getting the relief they seek.

Regardless of the relief program or the government entity with which they are working, companies that are able to provide clear, thorough, and timely compliance data and documentation—such as with a true ERP system—will put themselves in the best position to secure the relief they need. That holds true for the programs already in place, as well as for the additional relief programs we’re bound to see as Uncle Sam seeks ways to support the economy and the businesses that power it.

Kim Koster is Vice President of Product Marketing for Unanet, focusing on project management, accounting, and government contracting. She has led multiple large ERP system implementations resulting in her becoming a mentor to project and executive teams nationwide.