Three steps to ace the new

not-for-profit

reporting standard

Read this if you are in administration at a college or university.

Colleges and universities have been working around the clock to convert their in-person academic programming to online learning and to quickly disburse grant funding to students in line with broad eligibility requirements, all while adjusting to their own new work environments. In the search for funding in a time when many institutions are refunding student payments at unexpected and unprecedented levels, many institutions have found themselves ineligible for the Payroll Protection Program (PPP) offered under the CARES Act if the federal work study students were included in the employee count. In a welcome change, a recent interim final rule issued by the US Small Business Administration (SBA) has been released that will change the eligibility criteria for the emergency relief offered under the PPP. One of the most notable changes in the interim rule will allow colleges and universities to exclude federal work study students in determining their eligibility. 

Student workers have historically counted as employees under SBA programs. This temporary change would provide relief for many small institutions, whose federal work study programs would otherwise drive up their employment pool over the 500 employee threshold and exclude them from participation in the PPP. While federal work study positions fill important roles throughout many campus facilities, this interim final rule recognizes the primary function of a federal work study program is to provide financial aid for students attending school and is incidental to the role of the student on campus. As expected, as these positions are mostly federally funded, the interim final rule excludes these expenditures in determining the available loan amount under the PPP.

These changes are consistent with other areas of existing federal law, as noted in the interim final rule, these workers are already generally exempt from other federal employment requirements, like Federal Unemployment taxes. In order to allow for swift action, the interim final rule is effective immediately upon posting to the federal register.

We’re here to help.
For more information, or if you have questions about your specific situation, please contact the higher education consulting team.

Editor's note: Read this if you are a leader in higher education.

The Department of Education (ED) has released the first round of guidance to colleges and universities, with more detail to begin issuing much-needed emergency funding grants to students from the Higher Education Emergency Relief Fund (HEERF), provided as part of the CARES Act.

The guidance clarifies a variety of questions about the portion of the funding to be used for emergency financial aid grants to students, most notably:

• These funds cannot be used to fund room and board refunds.
• These funds cannot be used to cover overdue student bills at the institution.
• Only students eligible to participate in Title IV programs may receive emergency financial aid grants. Students who have not filed a FAFSA but who are eligible to file a FAFSA may receive emergency financial aid grants.

A broader summary from NASFAA can be found here.

While not specifically addressed in this guidance, the HEERF has been provided a CFDA number which leads our team to believe there is a good likelihood these funds will be included in some fashion under the Uniform Guidance compliance audits. We urge schools to retain adequate documentation from their decision making process to allow for a compliance audit, should that be required. We anticipate additional guidance on the HEERF will be forthcoming as schools begin to award the grants to students.

Questions?
Please contact Renee Bishop, Sarah Belliveau, or Mark LaPrade. We’re here to help.

As resources are released to help higher education institutions navigate the rapidly changing landscape, we will add important links and information to this blog post:

Industry resources:
US Department of Education (ED)

• COVID-19 information and resources for schools and school personnel
• FAQs related to COVID-19
• Guidance for interruptions of study related to COVID-19

Guidance for colleges:

• How might colleges benefit from the coronavirus stimulus package?
• Update from ED on CARES Act grants to students

Guidance on leases:
FASB and GASB news: Postponement of the lease accounting standards

We are here to help
Please contact the BerryDunn higher education team if you have any questions, or would like to discuss your specific situation.

Editor's note: read this if you are a leader in higher education. 

The Department of Education’s Office of Postsecondary Education posted an Electronic Announcement on April 3, 2020, to provide an update to the policy and operational guidance issued in March as a result of the COVID-19 pandemic national emergency. 

