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Fixing the "family glitch": How a proposed change to the ACA will affect healthcare subsidies 

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Elliott is a Senior Consultant in BerryDunn’s Government Assurance Practice Group with experience in compliance examinations, internal control audits, internal process examinations, and financial impact analysis. He works with clients across the country on various engagement types that ensure compliance and improve internal business processes.

Elliott Simpson
06.30.22

Read this if your organization offers health insurance through a health insurance exchange.

When the Affordable Care Act (ACA) was passed in 2010, it contained a known gap which made healthcare premiums unaffordable for some families covered under Medicare or employer-sponsored health insurance plans. The gap in the law, commonly referred to as the family glitch, was formalized in 2013 as the result of a Final Rule issued by the IRS. 

The “family glitch” calculates the affordability of an employer-sponsored health insurance plan based on the cost for the employee, not additional family members. An article published in April 2022 on healthinsurance.org estimated that the cost of health insurance for a family covered by an employer-sponsored plan could end up being 25% or more of the household’s income, even if the plan was considered affordable (less than 9.61% of the household’s income) for the employee alone. Almost half of the people impacted by the family glitch are children.

The family glitch was allowed to stand in 2013 partly because of concerns that resolving the issue could push more people off employer-sponsored plans and onto marketplace qualified health plans, ultimately raising the cost of subsidies. Since then, several attempts have been made to fix the issue, which affects around five million Americans. The most recent attempt was an executive order issued by President Biden soon after taking office in January 2021. The Office of Management and Budget has been reviewing regulatory changes proposed by the Treasury Department and IRS, details of which were published in April 2022. 

These regulatory changes would alter the way health insurance exchanges calculate a family’s eligibility for subsidies when the family has access to an employer-sponsored health insurance plan. If the changes go into effect in 2023 as proposed, audits of the 2023 fiscal year will need to account for the new regulations and potentially conduct different testing protocols for different parts of the year. 

Our team is closely following these proposed changes to help ensure our clients are prepared to follow the new regulations. Earlier this week, we attended a public hearing held by the Treasury Department, where representatives of various groups spoke in support of, or in opposition to the proposed regulatory change. Supporters noted that families with plans that offer expensive coverage for dependents would benefit from this change through reduced costs and more coverage options, including provider networks that may more closely align with the family members’ needs. Those in favor of the change anticipate that families with children would see the most benefit. 

Those opposed to the change expressed that due to the way the law is currently written, they do not see the regulatory flexibility for the administration to make this change through administrative action. Additionally, concerns were raised that families covered by multiple health insurance plans could be faced with higher out-of-pocket-costs due to having separate deductibles that must be met on an annual basis. Lastly, not all families that have unaffordable insurance would see financial relief under this proposal. 

The Treasury Department is expected to announce its decision in time for open enrollment for plan year 2023 which is scheduled to begin on November 1, 2022. Our team will continue to monitor the situation closely and provide updates on how the changes may impact our clients. 

For more information

If you have more questions or have a specific question about your situation, please reach out to us. There is more information to consider when evaluating the effects these changes will have on the landscape of healthcare access and affordability, and we’re here to help.

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Read this if you are a financial institution.

Whether you think of New Year’s resolutions or goal setting, it’s that time of year where we traditionally take time for reflection (current state, desired state) in order to take action on the change we want to see. Understandably, as many institutions have been so focused on developing and understanding their CECL model and results, evolving the internal control environment may have, well, lagged a little. Which is why, in the spirit of starting the new year on the right foot, now is the perfect time to think about internal CECL controls.

CECL internal controls: Where to start?

Let’s acknowledge this right away: there is no “best” place to start. Some folks like to review what controls they already have in place and then think about how best to evolve or tweak them. Others may prefer to take a clean slate approach—map out the CECL workflows, identify risks, and then determine what controls are needed. One way to bridge these approaches is after you’ve mapped out the process, risks, and controls, then compare that to what you already have and make the necessary adjustments. We’ve seen all of these approaches work, but there are some pros and cons and pitfalls to consider for each. 

