Jared Sanders

Financial COVID Chaos

Shareholder, Lightheart, Sanders & Associates

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Just real quick, I want everybody to thank Oozle for putting this together. I mean, how awesome is it that we’ve been able to hear the things that we’ve had to hear? And I just appreciate their willingness to put this on and get everybody this education moment. So please, thank them in the comments, tell them how awesome they are. We’re big Oozle fans. They’re the “way cooler people than we are”.

We recognize we’re CPAs, we’re limited. We don’t take it personally.

So today, I wanted to talk about Financial COVID Chaos, the CARES act, HEERF, PPP, HEERF2, PPP2, the ARC act, the ERC. All of the junk that has been flying at us over the past year and some of the things that we’re seeing from CPA firm, from an audit perspective. I’m just trying to kind of give you a little bit of an idea of what we’re seeing out there in terms of problems.

PPP, HEERF, CARES Act

So, let’s just be honest to start off, right? I mean, most everybody is familiar with the terms of PPP, of HEERF, the CARES act. And we’re all pretty familiar that the government did a great job of getting money out and then making up the rules later. And by necessity, by design, part of it was simply trying to help as quickly as possible.

And so, on almost all of these, we got: okay, here’s going to be some money and we’re going to get you the rules as soon as we write them and to let you know what you have to do with it. And now we’re finally starting.

It’s frustrating that it’s taken almost a little over a year for some of this stuff. And some of the changes that they’ve had recently, I’ve thought I wish that I had known this back when we were advising people in the middle of the summer about what to do with some of these funds. But for some schools, there’s still an opportunity to take advantage of those.

And then we’re going to talk a little bit about some things that we’re seeing some schools kind of struggle with, try and clear up some confusion. So, I’m going to go through really quickly, the programs themselves. Hopefully, this is just a review and then some of the real quick changes.

PPP

So, the payroll protection program, that’s your PPP, designed to give you a reimbursement for your payroll and some additional expenses. When it first came out, everybody was excited, it immediately ran out of money. We all stressed and fretted about whether or not it would come back. And then they brought more. The big thing is, is that the deadline did get extended to May 31st of this year.

So, for schools, especially if you’re looking at PPP2, which has a little bit more of its restrictions in terms of revenue drop and stuff like that.

But there is still, last I checked I think yesterday, there was over a hundred billion dollars still sitting in the pot. So, we’re no longer in that frustration standpoint where there’s no money available. It’s still there.

And probably the two biggest changes with PP1 to PP2 is that PP2 requires a 25% decline in revenue for at least one quarter. So, you need to look at your first quarter of 2019 to 2020 and just see if there’s a decline in revenue. The forgiveness portion, the expenses that it covers, those are all the same.

It’s 10 weeks worth of payroll. But another big change that they gave was sole proprietors can use the gross income on line seven of your 2019 or 2020 Schedule C.

So, one of the awesome things that we’re seeing a lot of people is especially with sole proprietors. If you’ve got graduates and stuff like that, that you’re still in contact with that. They’re like, “Man, I really wish I could have gotten PPP, but it was all these hoops and stuff.”

They really expanded that self-employed approach to try and drive a lot more money down into that. And I think that’s where a lot of the funds that they thought would be taken up just haven’t because a lot of them haven’t taken advantage of that.

So, something to know if you also own a salon is that if you are a sole proprietor or even a single member LLC, that reports it on a schedule C. That was one that was left out in the dark for a long time. Mainly what we’re seeing right now is most schools, it’s easy to get forgiven and they expanded that timeframe to 24 weeks. So, just keeping your payroll to where it needs to be, where it was pre-pandemic and stuff like that.

It’s basically good free money. So, we’d just still encourage people, if you haven’t taken advantage of it and you can, there’s no reason not to. We’re seeing lots of forgiveness. That was one big concern is what kind of hoops was I going to have to go through to get that forgiveness? And we’re seeing that it’s still, and it’s still fairly easy.

A lot of it, they simplified depending on the amount that you received. If it’s less than 2 million, you can do an EZ form. If you’re not claiming people’s salaries that are over a hundred thousand and stuff like that, it’s really simple. The documentation is not overwhelming.

