COVID-19 is vastly changing the way nonprofits do business, and it’s important for the accounting and finance departments in every nonprofit to adapt their processes to reflect this new reality.

Many nonprofits have switched to remote work. Given this, nonprofits should update their internal policy manuals to reflect the changes brought about by working remotely. For example, have there been changes to authority levels, the way duties are segregated among staff, or how the approval process works? If so, the organization’s policies should be updated to document the new process and the new internal control structure. And, as with any policy revision, the nonprofit should make sure to circulate these updated policies so that staff is aware of the changes. Communication is key in a remote work environment. 

Consider making improvements to the key systems used by the nonprofit. Automating functions as much as possible will prove helpful in a remote environment.  Consider switching to complete online banking and eliminating mail delivery. Ask funders to send checks to lockbox addresses or switch to ACH payments. For those donors that continue to mail checks, consider purchasing an electronic check deposit machine or using mobile deposit, if possible. 

Nonprofits should also keep a close eye on cash flow and monitor unrestricted funding. If cash flow becomes problematic, consider sending out special asks to donors or renegotiating payment terms with key vendors.  Organizations in more dire situations may wish to seek loans or lines of credit with the bank.

Lastly, nonprofits should take another look at their annual budget and actuals to-date. If it’s clear that revenues will be less than originally budgeted, run a few scenarios to see how the organization can function with only 75% or 50% of the originally budgeted revenue amount. What cuts will need to be made to meet these lower revenue thresholds?  

Prime Minister Boris Johnson of the United Kingdom announced a merger between the Department for International Development (DfID) and the Foreign and Commonwealth Office (FCO). Together, the new department will become the Foreign, Commonwealth and Development Office. Nonprofits funded by DfID should take note of the merger and work directly with their project officers to ascertain the impact this merger will have on their DfID funding. 

Organizations that receive funding from the U.S. Government and are subject to the single audit requirement should take note of the following changes enacted by the Office of Management and Budget (OMB):

-Organizations impacted by COVID-19 and that have fiscal year ends through September 30, 2019, are granted a six-month extension to submit the single audit.

-Organizations impacted by COVID-19 and that have fiscal year ends through December 31, 2019, are granted a three-month extension to submit the Single Audit.

-Organizations with 2020 fiscal year end dates will not receive an extension.

The COVID-19 pandemic has changed many aspects of our lives, and the way we conduct our nonprofit’s audit is no exception. As the world moves into a new era of social distancing, stay-at-home orders, and teleworking, having auditors present in the office is becoming an unnecessary step in the audit process as organizations attempt to limit the number of people gathering in the office.

Given this, many nonprofits are expected to start participating in virtual audits – ones that rely heavily on technology and no longer on paper documents and files.  To help you prepare for this transition, consider the following as you review and/or upgrade your office infrastructure:

1. Move your organization to a paperless environment. Save files and audit support documents electronically.  Consider using either a cloud-based storage solution or, if this is not possible, saving files on a network accessible to staff outside the office.
2. Look into using online payroll and timekeeping systems.  If your organization is still completing paper timesheets, consider upgrading to an online platform that will allow staff to complete these electronically and enable electronic time-off requests.  In addition, make sure managers are trained on the process for approving timesheets and time-off requests and the required deadlines.
   
3. Consider an accounting software that is cloud-based and allows access outside the office.  If your software is currently on your organization’s network, make sure staff have remote access to it.  
4. Think about moving your organization to an online bill payment system.  Not only will this allow your organization to move to ePayments and eliminate the need for check cutting, it will also help serve as an online file storage solution.  If your organization is already using an online bill payment system, consider giving your auditors read-only access to the system.  
5. Select a video conferencing software or VOIP system that can be deployed organization-wide.  These systems will become essential in the virtual audit process by helping prevent misunderstandings and, given the tendency for people to misinterpret emails, facilitate the right communication needed for a successful audit.
6. Look into using software that allows for electronic signatures.  This will help ensure documents are signed even if staff no longer have access to printers and scanning machines.
7. If staff are filling out paper expense reports and submitting receipts, consider transitioning to an online expense reporting system that allows staff to simply take and upload photos of receipts.  And, once deployed, provide the auditors with read-only access to the system so that they can easily review the receipts remotely.  

