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Resources for
not-for-profits
affected by COVID-19

07.21.20

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Principals

  • Renee Bishop
    Chief Operating Officer of Assurance, Tax, and Advisory Services
    T 207.991.5158
  • Ryan Gough
    Principal
    Healthcare, Not-For-Profit
    T 603.518.2612

BerryDunn experts and consultants

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.

Article
COVID-19 FAQs—Not-for-Profit Edition

With the most recent overhaul to the Form 990, Return of Organization Exempt From Income Tax, the IRS has made clear its intention to increase the transparency of a not-for-profit organization’s mission and activities and to promote active governance. To point, the IRS asks whether a copy has been provided to an organization’s board prior to filing and requires organizations to describe the process, if any, its board undertakes to review the 990.

This lack of ambiguity aside, it is just good governance to have an understanding of the information included in your organization’s Form 990. After all, it is available to anyone who wants a copy. But the volume of information included in a typical return can be daunting.

Where do you even start? Let’s take a look at the key components of a Form 990 that warrant at least a read-through:

  • Income and expense activity (Page 1 and Schedule D) – Does this agree to, or reconcile to, the financial reporting of the organization?
  • Narratives on Page 2 – Does it accurately describe your mission and “tell your story”?
  • Questions in Part VI about governance, management, and disclosures – If any governance or policy questions are answered in the negative, have you given consideration to implementing changes?
  • Part VII – Board information and key employee/contractor compensation – Is the list complete? Does the information agree with compensation set by the board? Does it seem appropriate in light of responsibilities and the organization’s activities

Depending on how questions were answered earlier in the Form 990, several schedules may be required. Key schedules include:

  • Schedule C – Political and lobbying expenditures
  • Schedule F – Foreign transactions and investments reported (alternative investments may have pass-through foreign activity)
  • Schedule J – Detailed compensation reporting for employees whose package exceeds $150,000
  • Schedule L – Transactions with officers, board members, and key employees (conflict-of-interest disclosures)

In addition to the Form 990, an organization may be required to file a Form 990-T, Exempt Organization Business Income Tax Return, if it earns unrelated business income. In general, it’s good practice to review the Form 990 with the organization’s management or tax preparer to be able to ask questions as they arise.

Filing and reviewing the Form 990 can be more than a compliance exercise. It’s an opportunity for a good conversations about your mission, policies, and compensation—a “health check-up” that can benefit more areas than just compliance. Understanding your not-for-profit’s operations and being an engaged and informed board member are essential to effectively fulfilling your fiduciary responsibilities.

Article
Good governance: Understanding your organization's Form 990

Read this if you are a plan sponsor of employee benefit plans.

Employee Retention Credit (ERC)

There is still time to claim the Employee Retention Credit, if eligible. The due date for filing Form 941-X to claim the credit is generally three years from the date of the originally filed Form 941. 

The ERC is a refundable payroll tax credit for wages paid and health coverage provided by an employer whose operations were either fully or partially suspended due to COVID-related governmental orders or that experienced a significant reduction in gross receipts. 

The amount of the credit can be substantial. For 2020, the credit is 50% of the first $10,000 of qualified wages per employee for the qualifying period beginning as early as March 12, 2020, and ending December 31, 2020 (thus the max credit per employee is $5,000 in 2020). For 2021, the credit is 70% of the first $10,000 of qualified wages per employee, per qualifying quarter (thus the potential max credit is $21,000 per employee in 2021). 

For 2021, employers with 500 or fewer full-time employees in 2019 may include all wages and health plan expenses as qualified wages. For 2020, employers with 100 or fewer full-time employees in 2019 may include all wages and health plan expenses as qualified wages while employers with more than 100 full-time employees in 2019 may only claim the credit for qualified wages paid to employees who did not provide services. For purposes of determining full-time employees, an employer only needs to include those that work 30 hours a week or 130 hours a month in the calculation. Part-time employees working less than this would not be considered in the employee count.

There is additional interplay between claiming the ERC and the wages used for PPP loan forgiveness that will need to be considered. 

