What is the Private Nonprofit Sector Going to Look Like in the New Post-COVID Environment?
By Dick Larkin, CPA, MBA
Only one thing about COVID seems certain: uncertainty. That has been more than adequately demonstrated since the pandemic erupted. It also seems that the virus will not go away anytime soon.
This article summarizes some of the specific effects the nonprofit sector is experiencing, such as remote work environments, remote learning, absence of large gatherings, less travel and the like.
As just one example, the absence of large gatherings and less travel translates into major disruptions of the ability of trade and professional associations to hold their normal conferences and conventions which, besides the structured educational components, also serve as networking opportunities for members, and as net revenue generators for the associations.
This article specifically discusses only private nonprofit organizations—other than healthcare, but some other organizations can look here for examples of similar concerns. Governmental educational institutions have many of the same issues as private institutions. Healthcare organizations have some of the same concerns about fundraising, governance and general management, and investment management as do other organizations.
Of course there is much overlap among the areas detailed in the article. Most educational organizations and public-centered organizations also depend heavily on fundraising, many charitable and cultural organizations have members, many member-centered organizations have charitable affiliates, etc.
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Federal Funding Terms Demystified
By Barbara Finke, CPA
With the Coronavirus Aid, Relief, and Economic Security (CARES) Act funding, many entities are receiving federal funding for the first time. The federal agencies distributing the funds have various terms and conditions related to the appropriate funds, and certain funds may be subject to audits by independent auditors.
Reading through the copious articles and opinions on what this audit could entail, you may see terms such as Yellow Book Standards, Uniform Guidance or Single Audits, which may or may not be defined, as they are commonly known among entities that have historically received funding from governmental agencies.
This article will help define these concepts for entities new to federal funding.
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Directors & Officers Liability Insurance for Nonprofits: What You Need to Know About But Were Afraid to Ask
By Paul E. Hammerschmidt, CPA, (MS Taxation) of BDO USA, LLP and
William J. Zester, Executive VP, Commercial Lines of Pavese-McCormick Agency, Inc.
Nonprofit directors & officers (D&O) liability insurance, sometimes referred to as management liability, is coverage that protects individual board members as well as employees, volunteers and the organization itself in the instance of a civil suit or lawsuits alleging “wrongful acts.” Wrongful acts will be defined in the policy but generally these are actual or alleged acts, errors, omissions, misstatements, misleading statements, neglect or breach of duties or personal injury acts allegedly committed by the organization or individuals arising solely from duties conducted on behalf of the organization. Without coverage, defense costs and judgments become the responsibility of the organization as well as a personal responsibility to the directors and officers if the organization lacks fund to pay. Directors & officers liability insurance provides protection from out-of-pocket expenses up to the limits of coverage and deductibles on the policy.
How Nonprofits can Protect their Data and Reputation in the New Era of Data Privacy
By Karen A. Schuler, CIPP-US, CIPM, CDPSE
The United States is bracing for a new wave of privacy laws and, whether you’re a Fortune 500 company or a small nonprofit, you will be impacted. As an example, on Nov. 3, 2020, California voters passed the California Privacy Rights Act (CPRA), making it clear, once again, that American consumers are seeking enhanced privacy laws to protect their personal information. The CPRA amended key portions of the 2018 California Consumer Privacy Act (CCPA) and will take effect in January 2023.
Consumer information privacy regulation laws are gaining traction across the country and will continue to become more prevalent and robust as more states adopt new legislation. There are currently several CCPA copycat laws being considered in other states including:
- Nebraska Consumer Data Privacy Act (Legislative Bill 746)
- Virginia Privacy Act (HB 473)
- New York Privacy Act (Senate Bill 5642/A)
Although nonprofit organizations are typically exempt from consumer privacy regulation laws like the CPRA, their members, donors and staff still expect to have their personal information secured and protected. A nonprofit that experiences a ransomware attack or a data breach can still be impacted by data breach notification laws in addition to bad publicity and a loss of trust in their services. Nonprofits need to successfully know, protect and govern their data to create a data privacy protection plan.
