1.
PPP Forgiveness,
Indirect Rates & the
Incurred Cost
Proposal

2.
We Know Government
Contract Accounting

3.
Who we are
Left Brain Professionals is a boutique accounting firm that serves
government contractors. We specialize in accounting system design
& implementation, audit support, training, and cybersecurity
compliance.

4.
Our Services
ACCOUNTING
• Accounting
Systems
• Monthly Support
Services
• CFO & Controller
Services
• Software
AUDIT SUPPORT
• DCAA Audit
Support
• DCMA Audit
Support
CYBERSECURITY
• CMMC
Compliance
TRAINING/TOOLS
• GovCon Training
• FCCM Calculator
• Indirect Rate
Calculator
• Proposal
Adequacy
Checklist

5.
Our Team
Robert E. Jones
Government Contracts &
Accounting Expert
CPA, CPCM, NCMA Fellow
Melissa Metzger
Government Accounting &
Finance Advisor
MAFM, CPA Candidate
Steven Bressler
Government Contract
Associate
steve@LeftBrainPro.com
melissa@LeftBrainPro.com
robert@LeftBrainPro.com

6.
Stephanie D. Wilson, Esq.
Partner & Co-Director of Government Contracts
(703) 760-0485
swilson@berenzweiglaw.com

7.
Learning
Objectives
• Describe why government contractors
should apply for PPP forgiveness.
• List eligible expenses that qualify for
forgiveness as a government contractor.
• Explain the impact of Section 3610
assistance.
• Describe how to report PPP forgiveness
and Section 3610 on the ICP.
• Explain the effect of PPP and Section
3610 on indirect rates.
• List recordkeeping requirements.

8.
Poll
What is your knowledge of PPP forgiveness & the tax
implications?
A. I’m not sure what qualifies for forgiveness.
B. I understand the qualifications, not the tax implications.
C. I understand the basics, but could use clarification.
D. I’m fully aware of what qualifies & the tax implications.

9.
Government
Contractors & PPP
Forgiveness

10.
Focus today is on proper treatment
of PPP loan forgiveness and other
COVID-19 relief programs, not on
the programs themselves. General
concepts are the same, regardless
of the program.
Name of the game is “No Double
Dipping!”

11.
Second Round of PPP Funding
• Adds $284 billion to the Paycheck Protection Program for small
business forgivable loans – bringing total program level to $806
billion between first and second round of money.
• The last day to apply for and receive a PPP loan is March 31, 2021.
• Open to first-time borrowers.
• Allows certain eligible borrowers who previously received a PPP loan
to obtain a Second Draw Loan.

12.
PPP Loan Forgiveness
• When: Submit forgiveness application within 10 months after the
end of covered period to avoid paying principal and interest.
• Eligibility: Used all of the loan proceeds for forgivable purposes.
Required employee and compensation levels are maintained, unless
applicable safe harbor or exemption applies.
• Calculation: To receive full loan forgiveness, a borrower must use at
least 60% of the PPP loan for payroll costs. Forgiveness amount
calculated in a proportional manner so that 60% of forgiveness is for
payroll costs.

13.
Government Contractors &
PPP Forgiveness
• Government contractors are eligible to
receive PPP loans.
• Government contractors are eligible to
receive forgiveness.
• PPP loan forgiveness can reduce indirect
costs in a time of reduced direct costs.
Cont…

14.
Poll
PPP loan forgiveness can increase indirect costs in a time of
reduced direct costs.
A. True.
B. False.

15.
Eligible Expenses for
PPP Loan Forgiveness

16.
Eligible Expenses
We’re specifically talking about PPP loan
forgiveness “eligible expenses”, not necessarily
DCAA allowable costs.
• Allowability of any of these costs is still
subject to the same rules in FAR 31.
Cont…

17.
Eligible Expenses, Continued…
Costs eligible for loan forgiveness – first and second draws:
Same as PPP 1:
• Payroll Costs:
• Labor/Salaries
• Group Health Benefits Paid by Employer
• Employer State & Local Taxes
• Retirement Plan Contributions
• Mortgage Interest
• Rent
• Utility Payments
Cont…

18.
Eligible Expenses, Continued…
Costs eligible for loan forgiveness, Continued:
• Covered worker protection expenditures: PPE & costs to comply with
COVID-19 federal health and safety guidelines.
• Covered supplier costs: Expenditures to a supplier that are essential to
the recipient’s current operations.
Cont…

19.
Eligible Expenses, Continued…
Costs eligible for loan forgiveness, Continued:
• Covered operations expenditures: Software, cloud computing, other
HR/Accounting.
• Covered property damage costs: Costs related to 2020 public
disturbances not covered by insurance or other compensation.
• Applies to original PPP loans and new PPP loans (unless forgiveness
has already been processed).
60/40 split between payroll and non-payroll is maintained for 1st & 2nd
draws.
Cont…

20.
Eligible Expenses, Continued…
Forgiveness is based on payroll records and
other documents supporting allowable costs.
Timekeeping records need to align with same
period as payroll records used to claim
forgiveness. You’ll need to select which
employees/jobs benefited from the forgiveness.
Cont…

21.
Eligible Expenses, Continued…
All PPP forgiveness amounts should be used for
indirect costs.
Do direct costs qualify? Not on government
contracts.
• Could apply to commercial direct costs, but
still have an impact on overall rates.
Cont…

22.
Eligible Expenses, Continued…
Strategy
Need to evaluate impact on each indirect
pool, especially as many contractors will
have more available costs than were
necessary to claim forgiveness.
Need to consider ERC as wages used for
PPP and ERC must be different/separate.
Cont…

23.
Poll
Which Payroll Cost is an eligible expense for PPP forgiveness?
A. Labor/Salaries.
B. Group health benefits paid by employer.
C. Employer State & Local taxes.
D. All the above.