Student loan repayment programs

One of the benefits younger employees would like to receive from their employer is assistance with student loan repayments. A recent study indicated an employee would commit to working for an employer for at least five years if the employer assisted with student loan payments. Some employers have been providing such a benefit and, until 2020, any student loan payments made by the employer would have been considered taxable income. 

Beginning in 2020 and through 2025, at least for now, employers are permitted to provide tax-free student loan repayment benefits to employees. In order to receive tax-free payments, such a plan must be in writing and must be offered to a non-discriminatory group of employees. In addition, the tax-free benefit must be limited to $5,250 per calendar year. Now may be the time to consider offering student loan repayment benefits to help retain and attract employees.

Automatic enrollment for employee deferrals in 401(k)/403(b) plan

Most employers offer an employer-sponsored retirement plan such as a 401(k) plan or 403(b) plan to their employees. However, the federal government and several state governments are concerned that employees are either not saving enough for retirement and/or do not have access to an employer-sponsored retirement plan. Some states are mandating the establishment of an employer-sponsored retirement plan, or mandatory participation in a state-sponsored multiple employer plan (MEP). Other states are mandating that employers who do not sponsor a 401(k) or 403(b) plan provide automatic employee payroll deductions into a state-sponsored Individual Retirement Account (IRA) type vehicle sponsored by the state. If you do not already sponsor a 401(k) or 403(b) plan you should confirm if your state has any requirements.

For those employers who do sponsor a 401(k) or 403(b) plan, you should consider implementing an automatic enrollment provision if you have not done so already. Automatic enrollment requires a certain percentage of an employee’s wages to be withheld and deposited into the 401(k) or 403(b) plan each pay period, unless the employee elects otherwise. While the current law does not require an employer to use automatic enrollment, there is pending legislation that would require an automatic enrollment provision in any new retirement plan. Even though existing plans would be grandfathered under the pending legislation, it may be worth implementing an automatic enrollment provision in the 401(k) or 403(b) plan to help and encourage employees to save for retirement. 

If you have questions about any of these or other employee benefit topics, please contact our Employee Benefits Audit team. We're here to help.

Article
Employee benefit plan updates: The Employee Retention Credit and student loan repayment programs

Read this if you want to understand the new lease accounting standard.

What is ASC 842?

ASC 842, Leases, is the new lease accounting standard issued by the Financial Accounting Standards Board (FASB). This new standard supersedes ASC 840. For entities that have not yet adopted the guidance from ASC 842, it is effective for non-public companies and private not-for-profit entities for reporting periods beginning after December 15, 2021.

ASC 842 (sometimes referred to as Topic 842 or the new lease standard) contains guidance on the accounting and financial reporting for agreements meeting the standard’s definition of a lease. The goal of the new standard is to:

  • Streamline the accounting for leases under US GAAP and better align with International Accounting Standards lease standards 
  • Enhance transparency into liabilities resulting from leasing arrangements (particularly operating lease contracts)
  • Reduce off-balance-sheet activities

What is the definition of a lease under the new standard?

ASC 842 defines a lease as “A contract, or part of a contract, that conveys the right to control the use of identified property, plant, or equipment (an identified asset) for a period of time in exchange for consideration.” 

This definition outlines four primary characteristics to consider: 1) an identified asset, 2) the right to control the use of that asset, 3) a period of time, and 4) consideration.

(For a deeper dive into what constitutes a lease, you can download the BerryDunn lease accounting guide here.) 

How will this affect your organization?

  • Lease arrangements have to be classified as finance, operating, or short-term leases. In general accounting for the lease asset and liability is as follows:

    • For finance leases, use the effective interest method to amortize the liability, and amortize the asset on a straight-line basis over the lease term. Note that this has the effect of “front-loading” the expense into the early years of the lease.

