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Team Welter

Nov 17
0

The Paycheck Protection Program and Loan Forgiveness: What You Need to Know

By | Loan | No Comments

The Paycheck Protection Program (PPP), administered by the Small Business Association through the auspices of the federal government, offered relief for organizations and employees hit hard by the coronavirus pandemic. The program was meant to ease the financial shock for many employees who found themselves out of work or working for significantly reduced pay, as businesses adjusted to the new mandates to keep employees, customers, and others safe during the pandemic.

The PPP ended on August 8, 2020. If your organization participated in the program, here’s are four important highlights from the newly released Frequency Asked Questions issued by the SBA.

General Loan Forgiveness

Loan forgiveness was a part of the PPP, and people naturally have questions about it. The FAQs clarified that those who worked as sole proprietors, independent contractors, or self-employed individuals and who had no employees at the time of their PPP loan application (and did not include any employee salaries in the computation of average monthly payroll in the Borrower Application Form) automatically qualify for PPP Loan Forgiveness. But, to receive loan forgiveness, they must complete Form 3508EZ and submit it.

Loan Forgiveness and Payroll Costs

Are you wondering, as the owner of a nonprofit, how to calculate the amount of owner compensation as part of the PPP? It seems that many others had questions about this, too, as it appeared in several of the FAQs in the document.

The confusion stems from the fact that the original wording of the PPP used the term owner but never defined it enough. To ensure clarity, the SBA defined an owner-employee as someone who is both an owner and an employee of a C corporation. They also provided examples for owners of C and S corporations, self-employed Schedule C (or Schedule F) filers, general partners, and LLC owners.

Additionally, further clarification is provided for partial pay periods, group health care benefits, and two questions related to payroll costs that were incurred or paid outside of the eight-week or 24-week covered periods.

Loan Forgiveness and Non-Payroll Costs

Section 6 of the FAQs provide further guidelines on loan forgiveness and non-payroll costs. These refer to payments of transportation utility fees assessed by state and local governments. Also addressed are two questions related to nonpayroll costs that were incurred or paid outside of the eight-week or 24-week covered periods. Lastly,  the Alternative Payroll Covered Period for payroll costs does not apply to nonpayroll costs.

Loan Forgiveness Reductions

Do you have questions about how to calculate the reduction in the loan forgiveness amount arising from reductions in employee salary or hourly wage? If so, section 4 provides three examples to guide you.

The AICPA anticipates providing more guidelines, clarification, and direction to assist with PPP program compliance in its next Town Hall. For more information, visit the AICPA Town Hall Events page.

Will the PPP Ever Be Renewed?

It remains unknown if the PPP will ever be renewed. With this being a presidential election year, Congress may wish to wait until the direction for 2021 is set by the outcome of the election. If it is renewed, we’ll share details here.

Welter Consulting

Welter Consulting bridges people and technology together for effective solutions for nonprofit organizations. We offer software and services that can help you with your accounting needs. Please contact Welter Consulting at 206-605-3113 for more information.

Nov 10
0

What Will Auditors Look for This Year?

By | Audit | No Comments

Nonprofits on a calendar-based financial year are already looking ahead to their fiscal year-end and follow-up audit. This year offers numerous challenges for both nonprofits and the auditors who review their data. What will auditors look for this year? What red flags should both nonprofits and auditors look for?

Changing the Way We Work

The coronavirus pandemic arrived in the United States sometime in mid-winter, forcing the closure of many businesses and stay-at-home orders in many states. Nonprofits that did not have work-from-home policies found themselves scrambling to put into place policies and processes that would enable their employees and volunteers to stay safe and healthy while still serving their constituents.

Although everyone hopes for a vaccine or reliable treatment for the novel coronavirus, such things take time.  As the pharmaceutical industry races to find both, we must deal with the reality that social distancing remains the norm for the time being. And how we work, fundraise, and serve constituents has changed too.

Several changes in the way nonprofits work may impact their 2020 audits. Each one has different ramifications and considerations.

Risk of Fraud

Auditors will be especially alert to the risk of fraud this year. For-profit corporations run the risk of fake journal entries to artificially inflate income levels, and nonprofits aren’t immune to such temptations. Some may be tempted to add to their revenues to please boards and members who want to know that their favorite nonprofit is still viable.