Existing controls

If you choose to begin by reviewing and tweaking the controls you already have, one pitfall is that you may not challenge your thinking enough to recognize where new risks have been introduced with your CECL methodology. For example, how does the CECL calculation—and all the new data you are now relying on—impact controls? Is your area responsible for making choices about all those numbers, values, and codes, or are those calculations, choices, and decisions taking place in other areas where controls may need to be developed, or reviewed and enhanced for CECL?

Another good example: if you’ve invested in software, have you recognized the need for new controls over data flow in and out of that system, including the manual calculations you’re doing outside of the system and then keying those results into the system as model inputs? We have found that some people go into this approach thinking it will save them time—like a short-cut—only to realize later they’ve missed the opportunity to identify one or more key risks/controls.

Clean slate mapping

Speaking from experience, this approach can take some time but may be a great way to ensure your thinking is not limited by “what you’ve always” done or had in place. That said, we can appreciate that while staring at a blank page is energizing to some, it can feel overwhelming to others. Moreover, that overwhelmed feeling may be the underlying reason why it is tough to engage in this approach.

Here’s the big tip: put some sort of starting point on paper (maybe even the middle of the paper) understanding that as you think about it, you could be adding to the workflow before, above, under, or past that starting point. It’s okay that you don’t know all the related workflows because you’re identifying that there are related workflows whose risks/controls may be in other areas that need to be further explored. Maybe take this activity, initially, to a conference room with a big dry-erase board (there are online versions of this, too)! 

Now, just like those new year’s resolutions for increased exercise that sometimes are easier to stick to when you have an accountability partner—is there someone in your organization that is particularly adept at creating workflows whose strengths and talents you can tap into to help you create this one? 

Tips for helping ensure CECL internal control success

No matter which approach you end up taking, here are some of our top tips for helping ensure CECL internal control success:

Communicate: Outreach and awareness are foundational to engaging others in this process. It is so understandably easy for people not directly involved in the day-to-day CECL calculation to even realize they have a key role to play when it comes to CECL controls. 

Cooperate: Invite others into the process, especially when it comes to helping you evaluate how changes under CECL relate to work they do day-to-day. Work together to simply understand or clarify how the pieces fit together. 

Collaborate: There are lots of ways to design, test, and monitor internal controls. Lean into the strengths and talents of others to help create efficient and effective controls that can save you and others a lot of time and headache. I recommend this no matter how mature the control practice is—there may be ways to make it better and easier.

Coach, train, and support: I advise against the “control dump and run”—letting someone know they have one or two new controls, and then leaving them to it. Certainly, there is value in having to solve something from the ground up. However, helping others connect the dots between why controls are important, ways to evaluate and structure them, and who in the organization can collaborate with them to make them as easy and effective as possible, goes a long way toward getting the most value out of your control environment.

Seek advice: CECL is new for almost everyone, and controls are not a one-size fits all. Engaging someone experienced in both CECL and controls can help challenge your thinking, open your eyes to pitfalls, prevent over-engineering, provide perspective, and help you transition as you grow. 

No matter your CECL challenge or pain point, our team of experts is here to help you navigate the requirements as efficiently and effectively as possible. For more information, visit the CECL page on our website. If you would like specific answers to questions, please visit our Ask the Advisor page to submit your questions.

For more on CECL, stay tuned for our next article in the series, or enjoy our CECL Radio podcasts. You can also follow Susan Weber on LinkedIn.

Article
Resolve to consider internal CECL controls

Read this if you are in the senior living industry.

Happy New Year! While it may be a new calendar year, the uncertainties facing senior living facilities are still the same, and the question remains: When will the Public Health Emergency end, and how will it impact operations? Federal and state relief programs ended in 2022, and facilities are trying to find ways to fund operations as they face low occupancy levels. Inflation was at 7.1% in November and staffing remains a significant challenge. So, what can the industry expect for 2023?

Occupancy

Through the pandemic, occupancy losses were greater in nursing facilities than in assisted living (AL) and independent living (IL) facilities. This trend of care shifting away from nursing facilities had started before the onset of the pandemic. From 2018-2020, nursing facility volume decreased by over 5% while AL facilities occupancy increased by 1.1%.

