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COVID-
19 FAQs—Not-for-Profit Edition

04.07.20

BerryDunn’s Healthcare/Not-for-Profit Practice Group members have been working closely with our clients as they navigate the effect the COVID-19 pandemic will have on their ability to sustain and advance their missions.

We have collected several of the questions we received, and the answers provided, so that you may also benefit from this information. We will be updating our COVID-19 Resources page regularly. If you have a question you would like to have answered, please contact Sarah Belliveau, Not-for-Profit Practice Area leader, at sbelliveau@berrydunn.com.

The following questions and answers have been compiled into categories: stabilization, cash flow, financial reporting, endowments and investments, employee benefits, and additional considerations.

STABILIZATION
Q: Is all relief focused on small to mid-size organizations? What can larger nonprofit organizations participate in for relief?
A:

We have learned that there is an as-yet-to-be-defined loan program for mid-sized employers between 500-10,000 employees. You can find information in the Loans Available for Nonprofits section (link below) of  the CARES Act as well as on the Independent Sector CARES Act web page, which will be updated regularly.

Q: Should I perform financial modeling so I can understand the impact this will have on my organization? Things are moving so fast, how do I know what federal programs are available to provide assistance?
A:

The first step in developing a short-term model to navigate the next few months is to gain an understanding of the programs available to provide assistance. These resources summarize some information about available programs:

Loans Available for Nonprofits in the CARES Act
Families First Coronavirus Response Act (FFCRA): FAQs for Businesses
CARES Act Tax Provisions for Not-for-Profit Organizations

The next step is to develop scenarios ranging from best case to worst case to analyze the potential impact of revenue and/or cost reductions on the organization. Modeling the various options available to you will help to determine which program is best for your organization. Each program achieves a different objective – for instance:

  • The Paycheck Protection Program can assist in retaining employees in the short term.
  • The Emergency Economic Injury Grants are helpful in covering a small immediate liquidity need.
  • The Small Business Debt Relief Program provides aid to those concerned with making SBA loan payments.

Additionally, consider non-federal options, such as discussing short-term deferrals with your current bank.

Q: How should I create a financial forecast/model for the next year?
A:

If you have the benefit of waiting, this is likely a time period in which it makes sense to delay significant in-depth forecasting efforts, particularly if your business environment is complicated or subject to significantly volatility as a result of recent events. The concern with beginning to model for future periods, outside of the next three-to-six months, is that you’ll be using information that is incomplete and ever-changing. This could lead to snap judgments that are short-term in nature and detrimental to long-term planning and success of your organization. 

With that said, we recognize that delaying this analysis will be unsettling to many CFOs and business managers who need to have a strategy moving forward. In developing this model for next year, consider the following elements of a strong model:

  1. Flexible and dynamic – Allow room for the model to adapt as more information is available and as additional insight is requested by your constituents (board members, department heads, lenders, etc.).
  2. Prioritize – Start with your big-ticket items. These should be the items that drive results for the organization. Determine what your top two to three revenue and expense categories are and focus on wrapping your arms around the future of those. From there, look for other revenue and expense sources that show correlation with one of the big two to three. Using a dynamic model, these should be automatically updated when assumptions on correlated items change. Don’t waste time on items that likely don’t impact decision making. Finally, build consensus on baseline assumptions, whether it be through management or accounting team, the board, or finance committee.
  3. Stress-test – Provide for the reality that your assumptions, and thus model, will be wrong. Develop scenarios that run from best-case to worst-case. Be honest with your assumptions.
  4. Identify levers – As you complete stress-testing, identify your action plan under different circumstances. What are expenditures that can be deferred in a worst-case scenario? What does staffing look like at various levels?
  5. Cash is king – The focus on forecasting and modeling is often on the net income of the organization and the cash flows generated. In a time such as this, the exercise is likely to focus on future liquidity. Remember to consider your non-income and expense items that impact cash flow, such as principal payments on debt service, planned additions to property & equipment, receipts on pledge payments, and others.  
CASH FLOW
Q: How can I alleviate cash flow strain in the near term?
A:

While the House and Senate have reacted quickly to bring needed relief to individuals and businesses across the country, the reality for most is that more will need to be done to stabilize. Operationally, obvious responses in the short term should be to eliminate all nonessential purchasing and maximize the billing and collection functions in accounts receivable. Another option is to utilize or increase an existing line of credit, or establish a new line of credit, to alleviate short term cash flow shortfalls. Organizations with investment portfolios can consider the prudence of increasing the spending draw on those funds. Rather than making a few drastic changes, organizations should take a multi-faceted approach to reduce the strain on cash flow while protecting the long term sustainability of the mission.