Internal Controls

Internal controls that were established pre-COVID 19 focused on office-based controls to manage petty cash, checks, deposits, and similar transactions. With many people working from home and offices maintaining limited in-person staff, such controls may have been ignored or relaxed to keep operations running.

It’s not just lower-level employees who may have been tempted by relaxed internal controls. If accounting staff were unable to access systems remotely, managers may have loosened security settings on various corporate programs. Doing so, they’ve opened the door for themselves or other managers to access what might have formerly been tightly controlled financial data.

Noncompliance

Noncompliance with laws and regulations (NOCLAR) always remains a concern of nonprofit organizations. Many federal and state agencies enacted temporary changes to rules or special stimulus packages to assist organizations during the pandemic. 

But nothing is free, and the money received from stimulus packages and other aid related to the pandemic comes with strings attached. Such programs often require specific documentation to ensure compliance with the rules surrounding them. Now is the time to re-read the fine print on any of the packages or other aid received and ensure that your organization has fulfilled its compliance obligations.

Estimates Associated with Revenue Recognition

Lastly, an area of concern for both auditors and accountants is estimates associated with revenue recognition.  FASB ASC Topic 606, Revenue From Contracts With Customers, is in its first year of implementation and any change to revenue recognition may cause an opportunity for mistakes. With this year being in such turmoil, the risk of mistakes is higher. Accountants must review their revenue recognition approach and policies and correct errors quickly.

Auditors May Work Remotely

Auditors prefer to work on-site but that may not be possible during the next few months as the race for treatment or vaccine continues. Prepare now for your auditors to handle a remote audit  by ensuring that all of the data in your system is updated and accessible with the proper permissions to the auditors.

A cloud-based accounting system such as Abila MIP can make it much easier to work with auditors as well as handle daily accounting and reporting needs for nonprofits. 

Please contact Welter Consulting at 206-605-3113 for more information.

Oct 27
0

FASB Updates Gifts-in-Kind Standards

By | Accounting, FASB, Nonprofit | No Comments

FASB introduced accounting standards update 2020-07, Presentation and Disclosure by Not-for-Profit Entities for Contributed Nonfinancial Assets, to clarify the existing standard around gifts-in-kind. Such gifts may include assets like land, buildings, and equipment, or the use of such assets. Other items included in this category are utilities, materials and supplies, such as food, clothing, or pharmaceuticals, intangible assets, and recognized contributed services.

The standard must be applied retrospectively and organizations may choose to adopt the updated standard earlier than the effective date. The amendments take effect for annual reporting starting after June 15, 2021, and interim periods within annual reporting periods beginning after June 15, 2022.

What Is the Updated Requirement?

The newly updated standard requires nonprofit organizations to show contributed nonfinancial assets as a separate line item in the statement of activities. This should be kept separate from contributions of cash or other financial assets. Nonprofits are now required under the standard to disclose contributed nonfinancial assets within the statement of activities. These should be disaggregated by category. The categories should depict the type of nonfinancial asset being presented.

What Must Nonprofits Disclose?

Additional details should be disclosed around the statement of gifts-in-kind. Nonprofits should prepare statements that include the following disclosures:

  • Whether the asset was used or monetized during the reporting period.
  • If the asset was used, include a description of how the items were used and for which programs run by the nonprofit.
  • A policy statement from the nonprofit about how gifts can or cannot be monetized rather than using the gifts-in-kind.
  • A full description of any donor-imposed restrictions on how the gift may be used or monetized.
  • The valuation techniques used to assess the gift’s value upon receipt. For guidance, see
  • If the nonprofit is prohibited by a donor-imposed restriction on selling or using the item, the market by which fair value was estimated.

Challenges Involving Gifts-in-Kind

Accurately and clearly accounting for gifts-in-kind has always been challenging, but it can be particularly challenging for some nonprofits, especially if they aren’t used to receiving gifts-in-kind. The previously cited FASB Topic 820 offers help but common sense, previous experience, and prudent judgment must guide a nonprofit as they value items used for programs.