    • For operating leases (e.g., equipment and some property leases), the lease asset and liability would be amortized to achieve a straight-line expense impact for each year of the lease term. ASC topic 842 establishes the right-of-use asset model, which shifts from the risk-and-reward approach to a control-based approach. 
  • Lessees will recognize a lease liability of the present value of the future minimum lease payments on the balance sheet and a corresponding right of use asset representing their right to use the leased asset over the lease term. 
  • The present value of the lease payments is required to be measured using the discount rate implicit in the lease if its readily determinable. More likely than not it will not be readily determinable, and you would use a discount rate that equals the lessee’s current borrowing rate (i.e., what it could borrow a comparable amount for, at a comparable term, using a comparable asset as collateral).
  • It will be critical to consider the effect of the new rules on your organization’s debt covenants. All things being equal, debt to equity ratios will increase as a result of adding lease liabilities to the balance sheet. Lenders and borrowers may need to consider whether to change required debt to equity ratios as they negotiate the terms of loan agreements.

Time to implement: What do you need to do next?

The starting place for implementation is ensuring you have a complete listing of all known lease contracts for real estate property, plant, and equipment. However, since leases can be in contracts that you would not expect to have leases, such as service contracts for storage space, long-term supply agreements, and delivery service contracts, you will also need to broaden your review to more than your organization’s current lease expense accounts. 


We recommend reviewing all expense accounts to look for recurring payments, because these often have the potential to have contracts that contain a lease. Once you have a list of recurring payments, review the contracts for these payments to identify leases. If the contract meets the elements of a lease—a contract, or part of a contract, that conveys the right to control the use of identified property, plant, or equipment (an identified asset) for a period of time in exchange for consideration—your organization has a lease that should be added to your listing.

Additionally, your organization is required to consider the materiality of leases for recognition of ASC 842. There are no explicit requirements (that, of course, would make things too easy!). One approach to developing a capitalization threshold for leases (e.g., the dollar amount that determines the proper financial reporting of the asset) is to use the lesser of the following: 

  • A capitalization threshold for PP&E, including ROU assets (i.e., the threshold takes into account the effect of leased assets determined in accordance with ASC 842) 
  • A recognition threshold for liabilities that considers the effect of lease liabilities determined in accordance with ASC 842

Under this approach, if a right-of-use asset is below the established capitalization threshold, it would immediately be recognized as an expense. 

It's important to keep in mind the overall disclosure objective of 842 "which is to enable users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases". It's up to the organization to determine the level of details and emphasis needed on various disclosure requirements to satisfy the disclosure objective. With that objective in mind, significant judgment will be required to determine the level of disclosures necessary for an entity. However, simply put, the more extensive the organization's leasing activities, the more comprehensive the disclosures are expected to be. 

Don't wait, download our lease implementation organizer (Excel file) to get started today! 

Key takeaways and next steps:

  •  ASC 842 is effective for reporting periods beginning after December 15, 2021
  • Establish policies and procedures for lease accounting, including a materiality threshold for assessing leases
  • Develop a system to capture data related to lease terms, estimated lease payments, and other components of lease agreements that could affect the liability and asset being reported
  • Evaluate if bond covenants or debt limits need to be modified due to implementation of this standard
  • Determine if there are below market leases/gifts-in-kind of leased assets

If you have questions about finance or operating leases, or need help with the new standard, BerryDunn has numerous resources available below and please don’t hesitate to contact the lease accounting team. We’re here to help. 

Lease accounting resources 

Article
ASC 842 lease accounting—get started today before it's too late

Read this if you are looking to improve retention at your organization. 

Does your organization have a well-thought-out, up-to-date, and effective onboarding program for new hires? If you don’t, it may be time to start. According to research from Brandon Hall Group, organizations with a strong onboarding process: improve retention by 82% and productivity by over 70%. In addition, the report also noted that 93% of employers indicated a positive employee onboarding process was a key driver of retention.   

Why is onboarding a driver of retention? 

Research shows that an employee’s desire to stay with a company—or second guess their decision—starts minute one of their first day of employment. Employees who virtually or literally walk into an environment that has a detailed and supportive onboarding plan begin to feel a sense of belonging and dedication to the organization and are ready to make a difference.  

A successful onboarding strategy prioritizes employee engagement and supports the individual’s learning and development. Generally, an onboarding plan should be in alignment with the strategic planning efforts of the organization—and demonstrate a coordinated effort with a training and development committee to ensure relevance and accountability.  