Nursing facility occupancy nationwide was 80.2% in January of 2020 and declined to as low as 67.5% in January 2021. In 2022, nursing facility occupancy began to recover. As of December 18, 2022, nationwide occupancy had rebounded to 75.8%.

The assisted living and independent living markets were certainly impacted by the pandemic but not to the extent of the nursing facilities. AL and IL occupancy was reported at 80.9% in March 2021, a record low occupancy for the industry. Through the third quarter of 2022, NIC reported IL occupancy at 84.7%, which was up from 83.8% in the second quarter of 2022. AL occupancy was at 79.7%. in the third quarter of 2022. 

Providers are starting to see some positive signs with occupancy, but are reporting the recovery has been slowed by staffing shortages.

Cost of capital

The lending market is tightening for senior living providers and occupancy issues are negatively impacting facilities bottom lines. In addition, there has been significant consolidation in the banking industry. As a result, interest and related financing costs have risen. For those facilities that aren’t able to sustain their bottom lines and are failing financial covenants, lenders are being less lenient on waivers and in some cases, lenders are imposing default lending rates. 

Ziegler reports in their Winter 2022 report the lending market for senior housing is beginning to pick up. The majority of the lenders surveyed were regional banks, and reported they are offering both fixed and floating rate loans. Lenders are also reporting an increased scrutiny on labor costs coupled with looking at a facility’s ability to increase occupancy. 

Despite these challenges, analysts are still optimistic for 2023 as inflation seems to be tapering, which will hopefully lead to a stabilization of interest rates.

Staffing

Changes to five-star rating
In July 2022, the Centers for Medicare and Medicaid Services (CMS) modified the five-star rating to include Registered Nurse (RN) and administrator turnover. The new staffing rating adds new measures, including total nurse staffing hours per resident day on the weekends, the percentage of turnover for total nursing staff and RNs, and the number of administrators who have left the nursing home over a 12-month period.

Short-term this could have a negative impact on facilities ratings as they are still struggling to recruit and retain nursing staff. The American Healthcare Association has performed an analysis, and on a nationwide basis these changes resulted in the number of one-star staffed facilities rising from 17.71% to 30.89%, and the percentage of one-star overall facilities increasing from 17.70% to 22.08%.

Staffing shortages 
Much like the occupancy trend, nursing facilities faced staffing issues even before the pandemic. From 2018 to 2020, the average number of full-time employees dropped at a higher rate, 37.1%, than admissions, 15.7%. Data from the Bureau of Labor and Statistics and CMS Payroll Based Journal reporting shows nursing facilities lost 14.5% of their employees from 2019-2021 and assisted living facilities lost 7.7% over the same time period. This unprecedented loss of employment across the industry is leading to burnout and will contribute to future turnover.

This loss of full-time employees has created a ripple effect across the healthcare sector. Nursing facilities are unable to fully staff beds and have had to decline new admissions. This is causing strain on hospital systems as they are unable to place patients in post-acute facilities, creating a back log in hospitals and driving up the cost of care.

While the industry continues to experience challenges recruiting and retaining employees, the labor market is starting to swing in the favor of providers. Some healthcare sectors have recovered to pre-pandemic staffing levels. Providers are also starting to report lower utilization of contract labor.

While the industry continues to experience challenges recruiting and retaining employees, the labor market is starting to swing in the favor of providers. 

Minimum staffing requirement
CMS is expected to propose a new minimum staffing rule by early spring 2023. Federal law currently requires Medicare and Medicaid certified nursing homes provide 24-hour licensed nursing services, which are “sufficient to meet nursing needs of their residents”. CMS issued a request for information (RFI) as part of the Fiscal Year 2023 Skilled Nursing Facility Prospective Payment System Proposed Rule. CMS received over 3,000 comments with differing points of view but prevailing themes from patient advocacy groups regarded care of residents, factors impacting facilities' ability to recruit and retain staff, differing Medicaid reimbursement models, and the cost of implementing a minimum staffing requirement. In addition to the RFI, CMS launched a study that includes analysis of historical data and site visits to 75 nursing homes. 

