After weeks of awaiting official guidance, AICPA Government Audit Quality Center (GAQC) released Alert No. 404 noting that Paycheck Protection Program (PPP) Loans made to not-for-profit organizations would not be subject to single audit under the Uniform Guidance. However, loans made to not-for-profit organizations under the EIDL program would be considered federal financial assistance and are subject to the Uniform Guidance single audit requirements.
The PPP loans and Economic Injury Disaster Loans (EIDLs) have been a financial lifeline for countless businesses during the pandemic, including both for-profit and nonprofit organizations. The distinction is based on how the two loans are distributed. Because the PPP loans are provided through local financial institutions, they are not considered federal financial assistance. However, loans from the EIDL program are disbursed directly from the SBA and are therefore regarded as federal financial assistance and are subject to Single Audit.
Nonprofits that receive an EIDL loan should include the total loan amount when calculating whether a Single Audit is required. If the amount of the EIDL loan in combination with other federal funds exceeds $750,000 in their fiscal year, the nonprofit must complete a Single Audit. However, this new guidance confirms that nonprofits will not need to include any PPP loan amounts in this calculation.
Although PPP loans will not impact a nonprofit’s subjectivity to a Single Audit, these loans do pose other complex issues for companies who receive the funds, especially in regard to PPP Loan Forgiveness. Perhaps the most attractive feature of Paycheck Protection Program (PPP) loans is the fact that they are eligible for “forgiveness.” Which releases the borrower from the obligation of repaying the balance. In other words, borrowers can get up to 2.5 times their monthly payroll costs without paying a cent.
However, “free” money is seldom unconditional. The Small Business Administration HAS NOT provided the actual application to be used for loan forgiveness. With that said, keeping clear records and documentation of transactions will be paramount and don’t be surprised if there’s confusion at the beginning of the forgiveness process.
Update On Single Audit Extensions
Extensions to complete and submit the Single Audit package are currently allowed up to six months beyond the normal due date for filers with fiscal year-ends through June 30, 2020. (See Filing Extension Table). This is applicable to recipients and sub-recipients affected by the loss of operational capacity or increased cost due to the COVID-19 crisis, and have not filed their single audits with the Federal Audit Clearinghouse (FAC) as of March 19, 2020.
Recipients are not required to seek approval for the extension but should maintain documentation for the reason delaying filing (for example what the loss of operations are and how the award is affected).
For recipients and sub-recipients with year-ends through June 30, 2020 who are subject to a single audit and forced into a delay for their submission of their reporting package, we strongly encourage you to work with your audit team to discuss what criteria and support should be maintained for documentation purposes.
Next Steps for PPP Loan Recipients
PPP loan recipients should continue to follow industry alerts and future guidance to be provided by the SBA, as this is an ever-changing and continuously updated program. There are many things in the forgiveness process that still require clarification from the government; check regularly for updates and always confirm with your lender for their specific requirements.
The following three steps will keep your nonprofit ahead of the curve:
Step 1: Keep track of your spending during your eight-week loan term.
During the eight-week period after your loan is disbursed, track everything you spend your PPP funds on. Make sure the items map back to the list of forgivable expenses, and track how much you’re spending on non-payroll costs to get an idea of how much of your loan will be eligible for forgiveness (try to keep it under 25% of the full amount you spend).
Step 2: Prepare your payroll report.
At the end of the eight-week period, use your federal and state payroll tax filings to prepare a report of all your eligible payroll expenses, including employer contributions to health plan premiums and unemployment insurance. Your financial advisor or payroll provider can help you prepare this report.
Step 3: Gather documentation for non-payroll expenses.
Collect proof of payment for your qualifying non-payroll expenses, like rent, mortgage interest, utility payments, owner compensation, and so on.
McConnell & Jones’ is available to assist clients through the crisis, and the firm will distribute alerts and provide updates on the firm’s COVID-19 Response page as they develop.
Contact our team today with your questions – we’re ready to help.
Senior Assurance Manager
Public Assurance Services
Public Assurance Services