Other Items to Note
Current Status of a Single Audit for Major Relief Funds
A Single Audit encompasses a financial statement audit under the Government Auditing Standards and the Uniform Guidance.
Based on the current financial assistance listings at press time as listed on
sam.beta.gov, the following is a summary of whether the major relief funds provided by the federal government as a result of the coronavirus pandemic are subject to the Single Audit requirements of Subpart F of the UG.
- Paycheck Protection Program issued by the Small Business Administration: Not Subject to a Single Audit
- Provider Relief Fund issued by Health and Human Services: Subject to a Single Audit
- Coronavirus Relief Fund issued by Treasury: Subject to a Single Audit
- Education Stabilization Fund issued by Department of Education: Subject to a Single Audit
For more information on these and other relief funds see the AICPA, Government Audit Quality Center website for the nonauthoritative
IRS Issues Final Regulations on UBTI “Silos”
By Marc Berger, CPA, JD, LLM
On Dec. 2, 2020 the U.S. Treasury and IRS published final regulations under Internal Revenue Code (IRC or Code) Section 512(a)(6), the provision requiring tax-exempt organizations with more than one unrelated trade or business to calculate unrelated business taxable income (UBTI) separately with respect to each trade or business. The provision, which was added to the Code by the 2017 tax law often referred to as the Tax Cuts and Jobs Act (TCJA), is known as the UBI “Silo” provision. The final regulations provide guidance on how an exempt organization determines if it has more than one unrelated trade or business and, if so, how the organization calculates UBTI under Section 512(a)(6).
The final regulations generally follow the approach taken in the proposed regulations (issued in April 2020), while making a few modifications based on comments received from tax-exempt organizations and practitioners.
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Provider Relief Funds – Reporting and Audit Requirements
By Carla DeMartini, CPA, Chad Krcil, FHFMA, CHFP, and Venson Wallin, CPA, CGMA, CFE, CHC, FHFMA, CHFP, HCISPP
When Congress passed the Coronavirus Aid, Relief and Economic Security (CARES) Act, it established the Provider Relief Fund (PRF) to support American families, workers and healthcare providers in the battle against COVID-19.
Through the CARES Act and supplemental funding from the Coronavirus Response and Relief Supplemental Appropriations (CRRSA) Act, the U.S. Department of Health and Human Services (HHS) is in the process of distributing $178 billion to hospitals and healthcare providers on the front lines of the coronavirus response and relief efforts. Qualified providers of healthcare, services and support may receive PRF payments for healthcare-related expenses or lost revenue due to COVID-19. While these distributions do not need to be repaid to the U.S. government, assuming providers comply with the terms and conditions established by HHS, these funds come with unique compliance, reporting and audit requirements that recipients must adhere to once they attest to the receipt of these funds.
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SPOTLIGHT ON HIGHER EDUCATION
Higher Education Emergency Relief Fund II
By Andrea Taylor
The Higher Education Emergency Relief Fund II (HEERF II) was authorized by the Coronavirus Response and Relief Supplemental Appropriations Act, 2021 (CRRSAA), which was signed into law on Dec. 27, 2020. In total, the CRRSAA authorizes $81.88 billion in support for education, $21.2 billion of which is now available to institutions of higher education to ensure learning continues for students during the COVID-19 pandemic. Allocations to institutions are based on a formula that includes the relative shares of federal Pell Grant recipients, the relative shares of non-Pell Grant recipients, and the relative shares of federal Pell and non-Pell Grant recipients exclusively enrolled in distance education prior to the coronavirus emergency. CRRSAA continues to support the important work of addressing students’ unmet needs by providing a minimum amount of funding that each institution must devote towards financial aid grants to students. Institutions that were previously approved for Coronavirus Aid, Relief, and Economic Security Act (CARES Act) HEERF awards are not required to submit a new or revised application to receive additional funding under the CRRSAA.
Presentation of COVID-19 Related Federal Programs on the Schedule of Expenditures of Federal Awards
By Amy Guerra, CPA
New aid provided by federal agencies in response to the COVID-19 pandemic can impact the presentation of your organization’s Schedule of Expenditures of Federal Awards (SEFA), Notes to the SEFA, and Federal Audit Clearinghouse Data Collection Form (DCF). As you prepare for your audit, it is important to understand the funding you received and identify the COVID-19 related funds separately on the SEFA provided to the auditors to support an effective audit.
