Federal building with staircase where Paycheck Protection Program (PPP) is determined.

The Paycheck Protection Program (PPP), a centerpiece of the Coronavirus Aid, Relief and Economic Security (CARES) Act, as amended by the Economic Aid Act, and subject to future amendments, has been a primary source of aid to not-for-profit (NFP) organizations throughout the United States. Eligible NFPs could obtain a loan for 2.5 times payroll costs, up to $10 million, without the need for collateral, and could have the loan forgiven if the proceeds were spent on eligible costs.

Understandably, many NFPs rushed to apply as soon as the loan was available, under the approach that even if the loan was not forgiven, the low 1% interest rate would provide a much-needed source of liquidity. Furthermore, many organizations have applied for a second round of funding under the second Paycheck Protection Program (PPP2), as part of the Consolidated Appropriations Act (CAA). For purposes of this blog post concerning double dipping, PPP and PPP2 will be considered one and the same.

Since the release of the original PPP guidance, NFPs with other sources of funding are learning best practices to ensure they are not including costs already paid with other federal funds on their PPP forgiveness application. Requesting reimbursement for the same cost from two different funding sources is fondly referred to as “double dipping.” We break down some key considerations around double dipping related to federal, state, local and private funding.

Federal funding

In Memorandum M 20-26, the Office of Management and Budget (OMB) makes clear its position that the federal government prohibits an organization from being reimbursed twice for the same expense. The Department of Defense released an FAQ providing guidance echoing the memo. Funds that may be subject to double-dipping restrictions include the following:

  1. Cost reimbursement grants
  2. Fee for service or fixed rate with an expenditure true-up equating to a cost-reimbursement grant
  3. Medicaid funding received in the form of a grant (funding is not tied to a specific individual with a contract to provide services)
  4. Federal flow-through grants from the three categories above
  5. State or local awards with similar guidance in effect

Medicare and Medicaid payments received as a provider would not be considered a federal award.

According to Federal Acquisition Regulation (FAR) 31.201-5, the applicable portion of any income, rebate, allowance or other credit relating to any allowable cost and received by a contractor shall be credited to the government. NFPs that obtain PPP forgiveness will likely see costs normally included in their indirect cost rate (ICR) as allowable costs reduced by any amount forgiven. The impact on future ICR negotiations could be substantial.

Lastly, readers should note that the recently passed CAA amended previous regulations that prevented entities from claiming both forgiveness on PPP loans and the Employee Retention Credit (ERC). While entities may now obtain both sources of funding, entities may not apply PPP and ERC funding to the same costs.

State, local and private funding

Guidance from state and local agencies is highly variable, and they may elect to apply different rules than federal agencies. Interpretations of state and local guidance is likely to be even more inconsistent. NFPs may find more flexibility with private grantors, but early communication with all funding sources is of the utmost importance.

The lack of consistency highlights the need for NFPs to closely track all grant costs, regardless of whether they are treated as contract revenues or restricted contributions for accounting purposes, as well as those charged to PPP.

PPP forgiveness application

In practice, there is a belief that NFPs can be flexible with the costs chosen to allocate to PPP proceeds.  NFPs should carefully apply PPP proceeds to costs that are not funded by other grants, contracts and contributions. In addition, NFPs should keep internal records of which costs are being applied to PPP forgiveness, federal, state, local and private grants and contracts. We recommend keeping cost records by funding source at least until the end of the Small Business Administration audit eligibility period.

For more information on this topic, or to learn how Baker Tilly specialists can help, contact our team.

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The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. Tax information, if any, contained in this communication was not intended or written to be used by any person for the purpose of avoiding penalties, nor should such information be construed as an opinion upon which any person may rely. The intended recipients of this communication and any attachments are not subject to any limitation on the disclosure of the tax treatment or tax structure of any transaction or matter that is the subject of this communication and any attachments.

Kevin O’Connell
Partner, CPA
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