In addition to extending the March 5, 2020 guidance to apply to payment periods or terms beginning between March 5, 2020 and June 1, 2020, the Department has confirmed the temporary closure will not result in loss of institutional eligibility or participation. A few other changes to note:

• Leaves of absence due to COVID-19-related concerns or limitations (such as interruption of a travel-abroad program) can be requested after the date the leave has begun.
• Updates to the academic calendar requirements will allow institutions to offer courses on a schedule that would otherwise cause the program to be considered a non-standard term if it allows students to complete the term.
• Calculated expected family contribution amounts will exclude from income any grants or low-interest loans received by victims of an emergency from a federal or state entity as part of the needs analysis.

One trend that continues to permeate the Department’s guidance is for institutions to document, as contemporaneously as possible, actions taken as a result of COVID-19 (including professional judgment decisions, on a case-by-case basis). 

The Department will be issuing more guidance on the impact of the CARES Act on R2T4 calculations, satisfactory academic progress requirements, the extension of the single audit by the Office of Management and Budget, and the potential impact to future FISAP filings. We highly recommend you read the full announcement as it outlines a wide variety of important details. 

Questions? Please contact Renee Bishop, Sarah Belliveau, or Mark LaPrade. We’re here to help.

Not-for-profit board members need to wear many hats for the organization they serve. Every board member begins their term with a different set of skills, often chosen specifically for those unique abilities. As board members, we often assist the organization in raising money and as such, it is important for all members of the board to be fluent in the language of fundraising. Here are some basic definitions you need to know, and the differences between them.

Gifts with donor restriction

While many organizations can use all donations for their operating costs, many donors prefer to specify how―or when―they can use the donation. Gift restrictions come in several forms:

1.    Purpose-restricted gifts are, as their name implies, for a specific use. These can be in response to a request from your organization for that specific purpose or the donor can indicate its purpose when they make the gift. Consider how you solicit gifts from donors to be sure you don’t inadvertently apply restrictions. Not all gifts need to (or even should) be accepted by an organization, so take care in considering if specific restrictions are in line with your mission. 

2.    Time-restricted gifts can come with or without a restricted purpose. You can treat gifts for future periods as revenue today, though the funds would be considered restricted for use until the time restrictions have lapsed. These are often in the form of pledges of gifts for the future, but can also be actual donations provided today for use in coming years.

3.    Some donors prefer the earnings of their gift be available for use, while their actual donation be held in perpetuity. These are often in the form of endowments and specific restrictions may or may not be placed by the donor on the endowment’s earnings. Laws can differ from state-to-state for the treatment of those earnings, but your investment policy should govern the spending from these earnings.

The bottom line? Restricted-purpose gifts must be used for that restricted purpose.

Gifts without restriction are always welcome by organizations. The board has the ability to direct the spending of these gifts, and may designate funds for a future purpose, but unlike gifts with donor restrictions, the board does have the discretion to change their own designations.

Whether raising money or reviewing financial information, understanding fundraising language is key for board members to make the most out of donations. See A CPA’s guide to starting a capital campaign and Accounting 101 for development directors blogs for more information. Have questions or want to learn more? Please contact Emily Parker or Sarah Belliveau.

With the wind down of the Federal Perkins Loan Program and announcement that the Federal Capital Contribution (FCC) (the federal funds contributed to the loan program over time) will begin to be repaid, higher education institutions must now decide how to handle these outstanding loans. The Department of Education’s (DOE)’s plans to recover their FCC (or “distribution of assets”) in the coming 2018-19 year can be found here, with the Fiscal Operations Report and Application to Participate (FISAP) playing a crucial role in the close-out excess cash calculation. Colleges and universities are now faced with two options:

1. Continue servicing their loans, refunding future FCC excess cash as loans are repaid
2. Assigning loans back to the DOE (subject to certain requirements)

Colleges and universities have been evaluating these options since the decision was made to not renew the loan program. There are many considerations when deciding which path to choose:

• Continuing to service loans has the disadvantage of ongoing administrative costs. While there is potential an administrative cost allowance could be paid to institutions that continue to service loans in the future, legislation would need to be enacted for this to occur.
• In assigning loans back to the DOE, the institution will lose any Institutional Capital Contribution (ICC).  It is important to note the decision of whether or not to assign loans has not reached “now or never” status. You can assign loans your institution continues to service to the DOE in the future.