24.
Other Forms of Covid-19 Relief
Section 3610 of the CARES Act
• Allows (although does not require) contracting officers, on a contract-by-contract basis,
to provide additional funding to contractors to keep staff in a ready state while idle due
to facility closures or other restrictions preventing the completion of work.
• Extended until March 31, 2021.
Employee Retention Credit
• Employee Retention Credit is a refundable tax credit against certain employment taxes.
• The Taxpayer Certainty and Disaster Tax Relief Act of 2020, enacted December 27, 2020,
modified and extended the Employee Retention Credit (ERC), for six months through
June 30, 2021. Several of the changes apply only to 2021, while others apply to both
2020 and 2021.

25.
Other Forms of Covid-19 Relief
Families First Coronavirus Relief Act (FFCRA)
• Emergency Paid Sick Leave Act (EPSLA), which entitles workers to up to 80 hours
of paid sick time when they are unable to work for certain reasons related to
COVID-19
• Emergency Family and Medical Leave Expansion Act (Expanded FMLA), which
entitles workers to certain paid family and medical leave.
• Refundable tax credits that reimburse employers for the cost of providing paid
sick and family leave wages to their employees.
• FFCRA-covered leave was mandated through December 31, 2020, but FFCRA
tax credits are available for paid leave an eligible employer voluntarily provides
between January 1, 2021 and March 31, 2021.

26.
Impact of Section 3610

27.
Impact of Section 3610
• Section 3610 is available, but not required.
• Negotiated on a contract-by-contract basis.
• Adds a CLIN to the contract (cost-type or FFP)
Wages paid using Section 3610 funds cannot be
included in “eligible payroll costs” for PPP
forgiveness – they must be segregated.

28.
Reporting PPP
Forgiveness & Section
3610 on the ICP

29.
Reporting PPP Forgiveness &
Section 3610 on the ICP
Expect questions from DCAA or other auditors up
front.
FAR 31.201-5 requires any rebates or credits be
accrued back to the government as a cost
reduction or cash refund.
Cont…

30.
Reporting PPP Forgiveness & Section 3610 on
the ICP, Continued…
How to report PPP forgiveness on the ICP
• These will be reporting items for the ICP
since the credit will not occur in the GL.
• These credits need to be listed as
“Adjustments” on the ICP.
• Have a PPP loan forgiveness worksheet as
support.
• Include the worksheet with your ICP
submission.
Cont…

31.
Reporting PPP Forgiveness & Section 3610 on
the ICP, Continued…
How to report Section 3610 on the ICP
• Should be a separate line item on your contract.
• Should be a separate project or task in your timekeeping and
accounting systems.
• Treat as a separate contract on Schedule H in appropriate section.
Note that you cannot claim PPP & Section 3610 on the same costs.
• Section 3610 would apply to direct costs & special PTO (not regular
PTO).
• PPP could be applied to indirect costs.

32.
Poll
Section 3610 is _______.
A. Available, but not required.
B. Required.
C. Negotiated on a contract-by-contract basis.
D. Both A & C.

33.
Explain the Effect of
PPP & Section 3610 on
Indirect Rates

34.
Effect of PPP & Section 3610 on
Indirect Rates
• FAR 31.201-5 requires any rebates or credits
be accrued back to the government as a cost
reduction or cash refund.
• Reduced Fringe, OH and G&A should help
companies that shifted employees from
direct to indirect.
• Reduced indirect rates will help
companies that otherwise experienced a
reduction in direct costs.
Cont…

35.
Effect of PPP & Section 3610 on Indirect Rates,
Continued…
• Since many contractors rely on actual historical rates for proposals,
negotiations and provisional billing rates, it will be imperative for
contractors to create budgeted future rates that reflect projected costs
instead of rates developed from a year of anomalies.
• PPP forgiveness could increase or decrease any specific rate, have a
mixed impact and either increase or decrease the overall billing
multiplier.

36.
Poll
Are actual historical rates used for proposals & negotiations?
A. Yes.
B. No.

37.
List Recordkeeping
Requirements

38.
Recordkeeping Requirements
Separate GL Accounts
• FFCRA Sick Leave
• Loan Forgiveness Income
• Payroll Tax Expense
• Deferred Payroll Tax Expense
• Payroll Tax Liability
• Deferred Payroll Tax Liability
Cont…

39.
Recordkeeping Requirements, Continued…
PPP Loan Forgiveness Worksheet
Document which expenses claimed by GL, employee, labor
category, etc.

40.
Poll
Recordkeeping requirements include separate __________.
A. Indirect Rates.
B. Incurred Cost Proposals.
C. GL Accounts.
D. Schedules.

41.
PPP Forgiveness, Indirect Rates & the Incurred
Cost Proposal
The accurate calculation of indirect rates is
critical to budgets, proposals, provisional
billing rates, and ultimately to company
profitability. And the timely determination
of final rates, final invoices and contract
close-out is dependent on proper
completion of the incurred cost proposal.
By adding in PPP loans and Section 3610
funds you create another layer of
complexity making it imperative to
understand both the proper calculation on
rates and the incurred cost proposal.

42.
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with us
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Professionals Inc.
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43.
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