Q: How can I increase my organization’s reach to help with disaster relief? If we establish a special purpose fund, what should my organization be thinking about?
A:

Many organizations are looking for ways to increase their direct impact and give funding to individuals or organizations they may not have historically supported. For those who are want to expand their grant or gift making or want to establish a disaster relief fund, there are things to consider when doing so to help protect the organization. The nonprofit experts at Hemenway & Barnes share their thoughts on just how to do that.

FINANCIAL REPORTING
Q: What accounting standards have been delayed or are in the process of being delayed?
A:

FASB:
The $2.2 trillion stimulus package includes a provision that would allow banks the temporary option to delay compliance with the current expected credit losses (CECL) accounting standard. This would be delayed until the earlier end of the fiscal year or the end of the coronavirus national emergency.

GASB:
On March 26, 2020, the Governmental Accounting Standards Board (GASB) announced it has added a project to its current technical agenda to consider postponing all Statement and Implementation Guide provisions with an effective date that begins on or after reporting periods beginning after June 15, 2018. The GASB has received numerous requests from state and local government officials and public accounting firms regarding postponing the upcoming effective dates of pronouncements as these state and local government offices are closed and officials do not have access to the information needed to implement the Statements. Most notably this would include Statement No. 84, Fiduciary Activities, and Statement No. 87, Leases.

The Board plans to consider an Exposure Draft for issuance in April and finalize the guidance in May 2020.

ENDOWMENTS AND INVESTMENTS 
Q: What should I consider with regard to endowments?
A:

Many nonprofits with endowments are considering ways to balance an increased reliance on their investment portfolios with the responsibility to protect and preserve the spending power of donor-restricted gifts. Some things to think about include the existence (or absence) of true restrictions, spending variations under the Uniform Prudent Management of Institutional Funds Act (UPMIFA) applicable in your state, borrowing from an endowment, or requesting from the donor the release of restrictions. All need to be balanced with the intended duration and preservation of the endowment fund. Hemenway & Barnes shares their thoughts relative to the utilization of endowments during this time of need.

EMPLOYEE BENEFITS
Q: We are going to suspend our retirement plan match through June 30, 2020 and I picked a start date of April 1st. What we need help with is our bi-weekly payroll (which is for HOURLY employees). Their next pay date is April 3rd, for time worked through March 28th. Time worked March 29-31 would be paid on April 17th. How should we handle the match during this period for the hourly employees?
A:

The key for determining what to include for the matching calculation is when it is paid, not when it was earned. If the amendment is effective April 1st, then any amounts paid after April 1st would not have matching contributions calculated. This means that the amounts paid on April 3rd would not have any matching contributions calculated.

Q: Can you please provide guidance on the Families First Coronavirus Response Act (FFCRA) and how it may impact my organization?
A:

On March 30th, BerryDunn published a blog post to help answer your questions around the FFCRA.

If you have additional questions, please contact one of our Employee Benefit Plan professionals

ADDITIONAL CONSIDERATIONS
Q: I heard there was going to be an incentive for charitable giving in the new act. What's that all about?
A:

According to Sections 2204 and 2205 of the CARES Act:

  • Up to $300 of charitable contributions can be taken as a deduction in calculating adjusted gross income (AGI) for the 2020 tax year. This will provide a tax benefit even to those who do not itemize.
  • For the 2020 tax year, the tax cap has been lifted for:
    • Individuals-from 60% of AGI to 100%
    • Corporations-annual limit is raised from 10% to 25% (for food donations this is raised from 15% to 25%)
Q: Have you heard if the May 15th tax deadline will be extended?
A:

Unfortunately, we have not heard. As of April 6th, the deadline has not been extended.

Q: Could you please summarize for me the tax provisions in the CARES Act that you think are most applicable to not-for-profits?
A: Absolutely! Our not-for-profit tax professionals have compiled this document, which provides a high-level outline of tax provisions in the CARES Act that we believe would be of interest to our clients.

We are here to help
Please contact the BerryDunn not-for-profit team if you have any questions, or would like to discuss your specific situation.

Related Professionals

Read this if your organization, business, or institution is receiving financial assistance as a direct result of the COVID-19 pandemic.