NACUBO recently published advisory guidance on the Perkins Loan Program close-out. This guidance provides a broader look at the close-out process, and explores the ramifications of how the two options above can impact alumni relations. The guidance also provides a useful cost/benefit calculation template and sample accounting entries for the close-out process.

Need help or have additional questions? Our experience with Perkins Loan liquidation/closeout can help as you plot a course through the Perkins wind down.

NEW UPDATE October 2017:

The Federal Perkins Loan Program expiration date has passed without extension and now the countdown is on for the program wind-down. On October 6, the Department of Education issued a Dear Colleague Letter, GEN-17-10, which provides important wind-down information and indicates the Department will begin collecting the Federal share of institutions’ Perkins Loan Revolving Funds following the submission of the 2019-2020 FISAP (due October 1, 2018) using a similar process to the Excess Liquid Capital currently in place under HEA section 466(c). The Department of Education has promised more information on this process ahead of the October 2018 deadline.

Institutions should be reviewing their portfolios to determine if they will choose to assign their Perkins Loans to the Department or continue servicing their portfolio. Once the loans are assigned, institutions lose all rights to future loan collections, including their institutional share.

Loans that are not assigned to the department should continue to be serviced under Perkins Loan Program regulations until all loans are paid in full, fully retired or assigned to the Department. The process of requiring the distribution of assets from the Perkins Loan Revolving Fund will continue each year based on the annual submission of the FISAP, until all of the Perkins Loans held by the institution have been paid in full, fully retired or assigned to the Department of Education.

An administrative cost allowance cannot be charged against the Perkins Loan Revolving Fund after June 30, 2018.

For those considering liquidation and assignment, the Assignment and Liquidation Guide provides step-by-step instructions through the process, including the required a Perkins closeout audit. We are experienced with the Perkins closeout and stand ready to assist.
 

NEW UPDATE March 30, 2016: 

A new combined Federal Perkins Loan Assignment and Liquidation Guide has been posted. You can see the announcement and links to the updated guide here.

The Federal Perkins Loan Program has expired, effective October 1. While guidance has not yet been issued by the Department of Education in response to program’s expiration, there is a published process for institutions to follow to liquidate a Perkins Loan Revolving Fund.

We'll keep you informed as guidance is issued

BerryDunn’s Higher Education experts are monitoring the situation and assessing the implications for colleges and universities and their loan recipients with outstanding balances.

Need help or have additional questions?

Our experience with Perkins loan liquidation/closeout audits can be of great help to you as you navigate the complexities of closing your Perkins loans. Feel free to contact Renee Bishop, Emily Parker, Mark LaPrade or any of our Higher Education experts.

While GASB has been talking about split-interest agreements for a long time (the proposal first released in June of 2015, with GASB Statement No. 81, Irrevocable Split-Interest Agreements released in March of 2016), time is quickly running out for a well-planned implementation. With the effective date looming on the horizon, (statement effective for periods beginning after December 15, 2016 unless early adopted), now is the time to start gathering needed information to record existing agreements under GASB 81.

We have learned from GASB’s not-for-profit FASB cousins that irrevocable agreements are rarely where they should be: in the hands of financial professionals. Compiling these agreements will require participation from many stakeholders. Your finance team will likely have to provide some education to avoid a great deal of confusion when asking the “do we have any irrevocable split-interest agreements?” question.

So, where do you start?

1. Have you been tracking this information right along, nicely documented in a folder by your desk? Great! Do a quick check of others in your organization to be sure your file is complete and skip steps 2-5.
    