In a study conducted by the American Healthcare Association, it is estimated an additional 58,000 to 191,000 FTEs will be needed (at a cost of approximately $11.3 billion) to meet the previously recommended 4.1 hours per patient day minimum staffing requirements.

One potential consequence of the minimum staffing requirement is higher utilization of agency staffing. Nursing facilities saw a 14.5% decrease in staffing through the pandemic and are still struggling to recruit and retain full-time staff. To meet the minimum staffing requirements, providers may need to fill open positions with temporary staffing. 

Provider Relief Funds (PRF) 

Don’t forget if you received PRF funds in excess of $10,000 between July 1 and December 31, 2021, Phase 4 reporting period opened January 1, 2023, and will close March 31, 2023.
Many of the changes to the industry brought on by the pandemic are likely to remain. Facilities who are putting a focus on their staff and working to create a positive work environment are likely to keep employees for longer.

While there are many challenges in the current environment, they were made to be met, and we are here to help. If you have any questions or would like to talk about your specific needs, please contact our senior living team. Wishing you a successful 2023.
 

Article
Status of the senior living industry: The good, the bad, and the uncertain

Read this if you are subject to SOC examinations.

In late October 2022, the American Institute of Certified Public Accountants’ (AICPA’s) Assurance Services Executive Committee (ASEC) released an update to the System and Organization Control (SOC) 2 reporting guide. Significant updates have been made to the Description Criteria implementation guidance and the Trust Services Criteria points of focus. Overall, the changes provide clarity around several recent and emerging industry topics and continue to promote reporting quality and consistency.

Summary of changes

Available for use now, the AICPA updates for SOC 2 examinations are significant and may require additional time and attention from companies who currently have a SOC 2 report or are planning on working toward compliance. High-level updates include incorporating new attestation standards (e.g., SSAE-20 and SSAE-21):

  • Updates to the Description Criteria implementation guidance for additional clarity regarding certain disclosure requirements, guidance on disclosure of how controls meet the requirements of a process or control framework, and guidance on disclosure of information about the risk assessment process and specific risks
  • Updates to the points of focus that support the application of the Trust Services Criteria that better reflect the ever-changing technology, legal, regulatory, and cultural risks, data management requirements, particularly related to confidentiality, and differentiating between a data controller and a data processor for privacy engagements
  • Incorporating, where appropriate, updates included in the AICPA Guide Reporting on Controls at a Service Organization Relevant to User Entities’ Internal Control over Financial Reporting (SOC 1 guide)
  • Incorporating, where applicable, additional guidance included in the AICPA Guide Reporting on an Examination of Controls Relevant to Security, Availability, Processing Integrity, Confidentiality, or Privacy in a Production, Manufacturing, or Distribution System (SOC for supply chain guide), particularly related to the risk assessment guidance

Additional updates

Other updates from the AICPA include, but are not limited to, the following:

  • Making qualitative materiality assessments (from the AICPA whitepaper on materiality)
  • Considering the service organization’s use of software applications and tools (from the SOC Tools FAQ)
  • Considering the operation of periodic controls that operated prior to the period covered by the examination
  • Considering management’s use of specialists
  • Performing and reporting in a SOC 2+ engagement (including an updated illustrative service auditor’s report)
  • Addressing considerations when the service organization has identified a service commitment or system requirement related to meeting the requirements of a process or control framework (such as HIPAA, ISO, or NIST)
  • Supplements and several appendices were removed and will be replaced with links to the appropriate documents on the AICPA website

If you currently have or will be working toward a SOC 2 report, it’s essential to understand the impact to the SOC 2 reporting process. Early preparation will help your organization stay ahead of the curve when it comes to achieving compliance. It is also essential to help ensure that frameworks are aligned and controls are in place to effectively guard against cybersecurity risks and protect sensitive data. If you have questions about SOC audits, or your specific situation, please contact our SOC Audits team. We’re here to help.

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Navigating changes to the SOC 2 guide

Read this if you work for a charitable, not-for-profit organization that accepts gift-in-kind donations.

