COVID 19, PPP and Not-for-Profit Organizations
The coronavirus pandemic has had various effects on not-for-profits including Paycheck Protection Program (PPP) issues, budgeting issues, and even accounting challenges.
Following are some issues for not-for-profit preparers, auditors, and board members to keep in mind as their organizations work to chart their course in this challenging environment.
PPP Loan Forgiveness
Documentation is key in PPP forgiveness. The expansion of the PPP covered period from eight weeks to twenty-four weeks has relieved many not-for-profits’ concerns about getting full loan forgiveness. In fact, rather than having to include other forgivable expenses, many not-for-profits will be able to account for their full forgiveness amount with payroll costs. Documentation of payroll costs needs to be accurate and detailed to ensure the forgiveness criteria are met.
Accounting for PPP Funds
According to AICPA Technical Question and Answer guidance, a not-for-profit’s financial statement accounting for PPP funds may be accounted for by one of two methods -- forgiveness/conditional contribution or debt. Management will need to make key judgments to determine the best path to follow.
If a not-for-profit plans to pursue forgiveness, the funds may be accounted for as either debt or a conditional contribution. If a not-for-profit does not plan to request forgiveness, they should account for PPP funds as debt. Most not-for-profits are choosing the forgiveness/conditional contribution approach.
The other accounting issue is how to balance PPP funding with other grant funding sources. "Double-dipping" is not permitted. Not-for-profits will not be permitted to use PPP funds for the same expenses that are being paid with other government funds. Therefore, the tracking of expenses reported for PPP forgiveness need to be properly planned to ensure that the same payroll is not claimed as an expense in two places.
Not-for-profits with fiscal year ends of June 30, July 31, or August 31 may have more difficulty because their loan forgiveness will most likely occur in the fiscal year after the covered period. Their covered period may also span two fiscal years. It will be necessary to plan what expenses in each fiscal year will be allocated to the PPP forgiveness to ensure there is no double dipping and to minimize return of government grant funds.
Budgeting and Operations
Another area of concern is budgeting and planning for the next year. What events will happen live? What events can be held virtually? Performing arts organizations need to determine when they can anticipate live events again, whether they can have them virtually, or whether they need to be cancelled.
While determining the answers to questions like these, management should conduct scenario planning to guide their strategies for the coming months and year ahead. Some not-for profits are preparing two or three different budgets and cash flow management scenarios to be able to adapt to the changing financial environment.