HEERF

All right. So, let’s talk about HEERF, which is one that I think pretty much everybody has dealt with. We had HEERF1, which was the institutional and student portion. And then we had HEERF2, which for our schools really just meant that they only received the student portion.

Probably the biggest change when they made it is that they expanded the guidance to include lost revenue. So, there’s new “frequently asked questions” that got published. I believe it was last month that they came out with it. Where for your institution portions, you could go back and you can look at your lost revenue, especially for your time period where your school was closed down, a clinic, you had fewer students coming in. A lot of schools were finding that they could qualify if they had remaining HEERF1 funds available on the institution portion. Again, it’s just institution, not student. And for our schools being all proprietary, that means that we only get to look at HEERF1 and not HEERF2.

But if you have some remaining funds there, then this is an opportunity to go back and look and see. And they gave great flexibility in their guidance that basically said, look, the law doesn’t really dictate anything as it relates to this. So, we’re going to give you some ideas. You can look at 2020 and compare it to 2019. You can do an average of 17, 18, and 19. You can do an average of 16, 17, 18, and 19.

So, a year to year comparison, a three-year average comparison or a five-year average comparison. And we’re looking at just that top line. We’re not looking at net income. We’re just looking at the top line of revenue to see if there was a reduction of revenue. And if there was, then you can claim institutional portion of your funds to be used to reimburse the school for that lost revenue.

And in terms of the calculation, again, it’s not super complicated. Obviously, anything that wasn’t allowed under HEERF programs in terms of cost principles. So, if the law says that you can’t use federal funds for something specific, you can’t just extend it into this.

But it does include tuition, these institutional charges, your clinic, and stuff like that. So, very broad and gives you a lot of leeway to really look and see what would maximize what you can actually put into it. So, documentation-wise, you’ve just got to keep track of how you actually made that calculation, which means get your financial statements, put it in a file, explain how you came to the conclusion that you did, and then you can go forward and claim that lost revenue. So that was an awesome change that came in the past month.

Unfortunately, we were all kind of scratching our heads, trying to figure out where we’re going to spend some of this institutional money. Especially for schools that are already technologically advanced with a lot of things, they didn’t have huge investments that they could put it in. This is an opportunity for them to kind of qualify and get some of their money back.

So, this is how out of date things can actually become. We wrote these slides and then they released the audit guide. So, it’s probably my fault, you can blame me for writing a slide saying that audit requirements haven’t been released. And then they released the audit guide.

But here’s what we know. If you expand $500,000 in a fiscal year, so that is no matter the source, institution or student, HEERF1 or HEERF2, and you’re looking at your fiscal year. So, if you have a December year end, you’re going to look at the entirety of 2020. If you spent more than $500,000, or if you’re on HCM1 or HCM2, then you’re going to be required to submit a compliance audit, covering the administration of the HEERF grant program.

If you’re less than 500 and you’re not on HCM1 or 2, then you’re good to go. You’ll still have to keep the records and you’ll need to make those exempt. If the department was to ever come in and ask you to supply that type of information, you’re not free and clear.

And from an auditor standpoint, there’s a few questions that we ask, but you don’t have to go through that whole blown audit that they had just released to us. It’s now been 20 days, but you can avoid that.

So, when they released the, “Hey, you may have this audit coming up. If you’ve spent this money” and stuff like that. One of the things that they said was, “Yeah, we’re working on a HEERF audit guide and it’s being developed, and we’ll publish it as soon as it comes out.”

Guess what? It came out March 31st. And so, we’re kind of going through all of that. I have a blog post, if you want, I can send it to you that kind of outlines it, but it’s set up very similar to the regular student financial aid audit guide.

And so, there’s a whole list of what the objective is, testing the school to see if you administered the funds the way that it should. Basically, making sure that you gave the money to who it should be, the right percent in terms of institution versus student portion. And then that you have the proper disclosures and stuff like that. So, it is available. And probably the key thing for anybody that’s over that threshold of the $500,000 is that if you have a December year end, then your HEERF audit is due July 29th. It’s 120 days from the issuance of the guide, which is July 29th.

Everybody else, if you have a different year end, it’s required to be submitted as part of your student financial aid submission. So, in your regular compliance audit. There is a specific report that your CPA has to express an opinion. I would just say that most of us that do student financial aid audits have kind of digested this. We’ve thrown it up a little bit, but we’re going to implement it and move on and try and help everybody get to it in terms of identifying which clients need it and then getting it submitted with your audit.