Some items are easier to value than others. An automobile donated to a nonprofit can be valued by using the Kelly Blue Book Value. But what about a horse or pony donated to an equine therapy program? Here, the marketplace where the animal might be sold offers some insight. Similar horses sold in the equine therapy program’s service area may be used as a basis for judging the value of the donated animal.

Some watchdog groups view gifts-in-kind differently than other donations. Because there is so much leeway in how such gifts can be valued, nonprofit accounting professionals must keep detailed records and notes of how values are obtained and reported.

Another consideration is that there may be donor or legal restrictions on gifts. A donor may choose to restrict a gift so that it cannot be sold or they may have specific conditions around the use of the gift. These conditions must be adhered to in order to be compliant with the terms of the gift.

Lastly, gifts are sometimes purchased at below market value by the nonprofit from a donor. How you account for this varies but should be considered as part of the gifts-in-kind guidelines within your nonprofit organization. You may need to establish policies around GIK so that such situations are treated consistently over time.

Gifts-in-kind can be a valuable addition to your nonprofit. Accounting for them clearly and consistently enables you to welcome them when donors step up with generous gifts.

Welter Consulting

Welter Consulting bridges people and technology together for effective solutions for nonprofit organizations. We offer software and services that can help you with your accounting needs. Please contact Welter Consulting at 206-605-3113 for more information.

Oct 20
0

FASB New Cloud Computing Standard Reduces Complexity

By | Cloud, FASB | No Comments

Cloud computing offers unprecedented convenience and adaptability, especially now with so many organizations encouraging remote working arrangements for employees. With cloud computing, your team logs into the organization’s systems from any internet-connected computer. Data stored on the cloud offers excellent security and backup protection as well as the convenience of accessibility.

FASB Offers New Cloud Computing Standard

FASB announced another new standard on cloud computing costs associated with a service agreement. This standard is effective for public business entities in fiscal years beginning on or after December 15, 2019, and will take effect for all other entities for reporting periods beginning after December 15, 2020.

Accounting Standards Update No. 2018-15, Intangibles — Goodwill and Other — Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Service Arrangement That Is a Service Contract has a very long and complex title for a standard intended to reduce complexity.

The standard now aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement. The hosting arrangement must be a service contract. The requirements are for capitalizing the implementation costs incurred to develop, or obtain, software and hosting arrangements that include an internal-use software license. Note, however, that the amendment doesn’t affect accounting for the service element of a hosting arrangement if it is in a service contract.

Before this clarification, there were two different capitalization models. Each model depended on whether the item purchased was a service agreement or an asset. However, cloud computing models weren’t included in the 2015-issued standards. This update clarifies how to account for cloud computing adoption, a popular method of software adoption.

Hybrid Solutions Require Close Accounting Attention

Another challenge that many organizations face is accounting for hybrid cloud models. Hybrid models may include both cloud-based and site-based elements in a software solution. If it’s both, how should it be accounted for?

Companies must assess which portion of the costs are internal-use and which are considered part of a service agreement. The focus should be on identifying costs and properly allocating them to the correct item.

Potential Advantages from the Update

There are some potential advantages from the FASB update, too. One advantage is the deferral aspects of the costs that qualify. EBITDA and some balance sheet metrics may be impacted by the deferral.

The new standard also aligns the balance sheet and income statement in the aggregate for all types of software. It adds consistency and comparability which help accountants provide clear financial reports.

Getting to the Right Answer

Clarity and consistency are both vital to accounting metrics, with management involved in policy decisions regarding IT projects. Deciding whether or not to adopt a hybrid cloud model, pure cloud, or site-based solution is a decision that requires time and care. Each organization must weigh the pros and cons of various products and solutions, including the financial and accounting ramifications, and determine what is best for their needs.

The best method of determining new software for an organization is to include representatives from each department on the decision team. This includes members from finance and accounting who, together with IT, marketing, sales, and management must decide which solution meets the organization’s needs the best. By understanding the financial ramifications of adopting new software, the finance team can provide an informed opinion about the best choice from an accounting and financial perspective.

Welter Consulting

Welter Consulting bridges people and technology together for effective solutions for nonprofit organizations. We offer software and services that can help you with your accounting needs. Please contact Welter Consulting at 206-605-3113 for more information.