A tactical approach to provide greater access and enhance training efforts is to create a knowledge management system where documentation, forms, and templates are readily available. In an era of information overload, highlighting and organizing the most relevant resources helps employees make timely and informed decisions. 

Organizations that prioritize the employee experience through onboarding and knowledge management empower and ultimately retain employees.  

Employers focused on retention and effective onboarding should also consider: 

  • Employee journey mapping
    Conduct a detailed review of the employee experience, from recruitment through offboarding, to identify barriers and processes that limit progress or cause challenges. 
  • Training and development assessment
    Determine education needs of current and new employees through formal and informal review, such as surveys, focus groups, and one-on-one conversations. 
  • Strategic planning
    After reviewing current skill sets, compare them with your organization’s strategic plan and vision to identify gaps in knowledge and skills that will prevent you from achieving your goals.
  • Training and development committee
    Bring together a dedicated committee of employees, including an executive sponsor, to identify and deploy training content.  
  • Develop knowledge management system
    Compile and organize your most relevant and helpful resources, training, and templates in a way that is easy to find and access. Track visitation and usage overtime. 

BerryDunn’s team of consultants are happy to assist you with evaluating your process and provide recommendations for improvements to your employee onboarding.

Article
Effective onboarding to improve employee retention 

Read this if you are working on a well-being program at your organization. 

When looking to develop or enhance well-being programs at work, many organizations don’t know where to start. A well-being survey is a smart first step to solidify your organization’s approach to supporting a thriving workforce. An effectively designed well-being survey will not only provide valuable insights to the needs of your workforce, it will also be repeatable so you can measure the success of your well-being efforts over time. Here are five tips to help you create a successful well-being survey.  

  1. Include questions about organizational culture. It is unlikely you will engage every single employee with well-being programs and benefits. Some people just like to do their own thing. However, organizational culture is something that influences everyone and is the ultimate source of empowerment for employee well-being. Including at least a couple of questions that assess how effectively your workplace culture promotes well-being will give you the broadest sense of whether you are on the right track with your well-being efforts. 
  2. Carefully consider wording. There is a big difference between the question “How well does our organization support your well-being?” and “How satisfied are you with our organization’s support for your well-being?” For instance, an organization may invest heavily in mental health, but that support may not be resonating with employees. The second question will provide clear insights into how well the organization’s well-being efforts are connecting with employee needs. 
  3. Have a strategy to promote engagement. Your survey response rate can be influenced by who sends the survey and who sends the survey reminder. While it may be logical for the survey to come from Human Resources, we suggest having the survey come from either the Chief Executive Officer or Chief Operations Officer (or equivalent). This signifies that your organization views well-being as a business strategy. Survey reminders tend to be most effective when sent from department managers. This reinforces the messaging about well-being being a business strategy and signifies commitment at all levels of leadership. 
  4. Include space for open comments. Multiple choice and basic ranking questions can help keep a survey direct and are easy to respond to. They also provide data that is easier to analyze and compare year over year. However, it’s not possible to anticipate every need with multiple choice questions, and some of the best suggestions and ideas, as well as some of the most constructive remarks, will come in the form of open commentary. 
  5. Keep it anonymous but collect some demographic data. An anonymous survey will not only result in more candid feedback, but it will also avoid inadvertently collecting personal health information that may be disclosed (particularly in open comments). Having optional questions to self-identify department, office, or work arrangement (hybrid, remote, in person) can help identify high-risk groups ('high risk' meaning those who have a low perception of their well-being and the organizational culture). Making these questions optional reduces the risk that an employee will abandon the survey due to fear of being identified based on demographic responses (e.g., an employee who is the only remote employee in their department). 

A well-designed well-being survey can serve as a launchpad for a transformational well-being initiative, especially if your organization is prepared to report and act on results. For more information on how your organization can create and deliver a well-being survey, or if you have other well-being program questions specific to your organization, please contact our Well-being consulting team. We’re here to help.

Article
Five tips for employee well-being surveys that work