Not-for-profit organizations frequently receive contributions of nonfinancial assets, commonly referred to as gifts-in-kind. Examples of nonfinancial assets that could be considered gifts-in-kind include property, vehicles, equipment, the right to use property, vehicles or equipment, materials or supplies, or time and services. The Financial Accounting Standards Board (FASB) determined that existing Generally Accepted Accounting Principles (GAAP) do not provide sufficient transparency to readers of financial statements. Prior guidance gave little specific guidance on presentation of gifts-in-kind other than contributed services. Therefore, FASB issued Accounting Standards Update (ASU) 2020-07 Not-for-Profit Entities (Topic 958), effective for annual periods beginning after June 15, 2021, improving that transparency.

This article will provide a summary of the new gift-in-kind standard along with a refresher on existing tax implications of gifts-in-kind.

GAAP valuation of gifts-in-kind

The new ASU does not change the basis of measurement for gifts-in-kind, only the related disclosures. For instance, contributions of services are still only recognized if the services (1) either create or enhance nonfinancial assets or (2) require specialized skill, are provided by individuals possessing those skills, and would typically need to be purchased if not provided by donation.

Tax valuation of gifts-in-kind

There is no separate valuation for in-kind contributions for Form 990 or 990-PF reporting purposes. In-kind contributions should be reported on the Form 990 or 990-PF on the same basis as the financial statements.

Donated services and use of facilities are not included in revenue or expenses on the Form 990. Instead, they are included as reconciling items on Schedule D, reconciliation from financial statements to the Form 990, at the same amounts as reported on the financial statements.

GAAP disclosures and groupings for gifts-in-kind

The ASU specifies that gifts-in-kind need to be presented as a separate line item in the statement of activities rather than being included with other contributions. Additionally, the financial statements will need to disaggregate the various types of contributed nonfinancial assets. For instance, if a donor provides free office space to a not-for-profit and another donor provides free accounting services, these types of contributions should be shown separately in a footnote disclosure or in the statement of activities.

Not-for-profits will also have to disclose information about whether the gifts were monetized or used (for instance, if a contributed vehicle was sold) and what program they were used for, along with their policy regarding monetizing or using contributed nonfinancial assets. The ASU also requires disclosure of any donor-imposed restrictions on the gift-in-kind and what methods were used to value it. Finally, the financial statements must disclose the principal or most advantageous market used to arrive at the fair value measure if the organization is prohibited by the donor from selling or using the contributed nonfinancial asset in that market.

Tax disclosures and groupings for gifts-in-kind

The nature of the gift-in-kind determines where and how it is disclosed on Form 990. Gifts of nonfinancial assets (i.e. fixed assets, materials, supplies) are disclosed on Form 990 as noncash contributions. The total noncash contributions an organization receives during the year and records as revenue may mean additional schedules for your filing.

A public charity that receives total noncash contributions of $25,000 or more must also complete Schedule M. Private foundations do not complete Schedule M.

If an individual noncash contributor rises to the level of Schedule B reporting (by contributing a minimum of either $5,000 or, for some public charities, 2% of total contributions for the year), a description of the noncash contribution, date of contribution and the amount recorded as revenue must be disclosed on Schedule B. Schedule B is not subject to public disclosure for section 501(c)(3) public charities. However, the Form 990-PF’s Schedule B is subject to public disclosure.

Schedule M has specific groupings of noncash contributions, such as gifts of clothing and household items, vehicles, and real estate. Unlike Schedule B, Schedule M does not require the breakout of individual contributors. There are no groupings of like-kind contributions on Schedule B as individual donors must be reported separately.

Donated services and use of facilities are not disclosed on Schedule M. In contrast to GAAP reporting, donated services and use of facilities are removed from both revenue and expenses for Form 990 and 990-PF purposes as previously mentioned.

In addition to the reporting mentioned above, if your organization receives noncash contributions, there may be additional considerations to evaluate as well. The BerryDunn team is here to help answer any questions.

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ASU 2020-07: The gift (in-kind) that keeps on giving

Read this if your organization is required to report on Provider Relief Funds.