Updated: August 5, 2020

Many for-profit and not-for-profit organizations are receiving financial assistance as a direct result of the COVID-19 pandemic. While there has been some guidance, there are still many unanswered questions. One unanswered question has been whether or not any of this financial assistance will be subject to the Single Audit Act. Good news―there’s finally some guidance:

  • For organizations receiving financial assistance through the Small Business Administration (SBA) Payroll Protection Program (PPP), the SBA made the determination that financial assistance is not subject to the Single Audit.
  • The other common type of financial assistance through the SBA is the Emergency Injury Disaster Loan (EIDL) program. The SBA has made the determination that as these are direct loans with the federal government, they will be subject to the Single Audit. 

It is unlikely there will be guidance within the 2020 Office of Management and Budget (OMB) Compliance Supplement related to testing the EIDL program, as the Compliance Supplement anticipated in June 2020 will not have any specific information relative to COVID-19. The OMB announced they will likely be issuing an addendum to the June supplement information specific to COVID-19 by September 2020.

Small- and medium-sized for-profit organizations, and now not-for-profit organizations, are able to access funds through the Main Street Lending Program, which is comprised of the Main Street New Loan Facility, the Main Street Priority Loan Facility, the Main Street Expanded Loan Facility, the Nonprofit Organization New Loan Facility, and the Nonprofit Organization Expanded Loan Facility. We do not currently know how, or if, the Single Audit Act will apply to these loans. Term sheets and frequently asked questions can be accessed on the Federal Reserve web page for the Main Street Lending Program.

Not-for-profits have also received additional financial assistance to help during the COVID-19 pandemic, through Medicare and Medicaid, and through the Higher Education Emergency Relief Fund (HEERF). While no definitive guidance has been received, HEERF funds, which are distributed through the Department of Education’s Education Stabilization Fund, have been assigned numbers in the Catalog of Federal Domestic Assistance, which seems to indicate they will be subject to audit. We are currently awaiting guidance if these programs will be subject to the Single Audit Act and will update this blog as that information becomes available.

Healthcare providers are able to access Provider Relief Funds (PRF) through the US Department of Health & Human Services. PRF help with healthcare-related expenses or lost revenue attributable to COVID-19. Guidance on what qualifies as a healthcare-related expense or lost revenue is still in process, and regular updates are posted on the FAQs of the US Department of Health & Human Services website. According to the Health Resources and Services Administration (HRSA), PRF funds will be subject to the Single Audit Act requirements. It is important to note that while an organization may have received funds exceeding the threshold, it is the expenditure of these funds that counts toward the Single Audit threshold.

If you have questions about accounting for, or reporting on, funds that you have received as a result of the COVID-19 pandemic, please contact a member of our Single Audit Team. We’re here to help.

Article
COVID-19: Single audit and uniform guidance clarifications

Read this if your organization, business, or institution is receiving financial assistance as a direct result of the COVID-19 pandemic.

Updated: September 8, 2020

We expect to receive guidance on how to determine what qualifies as lost revenue sometime in the fall, and will post additional information when that becomes available. If you would like the information sent to you directly, please contact Grant Ballantyne.

New information continues to surface about the reporting requirements of the CARES Act Provider Relief Funds (PRFs). The most recent news published by the Health Resources and Services Administration (HRSA) states the funds will be subject to the Single Audit Act requirements. What does this mean and how does it impact your organization? Here’s a brief synopsis. 

A Single Audit (often referred to as a Uniform Guidance audit) is required when total federal grant expenditures for an organization exceed $750,000 in a fiscal year. It is important to note that while an organization may have received funds exceeding the threshold, it is the expenditure of these funds that counts toward the Single Audit threshold.  

PRFs help with healthcare-related expenses or lost revenue attributable to COVID-19. Guidance on what qualifies as a healthcare-related expense or lost revenue is still in process, and regular updates are posted on the FAQs of the US Department of Health & Human Services website.

You may remember, there were originally quarterly reporting requirements related to PRFs. On June 13, 2020 HHS updated their FAQ document to reflect a change in quarterly reporting requirements related to PRFs. According to the updated language, “Recipients of Provider Relief Fund payments do not need to submit a separate quarterly report to HHS or the Pandemic Response Accountability Committee. HHS will develop a report containing all information necessary for recipients of Provider Relief Fund payments to comply with this provision.”

Organizations that receive more than $150,000 in PRFs must still submit reports to ensure compliance with the conditions of the relief funds, but the content of the reports and dates on which these are due is yet to be determined (as of August 4, 2020). The key distinction to remember here is that this limit is based on total funds received, regardless of whether or not expenditures have been made. 