Various federal programs provided new aid in response to the COVID-19 pandemic. Certain funds are subject to single audit, which requires recipients to prepare a SEFA. Federal agencies may have incorporated COVID-19 funding into an existing program and CFDA number or established a new COVID-19 program with a unique CFDA number. Federal agencies are required to specifically identify COVID-19 awards, regardless of whether the funding was incorporated into an existing program or a new program.
CARES Act Employee Retention Credits for Nonprofit Employers
By Carolyn Smith Driscoll, Gabe Rubio, Brad Poris
Many nonprofit organizations were forced to shutter or temporarily close their operations under a governmental order as a result of the coronavirus pandemic, while others were forced to severely limit their offerings. One way to continue to pursue your organization’s objectives is to ensure that you are still able to function, even if only in a limited capacity. The government has supported nonprofits and the continuation of their services with the passage of the Coronavirus Aid, Relief and Economic Security (CARES) Act in March 2020, which includes the Paycheck Protection Program (PPP) and the Employee Retention Credit (ERC). Under the CARES Act, organizations could take advantage of either the PPP or the ERC, but not both. In welcome news for nonprofit organizations, the Consolidated Appropriations Act, 2021 (Relief Act, signed by former President Trump on Dec. 27, 2020) retroactively eliminates this limitation and extends and enhances the ERC through the first two quarters of 2021.
Nonprofit Data Breach Vulnerabilities and How to Avoid Them
By Mike Lee, CIPM, Alexandre Chanoine, J.D. and Derrick King
As more people are shifting to digital lifestyles and remote operations, data is being passed through the internet now more than ever. Proportionate to this, however, are the opportunities for potential compromise of the data, particularly via a data breach. Data breaches are the unauthorized access or disclosure of data for other than authorized and intended purposes. Nonprofit organizations, regardless of size, can be susceptible to a data breach as most accept and facilitate donations, which typically require the collection, processing, and maintenance of financial information. According to the Association of Certified Fraud Examiners 2020 Global Study, nonprofit organizations may be especially vulnerable compared to their for-profit counterparts as resources for privacy/security infrastructure are oftentimes harder to allocate. In recent years, cybercriminals have sought to harvest data for their own gain, targeting nonprofit donor and even employee data systems.
Assessing Risk to Maximize Cyber Insurance Coverage
By Mark Millard
It’s 8 a.m. on Monday. You open the doors to the office, preoccupied with tasks for the week: grant applications that need review, donor phone calls to make, staff disagreements to manage, current program execution and strategy for the future. As you settle into your desk and turn on your computer, the startup screen displays a simple message: “Pay 100 Bitcoin to 123 account number in the next 12 hours or lose all of your data.” Panic sets in, your mind races, all thoughts from two minutes ago have disappeared. What do you do next?
Revisions to the Uniform Guidance Affecting Recipients
By Tammy Ricciardella, CPA
On Aug. 13, 2020, the Office of Management and Budget (OMB) issued Final Guidance on amendments to the OMB Guidance for Grants and Agreements (Uniform Guidance). This reflects the first revisions to this guidance since they were originally issued in 2013. The impact from these revisions range from minor and unique circumstances to large-scale changes that affect all recipients. Thus, if you receive federal funding, it is important that you review the OMB revisions in their entirety to ensure you are familiar with these changes and implement necessary changes to your systems and provide appropriate training to your grants management and accounting personnel.
The revisions are generally effective for new awards issued on or after Nov. 12, 2020.
Other Items to Note
SINGLE AUDIT SUBMISSION EXTENSION
The Office of Management and Budget (OMB) issued
Memo M-20-21 (Memo) that instructs federal awarding agencies to allow recipients and subrecipients that have not yet filed their single audits with the Federal Audit Clearinghouse (FAC) as of Mar. 19, 2021 (the date of the Memo) with fiscal year ends through June 30, 2021, an extension to delay the completion and submission of their single audit reporting package for up to six months beyond the normal due date.