On October 27, 2022, HRSA released an update to its Post-Payment Notice of Reporting Requirements for Provider Relief Funds (PRF) and American Rescue Plan (ARP) funds, the first update since June 11, 2021. Although many of the updates are used to add the additional reporting periods for PRF (Periods 5 through 7) and incorporate ARP into the reporting requirements, there are several things you can do to prepare and understand the nuances of Period 4 reporting. By way of a reminder, here are the remaining reporting time periods: 

Be aware. Did you know?

Before we provide a refresher on the data elements you need to prepare your portal submission, here are some very important elements to be aware of:

  1. Phase 4 and ARP payments are required to be maintained in interest-bearing accounts.
  2. ARP monies must be utilized before any unspent general PRF distributions. 
  3. ARP distributions cannot be transferred or allocated to another recipient, because distributions were determined specific to the historical claims data of the qualifying recipient. If reporting is performed at the parent level, parent entities can still report on the ARP payments received by their subsidiaries.
  4. PRF and ARP monies can be used for lost revenues only through the end of the quarter in which the Public Health Emergency (PHE) ends. Currently, the PHE has been extended through April 11, 2023.
  5. Reporting through the HRSA portal will be on a cumulative basis. This may provide you the opportunity to change your option election for lost revenue (for the cumulative period) or correct for previous reporting errors.

Steps for reporting the required data elements

As a result of changes in requirements and the ARP distribution, the steps for reporting have morphed. Data will be entered in the following order:

  1. Interest earned on PRF payments prior to Phase 4
  2. Interest earned on Phase 4 and ARP payments 
  3. Other assistance received
  4. Use of ARP payments for eligible expenses
  5. Use of ARP payments for lost revenues 
  6. Use of Nursing Home Infection Control (NHIC) Distribution payments
  7. Use of General and Targeted Distribution payments for eligible expenses
  8. Use of General and Targeted Distribution payments for lost revenues
  9. Net unreimbursed expenses attributable to COVID-19

Although PRF and ARP funds have similar utilization, it is important to review the Terms and Conditions associated with each distribution to help ensure compliance that the funds are used appropriately.  

Data elements you will need

The following is a category overview of the data elements that will be requested as you complete your portal submission:

  1. Reporting entity identifying information
  2. Associated subsidiary questionnaire—TIN(s), total PRF Targeted Distributions
  3. ARP subsidiary attestation
  4. Acquired or divested subsidiary information
  5. Interest earned on PRF and ARP payments
  6. Tax status and Single Audit information 
  7. Other assistance received, broken down by quarters:
    a.   Department of the Treasury or SBA
    b.   FEMA
    c.   HHS COVID Testing
    d.   Local, state, and tribal government assistance
    e.   Business insurance
    f.    Other
  8. Use of ARP payments (and related earned interest) on eligible expenses
  9. Use of ARP payments (and related earned interest) on lost revenues attributed to COVID 
  10. Use of NHIC Distribution payments
  11. Use of PRF General and Targeted Distribution payments (and related earned interest) on eligible expenses
  12. Use of PRF General and Targeted Distribution payments (and related earned interest) on lost revenues attributed to COVID
  13. Net unreimbursed expenses
  14. Personnel, patient, and facility metrics
  15. Survey

Two reminders for reporting expenses and lost revenues:

  1. Recipients with qualifying expenses of $500,000 or more will need to report expenses in greater detail. As a refresher, the expanded categories are as follows:

    General and Administrative (G&A) expense categories: Mortgage/rent, insurance, personnel, fringe benefits, lease payments, utilities/operations, and other G&A

    Healthcare related expense categories: Supplies, equipment, IT, facilities, and other health care related expenses
  2. Patient service revenue must be reported at net and broken down by payor (Medicare Part A & B, Medicare Part C, Medicaid/CHIP, commercial, self-pay, and other)

The final step in the portal is to complete the required survey, which often catches recipients off-guard as they grow weary toward the end of rigors of the submission and ready to cross the finish line. Be prepared to respond to questions on the impact the PRF and ARP payments have made for your organization, whether the benefits have been overall operations, solvency, staff retention, COVID operations, etc.

HRSA audits—next steps

In addition to a federal Single Audit requirement when a recipient expends more than $750,000 of federal funding in one year (regardless of whether those federally sourced funds came directly from the federal government or were passed from a state or local government), HRSA may also perform its own audits of recipients. These audits will address the data used by the recipients to report on their usage of PRF and ARP monies. Recipients will need to provide support for lost revenue and expenses that justify the use of the funds that they received.

