Winding down the Perkins Loan Program: "Should I stay or should I go?"

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.

As 2018 is about to come to a close, organizations with fiscal year ends after December 15, 2018, are poised to start implementing the new not-for-profit reporting standard. Here are three areas to address before the close of the fiscal year to set your organization up for a smooth and successful transition, and keep in compliance:

1. Update and approve policies—organizations need to both change certain disclosures and add new ones. The policies in place at the end of the year will be pivotal in creating the framework within which to draft these new disclosures (for example, treatment of board designations, underwater endowments, and liquidity).
2. Functional expense reporting—if you have not historically reported expenses by natural and functional classification, develop the methodology for cost allocation. If you already have a framework in place, revisit it to determine if this still fits your organization. Finally, determine where you will present this information in the financial statements.
3. Internal investment costs—be sure you have a methodology to segregate the organization’s internal investment costs such as internal staff time (remember, this is the cost to generate the income, not account for it) and consider the overall disclosure.

While the implementation of the new reporting standard will not be without cost (both internal costs and audit costs), if your organization considers this an opportunity to better tell your story, the end result will be a much more useful financial narrative. Don’t forget to include the BerryDunn implementation whitepaper in your implementation strategy.

We at BerryDunn are helping organizations gain momentum with a personal touch, through our not-for-profit reporting checkup. This checkup includes initial recast of the prior financial statements to the new format, a personalized review of the checklist to identify opportunities for success, and consideration of the footnotes to be updated. Contact me and find out how you can join the list of organizations getting ahead of the new standard.

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.

Read this if your organization, business, or institution has leases and you’ve been eagerly awaiting and planning for the implementation of the new lease standards.

Ready? Set? Not yet. As we have prepared for and experienced delays related to Financial Accounting Standards Board (FASB) Accounting Standards Codification Topic 842, Leases, we thought the time had finally come for implementation. With the challenges that COVID-19 has brought to everyone, the FASB recognizes the significant impact COVID-19 has brought to commercial businesses and not-for-profits and is proposing a one-year delay in implementation, as described in this article posted to the Journal of Accountancy: FASB effective date delay proposals to include private company lease accounting.

But what about lease concessions? We all recognize many lessors are making concessions due to the pandemic. Under current guidance in Topics 840 and 842, changes to lease contracts that were not included in the original lease are generally accounted for as lease modifications and, therefore, a separate contract. This would require remeasurement of the new lease contract and related right-of-use asset. FASB recognized this issue and has published a FASB Staff Questions and Answers (Q&A) Document,  Topic 842 and Topic 840: Accounting for Lease Concessions Related to the Effects of the COVID-19 Pandemic. Under this new guidance, if lease concessions are made relating to COVID-19, entities do not need to analyze each contract to determine if a new contract has been entered into, and will have the option to apply, or not to apply, the lease modification provisions of Topics 840 and 842.

Implementation of the lease accounting standard will most likely be delayed for Governmental Accounting Standards Board (GASB) entities as well. On April 15, 2020, the GASB issued an exposure draft that would delay most GASB statements and implementation guides due to be implemented for fiscal years 2019 and later. Most notably, this includes Statement 84, Fiduciary Activities, and Statement 87, Leases. Comments on the proposal will be accepted through April 30, and the board plans to consider a final statement for issuance on May 8. More information may be found in this article from the Journal of Accountancy: GASB proposes postponing effective dates due to pandemic.

More information

Whether you are a FASB or GASB entity, you can expect a delay in the implementation of the lease standard. If you have questions, please contact a member of our financial statement audit team. For other COVID-19 related resources, please refer to BerryDunn’s COVID-19 Resources Page.

As we begin the second year of Uniform Guidance, here’s what we’ve learned from year one, and some strategies you can use to approach various challenges, all told from a runner's point of view.

A Runner’s Perspective

As I began writing this article, the parallels between strategies that I use when competing in road races — and the strategies that we have used in navigating the Uniform Guidance — started to emerge. I’ve been running competitively for six years, and one of the biggest lessons I’ve learned is that implementing real-time adjustments to various challenges that pop up during a race makes all the difference between crossing — or falling short of — the finish line. This lesson also applies to implementing Uniform Guidance. On your mark, get set, go!

Challenge #1: Unclear Documentation

Federal awarding agencies have been unclear in the documentation within original awards, or funding increments, making it hard to know which standards to follow: the previous cost circulars, or the Uniform Guidance?

Racing Strategy: Navigate Decision Points

Take the time to ask for directions. In a long race, if you’re apprehensive about what’s ahead, stop and ask a volunteer at the water station, or anywhere else along the route.

If there is a question about the route you need to take in order to remain compliant with the Uniform Guidance, it’s your responsibility to reach out to the respective agency single audit coordinators or program officials. Unlike in a race, where you have to ask questions on the fly, it’s best to document your Uniform Guidance questions and answers via email, and make sure to retain your documentation.  Taking the time to make sure you’re headed in the right direction will save you energy, and lost time, in the long run.    

Challenge #2: Subrecipient Monitoring

The responsibilities of pass-through entities (PTEs) have significantly increased under the Uniform Guidance with respect to subaward requirements. Under OMB Circular A-133, the guidance was not very explicit on what monitoring procedures needed to be completed with regard to subrecipients. However, it was clear that monitoring to some extent was a requirement.

Racing Strategy: Keep a Healthy Pace

Take the role of “pacer” in your relationships with subrecipients. In a long-distance race, pacers ensure a fast time and avoid excessive tactical racing. By taking on this role, you can more efficiently fulfill your responsibilities under the Uniform Guidance.

Under the Uniform Guidance, a PTE must:

• Perform risk assessments on its subrecipients to determine where to devote the most time with its monitoring procedures.
• Provide ongoing monitoring, which includes site visits, provide technical assistance and training as necessary, and arrange for agreed-upon procedures to the extent needed.
• Verify subrecipients have been audited under Subpart F of the Uniform Guidance, if they meet the threshold.
• Report and follow up on any noncompliance at the subrecipient level.
• The time you spend determining the energy you need to expend, and the support you need to lend to your subrecipients will help your team perform at a healthy pace, and reach the finish line together.

Challenge #3: Procurement Standards

The procurement standards within the Uniform Guidance are similar to those under OMB Circular A-102, which applied to state and local governments. They are likely to have a bigger impact on those entities that were subject to OMB Circular A-110, which applied to higher education institutions, hospitals, and other not-for-profit organizations.

Racing Strategy: Choose the Right Equipment

Do your research before procuring goods and services. In the past, serious runners had limited options when it came to buying new shoes and food to boost energy. With the rise of e-commerce, we can now purchase everything faster and cheaper online than we can at our local running store. But is this really an improvement?

Under A-110, we were guided to make prudent decisions, but the requirements were less stringent. Now, under Uniform Guidance, we must follow prescribed guidelines.

Summarized below are some of the differences between A-110 and the Uniform Guidance:

While the process is more stringent under the Uniform Guidance, you still have the opportunity to choose the vendor or product best suited to the job. Just make sure you have the documentation to back up your decision.

A Final Thought
Obviously, this article is not an all-inclusive list of the changes reflected in the Uniform Guidance. Yet we hope that it does provide direction as you look for new grant awards and revisit internal policies and procedures.

And here’s one last tip: Do you know the most striking parallel that I see between running a race and implementing the Uniform Guidance? The value of knowing yourself.

It’s important to know what your challenges are, and to have the self-awareness to see when and where you will need help. And if you ever need someone to help you navigate, set the pace, or provide an objective perspective on purchasing equipment, let us know. We’re with you all the way to the finish line.