As more information comes out, we will update our website. At the moment the main takeaways are:

  • Expending $750,000 of combined relief funds and other federal awards will trigger a Single Audit
  • Receiving $150,000 of PRFs will cause reporting requirements, on a to-be-determined basis
  • Tracking PRF expenditures throughout the fiscal year will be essential for the dual purpose of reporting expenditures and accumulating any potential Single Audit support

If you would like to speak with a BerryDunn professional about reporting under the Single Audit Act, please contact a member of our Single Audit Team.

Article
Provider Relief Funds Single Audit

Read this if your organization, business, or institution has leases and you’ve been eagerly awaiting and planning for the implementation of the new lease standards.

Ready? Set? Not yet. As we have prepared for and experienced delays related to Financial Accounting Standards Board (FASB) Accounting Standards Codification Topic 842, Leases, and Governmental Accounting Standards Board (GASB) Statement No. 87, Leases, we thought the time had finally come for implementation. With the challenges that COVID-19 has brought to everyone, the FASB and GASB recognize the significant impact COVID-19 has had on commercial businesses, state and local governments, and not-for-profits and both have proposed delays in effective dates for various accounting standards, including both lease standards.

But wait, there’s more! In response to feedback FASB received during the comment period for the lease standard, the revenue recognition standard has also been extended. We didn’t see that coming, and expect that many organizations that didn’t opt for early adoption will breathe a collective sigh of relief.

FASB details and a deeper dive

On May 20, 2020, FASB voted to delay the effective date of the lease standard and the revenue recognition standard. A formal Accounting Standards Update (ASU) summarizing these changes will be released early June. Here’s what we know now:

  • Revenue recognition―for entities that have not yet issued financial statements, the effective date of the application of FASB Accounting Standards Codification (ASC) Topic 606, Revenue Recognition, has been delayed by 12 months (effective for reporting periods beginning after December 15, 2019). This does not apply to public entities or nonpublic entities that are conduit debt obligors who previously adopted this guidance.
  • Leases―for entities that have not yet adopted the guidance from ASC 842, Leases, the effective date has been extended by 12 months (effective for reporting periods beginning after December 15, 2021).
  • Early adoption of either standard is still allowed.

FASB has also provided clarity on lease concessions that are highlighted in Topic 842. 

We recognize many lessors are making concessions due to the pandemic. Under current guidance in Topics 840 and 842, changes to lease contracts that were not included in the original lease are generally accounted for as lease modifications and, therefore, a separate contract. This would require remeasurement of the new lease contract and related right-of-use asset. 

FASB recognized this issue and has published a FASB Staff Questions and Answers (Q&A) Document, Topic 842 and Topic 840: Accounting for Lease Concessions Related to the Effects of the COVID-19 Pandemic. Under this new guidance, if lease concessions are made relating to COVID-19, entities do not need to analyze each contract to determine if a new contract has been entered into, and will have the option to apply, or not to apply, the lease modification provisions of Topics 840 and 842.

GASB details

On May 8, 2020, GASB issued Statement No. 95, Postponement of the Effective Dates of Certain Authoritative Guidance. GASB 95 extends the implementation dates of several pronouncements including:
•    Statement No. 84, Fiduciary Activities―extended by 12 months (effective for reporting periods beginning after December 15, 2019)
•    Statement No. 87, Leases―extended by 18 months (effective for reporting periods beginning after June 15, 2021)

More information

If you have questions, please contact a member of our financial statement audit team. For other COVID-19 related resources, please refer to BerryDunn’s COVID-19 Resources Page.
 

Article
May 2020 accounting standard delay status: GASB and FASB

Editor's note: Read this if you are a leader in higher education.

The Department of Education has released guidance to colleges and universities on how the CARES Act grants to institutions, under the Higher Education Emergency Relief Fund (HEERF), may be used. The guidance comes in the form of answers to frequently asked questions, which we recommend institutions read before accepting the funds. Some key answers included in the document:

  1. A school has to participate in the HEERF funding to be used for grants to students to get the institutional share.
  2. Schools can use these funds to cover the costs of refunds for room and board provided as a result of campus closure.
  3. These funds can be used to make additional emergency financial aid grants to students impacted by campus closure.

We urge schools to retain supporting documentation of the proper use of these funds to allow for a compliance audit, should that be required. 

Questions?
Please contact Renee Bishop, Sarah Belliveau, or Mark LaPrade. We’re here to help.

Article
The Higher Education Emergency Relief Fund (HEERF): Guidelines