The HRSA is going to drill down on the revenue numbers, specifically looking at the general ledger (GL) and other select revenue tests. On the expenses side, they are going to review the GL, invoice dates, payments and more.

To complete this audit, HRSA will require a significant amount of supporting documentation. Ideally, most of these documents should already have been copied and set aside as support in anticipation of financial reporting requirements. Below is a partial list of items that could be requested during the audit:

  • GL details
  • Listing of expenses reimbursed with PRF and ARP payments grouped into specified categories
  • Listing of patient care revenue by payor
  • Listing of other sources of assistance
  • Listing of expenses reimbursed with the other assistance received
  • Detailed inventory listing of IT supplies
  • Budget attestation from CEO or CFO and board minutes showing ratification of the budget before March 27, 2020
  • Documentation of lost revenue methodologies
  • Audited financial statements
  • CMS cost reports for Medicare and Medicaid
  • Other supporting documentation

If certain documentation isn’t available, recipients will need to request copies from their vendors. Missing documentation may make it difficult to justify the use of funds and may result in recipients having to repay a portion or all of their provider relief funding.

It is possible that certain expenses were not allowable under PRF and ARP. However, that doesn’t necessarily mean recipients will have to repay their funds. Recipients may have other lost revenue or expenses that would be allowed under PRF and ARP—but only if they have the documentation to prove it. That’s why it’s crucial that recipients have all relevant documentation for expenses and lost revenue over the periods they received provider relief funding.

To get ready for a potential HRSA audit, there are at least three immediate steps you should take:

  • Select a responsible point person. One person should be responsible for coordinating the process to help ensure that nothing falls through the cracks or is overlooked. 
  • Keep your PRF/ARP filing reports on hand. Pull any related supporting documentation and collate it into one place if it isn’t already.
  • Identify what support is needed by doing a gap analysis. Determine where you need additional support or expertise and seek to close these gaps before the notification of any audit process.

Insufficient documentation may result in the recapture of provider relief funding by the HRSA. Fortunately, a lack of documentation is preventable with the right support and resources in place. If you would like more information or have any questions about your specific situation, please contact us. We’re here to help.

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Are you ready for PRF Period 4 reporting?

In a closely held business, ownership always means far more than business value. Valuing your business will put a dollar figure on your business (and with any luck, it might even be accurate!). However, ownership of a business is about much more than the “number.” To many of our clients, ownership is about identity, personal fulfillment, developing a legacy, funding their lifestyle, and much more. What does business ownership mean to you? In our final article in this series, we are going to look at questions around what ownership means to different people, explore how to increase business value and liquidity, and discuss the decision of whether to grow your business or exit—and which liquidity options are available for each path. 

While it may seem counterintuitive, we find that it is best to delay the decision to grow or exit until the very end of the value acceleration process. After identifying and implementing business improvement and de-risking projects in the Discover stage and the Prepare stage (see below), people may find themselves more open to the idea of keeping their business and using that business to build liquidity while they explore other options. 

Once people have completed the Discover and Prepare stages and are ready to decide whether to exit or grow their business, we frame the conversation around personal and business readiness. Many personal readiness factors relate to what ownership means to each client. In this process, clients ask themselves the following questions:

  • Am I ready to not be in charge?
  • Am I ready to not be identified as the business?
  • Do I have a plan for what comes next?
  • Do I have the resources to fund what’s next? 
  • Have I communicated my plan?

On the business end, readiness topics include the following:

  • Is the team in place to carry on without me?
  • Do all employees know their role?
  • Does the team know the strategic plan?
  • Have we minimized risk? 
  • Have I communicated my plan?

Whether you choose to grow your business or exit it, you have various liquidity options to choose from. Liquidity options if you keep your business include 401(k) profit sharing, distributions, bonuses, and dividend recapitalization. Alternatively, liquidity options if you choose to exit your business include selling to strategic buyers, ESOPs, private equity firms, management, or family. 