It goes through the same process, gets submitted with EZ audit. They have not given us any guidance about who’s going to review it or what they’re going to do with it. That’s kind of the big question mark for all of us is just in terms of that aspect of things, if there’s a finding or anything like that.

But other than that, it’s very similar to the student financial aid audit.

R2T4 Retention

So, the last thing that we wanted to talk about, and this is something that we’re seeing in a lot of our audits with our schools, that seems to be a little bit of confusion is the return to Title IV retention. So, for a lot of schools, as you know, when the CARES act was passed, it gave the schools the ability to retain your R2T4 funds. So, you still had to do the calculation and go through the whole process to calculate how much would have gone back to the department, but then you could keep those funds if one of two things happened.

So, the first one is obviously if the school changed its delivery or housing or campus facilities were closed, or there was an interruption in instruction, which that was pretty much everybody. And that applies to the payment periods. So, when we all kind of had to step back and pause and say, “How can we deliver this education to students if we can’t have them come into our school”, rolling out that education.

So, in the time that things stopped all the way to the point where you administered or rolled out your online education or your distance education, those payment periods that the students started, in that aspect, if they dropped in that payment period after the fact, it’s just assumed that it’s a result of COVID and the change of education.

Now, the other aspect of it is if a student has a specific reason. So, let’s say you’ve rolled out and you’ve made your changes, and you implemented that super quick, you’ve added all of half of last year. You have a student that comes to you today and says, “I got to drop my babysitter’s got COVID, they’re going to be out”, “I’ve got COVID” or whatever.

If they have a direct or indirect tie to COVID as the reason that they’re dropping, then you’re still technically allowed to take advantage of retaining the Title IV. So, you have to perform the R2T4 calculation. That’s something we’re seeing schools failing to actually do the calculation. They just said, “Ah, student dropped, I’m keeping the money, I don’t need to calculate it.”

No, you have to do the calculation. You are allowed to disburse funds as a post withdrawal disbursement if you have funds available. There’s no adjustment to COD as a result of the withdrawal and no adjustments to the amount of Title IV aid credit to the student ledger.

So, the main thing to remember again, is that you have to determine: first, if you’re doing a blanket application of return to Title IV retention. From a school’s perspective, it’s only if the school changed the delivery of its education during the period, that you can assume it. If not, you have to get the student in writing attesting to the reason that they withdrew was a result of COVID.

Now, there are some allowable circumstances that they gave examples such as illness of a family member or the student, that they got to drop to become a caregiver or a first responder, childcare, economic hardship.

I mean, they’re pretty broad in the explanation, but you do have to make sure that it’s specifically documented, and it can be provided by a family member, if you deem that person as reliable. It’s just document, document, document, document documentation.

Retention Reporting

The other thing is, is the retention reporting. So, this is another part that we’re seeing a lot of schools fail to actually implement. So, you have to keep a report specific to each student where funds were retained. And that includes in that report, identifying information of the student, payment period begin and end dates, the amount of student financial aid the student received, and the amount of student financial aid that the institution has not returned.

So, you need to be keeping track of those additional amounts because they are going to require you to report it. Now, you’re supposed to go in and report in COD, there’s a Coronavirus indicator.

Now one of the key things that they emphasize over and over again is when you mark that indicator, you cannot make changes to the record. So, you make sure that everything is correct in COD before you mark it, because it will lockdown that student and you can’t go in and fix anything after that.

And the other thing is to make sure, that also gives the student, then, credit in terms of getting that money taken off in terms of Pell Grant allowance, lifetime learning limitations, and stuff like that.

So, it’s important for them to get the recognition that those are funds that they’re not going to be held accountable. And then we’ll see eventually a COD R2T4 tool that’ll allow you to then upload or to submit that information to the department so that they can see that.

Other than that, I know it was a quick 20 minutes, but again, I’m grateful for Oozle for putting this on. And if you have any questions about any of the specific topics or something like that, any of the different ones, you’ve got my email address there. We love to talk to people, whether you’re a client or not, you got questions? We’ll give you our dumb accounting answers as best as we can.