by John Heveron, Jr. Principal, Heveron and Company CPAs, Rochester NY
If you received a Paycheck Protection Program (PPP) loan, your next objective is to apply for forgiveness. However, there are still several unanswered questions about forgiveness, so the wisdom is to wait until later in the year to complete the forgiveness documents.
- The expansion of the forgiveness timeframe from 8 weeks to 24 weeks means that many nonprofits will be able to receive full forgiveness with payroll only.
- There are resources to help us understand, calculate and document forgiveness:
- SBA and the Treasury provided questions and answers on PPP loans, and additional questions on PPP Loan forgiveness
- The AICPA also developed forgiveness tool https://www.pppforgivenesstool.com/.
- SBA’s questions and answers on loan forgiveness reductions give examples of the impact of salary and hourly wage reductions on the amount that can be forgiven.
- Recent updates to the forgiveness questions describe how a lender will be able to confirm the amount of any EIDL loan advance (notice advances are not repayable but do offset PPP forgivable loans). Also there is guidance for lenders on how to handle any remaining PPP loans that are not forgivable. These amounts generally get rolled into two-year or five-year loans.
There have also been some other useful insights and recommendations based on the uncertainty created by the pandemic:
- For example, how do you report the PPP loan in your internal financial statements or your year-end financial statements if you have a fiscal year-end? Assuming the forgiveness has not been approved, the options for reporting are to treat the amount as a loan or as a “conditional contribution”. Treating it as a conditional contribution means that we expect it to be forgiven but not all of the criteria for forgiveness have been met at the time of the financial statement, so the amount is recorded as a liability. Conditional contribution seems to be the preferred method.
- Expenses that are paid for with PPP funds cannot also be charged to grants. This means that if you have federal or other governmental reimbursement of expenses for your programs, you cannot claim reimbursement for payroll or other amounts paid for with PPP funds that are forgiven. This may add some accounting complexity
- Another recommendation is to prepare budgets at different levels of activity based on the likely scenarios for your organization. For example, will you be open and operating, will you be operating virtually or will there be a blend? Prepare budgets under each of these scenarios.
- There is also a suggestion to have a response prepared in case anyone questions why you took PPP funding. Some organizations were criticized for doing that and it seems wise to be prepared with an explanation.
- Another observation is the need for improved automation and document storage and retention.
- You may have heard of an issue that is raised when somebody lives in one state, and works for an organization in another state. They are generally considered employees in the state in which they are working. What happens when they start working from home? New York says that they would still be New York workers, even if they operated from home outside New York.
Nonprofit and business workers talk about meeting fatigue, so thought leaders in this area confirm that best practices include fewer meetings that are long, or large, or back-to-back.
- Microsoft Teams observed that with normal meetings there is always a little break between meetings. Virtual meetings should do the same. Best practices are to keep meetings short and small with breaks between meetings
- There were actually more one to one meetings. They facilitate mentoring and improve efficiency because project objectives can be discussed and made clearer.
- There also needs to be a proper balance between work time flexibility, and the need to collaborate among team members.
Protecting Nonprofits from Catastrophic Cash Flow Strain Act:
- This legislation was signed into law in August and it clarifies that nonprofit organizations that self-fund or self-insure their unemployment do not have to reimburse their state for 100% of the unemployment and then wait for reimbursement for 50% (which is going to be paid by the federal government under the CARES Act).