When it comes to liquidity, there are several other topics clients are curious about. One of these topics is the use of earn-outs in the sale of a business. In an earn-out, a portion of the price of the business is suspended, contingent on business performance. The “short and sweet” on this topic is that we typically find them to be most effective over a two- to three-year time period. When selecting a metric to base the earn-out on (such as revenue, profit, or customer retention), consider what is in your control. Will the new owner change the capital structure or cost structure in a way that reduces income? Further, if the planned liquidity event involves merging your company into another company, specify how costs will be allocated for earn-out purposes. 

Rollover equity (receiving equity in the acquiring company as part of the deal structure) and the use of warrants/synthetic equity (incentives tied to increases in stock price) is another area in which we receive many questions from clients. Some key considerations:

  • Make sure you know how you will turn your rollover equity into cash.
  • Understand potential dilution of your rollover equity if the acquiring company continues to acquire other targets. 
  • Make sure the percentage of equity relative to total deal consideration is reasonable.
  • Seller financing typically has lower interest rates and favorable terms, so warrants are often attached to compensate the seller. 
  • Warrants are subject to capital gains tax while synthetic equity is typically ordinary income. As a result, warrants often have lower tax consequences.
  • Synthetic equity may work well for long-term incentive plans and for management buyouts. 

We have found that through the value acceleration process, clients are able to increase business value and liquidity, giving them control over how they spend their time and resources.

If you are interested in learning more about value acceleration, please contact the business valuation services team. We would be happy to meet with you, answer any questions you may have, and provide you with information on upcoming value acceleration presentations. 

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Decide: Value acceleration series part five (of five)

So far in our value acceleration article series, we have talked about increasing the value of your business and building liquidity into your life starting with taking inventory of where you are at and aligning values, reducing risk, and increasing intangible value.

In this article, we are going to focus on planning and execution. How these action items are introduced and executed may be just as important as the action items themselves. We still need to protect value before we can help it grow. Let’s say you had a plan, a good plan, to sell your business and start a new one. Maybe a bed-and-breakfast on the coast? You’ve earmarked the 70% in cash proceeds to bolster your retirement accounts. The remaining 30% was designed to generate cash for the down payment on the bed-and-breakfast. And it is stuck in escrow or, worse yet, tied to an earn-out. Now, the waiting begins. When do you get to move on to the next phase? After all that hard work in the value acceleration process, you still didn’t get where you wanted to go. What went wrong?

Many business owners stumble at the end because they lack a master plan that incorporates their business action items and personal action items. Planning and execution in the value acceleration process was the focus of our conversation with a group of business owners and advisors on Thursday, April 11th.

Business valuation master plan steps to take

A master plan should include both business actions and personal actions. We uncovered a number of points that resonated with business owners in the room. Almost every business owner has some sort of action item related to employees, whether it’s hiring new employees, advancing employees into new roles, or helping employees succeed in their current roles. A review of financial practices may also benefit many businesses. For example, by revisiting variable vs. fixed costs, companies may improve their bidding process and enhance profitability. 

Master plan business improvement action items:

  • Customer diversification and contract implementation
  • Inventory management
  • Use of relevant metrics and dashboards
  • Financial history and projections
  • Systems and process refinement

A comprehensive master plan should also include personal action items. Personal goals and objectives play a huge role in the actions taken by a business. As with the hypothetical bed-and-breakfast example, personal goals may influence your exit options and the selected deal structure. 

Master plan personal action items:

  •  Family involvement in the business
  •  Needs vs. wants
  •  Development of an advisory team
  •  Life after planning

A master plan incorporates all of the previously identified action items into an implementation timeline. Each master plan is different and reflects the underlying realities of the specific business. However, a practical framework to use as guidance is presented below.

The value acceleration process requires critical thinking and hard work. Just as important as identifying action items is creating a process to execute them effectively. Through proper planning and execution, we help our clients not only become wealthier but to use their wealth to better their lives. 

If you are interested in learning more about value acceleration, please contact the business valuation services team. We would be happy to meet with you, answer any questions you may have, and provide you with information on upcoming value acceleration presentations. 

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Planning and execution: Value acceleration series part four (of five)