On June 16, 2020, the Small Business Administration (SBA) made additional changes to the Paycheck Protection Program(PPP). Some of these changes, which will benefit nonprofits, include a revised PPP loan forgiveness application, a new streamlined EZ PPP loan forgiveness application for certain applicants, and revisions to the third and sixth interim final rules.

The PPP loan forgiveness application now includes a walk-through calculation on determining the forgiveness amount taking into account any reduction of full-time equivalent employees if the borrower was unable to operate during the covered period at the same level of business activity as before February 15, 2020, due to compliance with requirements established or guidance issued between March 1, 2020, and December 31, 2020, by the Secretary of HHS, Director of the CDC, or OSHA, related to the maintenance of standards of sanitation, social distancing, or any other work or customer safety requirements related to COVID-19.

The amount of loan forgiveness can be up to the full principal amount of the loan plus accrued interest. In addition, payroll costs during the covered period are capped at $46,154 per employee (for those using the 24-week covered period) or $15,385 per employee (for those using the 8-week covered period) plus covered benefits for employees.  Compensation for owner-employee, self-employed, or general partner, however, will be limited to $20,833 or 2.5 months of the owner’s 2019 compensation if electing the 24-week covered period or $15,385 for those electing the 8-week covered period.

New EZ PPP Loan Forgiveness Application

Borrowers who meet any one of the following criteria can now use the new EZ PPP loan forgiveness application:

Good news for nonprofit organizations that received funds under the Paycheck Protection Program (PPP). Additional changes have been made to the PPP after the adoption of the Paycheck Protection Program Flexibility Act of 2020 (Flexibility Act). The Flexibility Act made the following changes when it was signed into law on June 5, 2020:

• Extended the coverage period for forgiveness from 8 weeks to 24 weeks from the loan disbursement date or December 31, 2020, whichever is earlier. Organizations that received a PPP loan prior to June 5, 2020, may elect to keep the original 8-week forgiveness period.
  
• Updated the employee headcount provision stating that the forgiveness amount won’t be reduced based on a reduction in full-time equivalent employee headcount for organizations that can document:
  

An inability to rehire individuals who were employees on February 15, 2020;

An inability to hire similarly qualified employees for unfilled positions on or before December 31, 2020; or

An inability to return to the same level of business activity that the organization was operating at prior to February 15, 2020, due to compliance with certain COVID-19 measures related to social distancing, sanitation, or other worker or customer safety requirements.

• Revised the loan use requirements to require at least 60% of the loan to be used for payroll costs as opposed to the previous threshold of 75%. Organizations may now spend no more than 40% on non-payroll costs as opposed to the previous limit of 25%. However, the 60% is now a "cliff". Organizations must meet the 60% requirement for payroll costs or non of the loan may be forgiven.

Nonprofit organizations that received more than $2 million in funding from the U.S. Paycheck Protection Program (PPP) should expect an audit if they apply for loan forgiveness. These organizations should begin preparing for this audit now.  

Make sure the organization has thoroughly documented the rationale for obtaining the loan as this will be needed to satisfy the loan certification. Due this by putting together an economic uncertainty statement listing all of the reasons why the organization needed the loan -- from concerns over COVID's impact on the nonprofit industry to cash flow concerns. Consider creating detailed forecasts that showcase the financial position of the organization without receipt of the loan.  

In addition, make sure the organization has appropriately tracked all expenses incurred using the PPP funds. Keep all support documentation filed separately and have this ready for review during the audit.  

Having these items prepared now will help expedite the audit process, make it less burdensome, and signals the organization's compliance with the PPP's requirements.

The Internal Revenue Service (IRS) issued final regulations on May 26, 2020 that social welfare organizations under section 501c4 and professional and trade associations under section 501c6 will no longer be required to disclose on Schedule B of Form 990 the names of donors who contribute US$5,000 or more to the organization.  

501c3 organizations and section 527 political organizations, however, are still subject to this donor disclosure requirement.

For U.S. nonprofits that were provided federal funds under the Paycheck Protection Program, the SBA recently released the application that must be completed to apply for loan forgiveness.  The application can be accessed here. 

On May 5, 2020, the U.S. Government Audit Quality Center announced that federal funds received as part of the paycheck protection program will not count towards the US$750,000 threshold for a single audit. However, loans made to nonprofits under the Economic Injury Disaster Loan (EIDL) program are considered federal financial assistance. Thus, these funds will be subject to the Uniform Guidance single audit requires and included in the calculation to see if the total federal funds received by the nonprofit surpasses the US$750,000 threshold.