2. Dig into your general ledger. Have you been receiving regular distributions from a trust? Some of these trust agreements pay out on a quarterly or annual basis and your accounting staff should be able to identify these payors. It may require a quick call to the administrator for the trust agreement to be sure the agreement qualifies under GASB 81.
    
3. Look to your fundraising professionals. Development departments like to keep track of all types of donations. It helps to quantify their good fundraising work. Be clear about what you need from them. Remember, irrevocable split-interest agreements, often trusts or other legally enforceable agreements, are agreements wherein a donor irrevocably transfers resources to a third party to hold for the benefit of the government and at least one other beneficiary —the “split” in “split-interest agreement”!
    
4. Keep talking to your fundraising professionals. Many of the split-interest agreements we find are very old, often created well before your current development software was put into place. Do you have old files that track this kind of information? It may require some digging in the paper files. Remember those?
    
5. All hands on deck. While the finance and fundraising teams are scouring their records, look to others in the organization that might have record of these types of agreements. You know who holds the keys to historical knowledge at your organization, so be sure to include them in your search.

Once the finance department has collected all of the agreements, take one more look to be sure they meet the requirements of GASB 81.“Are they really irrevocable? Or do we just hope they are?” Then you can get down to the business of accounting for them. If you have questions about the accounting for these agreements, please contact me. I would love to chat. And that is irrevocable.

With the implementation of GASB 72 now in full force, GASB organizations are hard at work drafting their new fair value disclosures. The addition of a fair value hierarchy table in the footnotes will add a bit more thickness to a likely already hefty financial package. With this added material comes valuable information for many financial statement users, including a much better explanation of the valuation approach of assets and liabilities reported at fair value.

Since GASB 72 (formally Fair Value Measurement and Application, effective for financial statement periods beginning after June 15, 2015) comes a few years after a similar FASB implementation, most investment professionals have dealt with the growing pains of the FASB implementation, and are well poised to provide the information necessary for the new fair value disclosures.

However, there are a few other things we have learned from the FASB implementation that can be shared with the GASB financial statement preparers:

• The unit of account is a big deal. While investments held by organizations may be specific stocks regularly traded on the open market (here’s a tip: these are level 1); there are other investment vehicles where an organization’s investment share represents a portion of a fund that holds all kinds of other investments (level 1? Maybe, maybe not – you will need to dig deeper). The good news is, with these kinds of investments, the organization is disclosing the level within the fair value hierarchy of their investment - the share of the fund. This is not the same as the level of the investments held within the fund. This is an important distinction and should result in much less time and effort in determining the appropriate level for an investment. GASB 72 uses the example of a mutual fund. An organization owns a share of the mutual fund, not the underlying investments, therefore the disclosure requirement is for the share of the mutual fund, not the underlying assets.
• GASB 72 requires investments measured at net asset value to be reconciling items to the fair value disclosure, but does not require these assets to be listed by level in the table (a recent change to the FASB). Further, a roll forward of level 3 items from year to year was also excluded.
   
• If you have heard of GASB 72, then likely you have heard of the three levels. The required disclosure includes three categories of valuation to be disclosed (aptly named level 1, level 2 and level 3). With each level, comes more involvement (or even, difficulty) in determining the fair value that is recorded. The new disclosure will make it clearer to the users of the financial statements how fair value is being measured.
   
• GASB 72 does provide some guidance in determining fair value through the use of one or more of the following valuation approaches: market approach, cost approach, or the income approach. GASB 72 discusses each of these separately, but remember there can be more than one approach, and not all items are measured equally.
• When you think about fair value, don’t focus solely on the investments, or even only on the assets. Liabilities are in there too! Think of measuring a warranty liability, for example.

We have the advantage of hindsight after the FASB implementation. I have great hope, that as with FASB, after the initial pain of the GASB 72 implementation, once our tables are setup, and a process is in place for identifying levels, our financial statements will be much more transparent, giving us all a clearer picture of the organization.

Please contact Emily Parker if you have questions on the latest GASB updates.