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COVID-19: key areas of financial focus for not-for-profit organizations

COVID-19 is proving to be one of the most significant disruptors to the business world in recent memory. The not-for-profit industry may be one of the hardest hit industries due to a lack of resources or reliance on their investment portfolios to help subsidize operating losses.

As the not-for-profit community moves into uncharted territory, there are some key areas of financial focus for not-for-profit organizations (“NFPs”) to consider.

Our Baker Tilly NFP team leaders have comprised helpful tips and advice to help your organization confront these difficult times:

1. Budget and forecast

With the implementation of  ASU 2016-14Presentation of Financial Statements of Not-for-Profit Entities, the FASB placed a greater focus on highlighting financial assets available for use. Management of cash flows is especially key during times of financial difficulty. NFPs should work quickly to budget and forecast feasible scenarios that may occur as a result of COVID-19, with a particular focus on forecasting liquid assets at the end of each month.

Many organizations may need to make significant decisions about cost containment, employment issues, and investment strategies. By forecasting multiple scenarios that can be updated in real time, organizations will be able to make informed decisions, rather than flying blind.

2. Communicate with funders

Whether they are individuals, corporations, or foundations, many funding sources will suffer negative consequences as a result of COVID-19. With that said, it’s important for organizations to communicate with their main funders to provide great clarity around the use of restricted funds or meeting the conditions of grants. Keeping the lines of communication open during uncertain times will be key to weathering the storm.

In addition to communicating with funders, many NFPs have had their fundraising events postponed or cancelled. There may be different ways to account for the transactions related to postponed or cancelled events, and we recommend you discuss these transactions with your CPA firm.

3. Utilize business interruption insurance

Many organizations have business interruption insurance that protects against certain losses. While the covered losses often include theft, fire, and cyber-attacks, the recent actions by government authorities, such as the shelter-in-place in the state of California, may create a trigger point to cover losses incurred by NFPs.

4. Take advantage of tax credits

On March 16, 2020, the Families First Coronavirus Response Act (H.R. 6201) was passed. The bill requires employers with fewer than 500 employees to provide Paid Sick Leave or Family and Medical Leave to their employees to the extent that the employee is unable to work or telework due to infection or to care for a family member.

The bill, in turn, offers refundable tax credits to help alleviate the burden of the costs. Generally, tax-exempt employers cannot utilize employer tax credits because they do not pay income taxes. However, these particular credits are applied against to payroll taxes, thus allowing not-for-profits to benefit.

Emergency Paid Sick Leave Credit

By design, this credit assists with the cost of providing up to two weeks of paid coronavirus-related sick leave to employees. It is limited to $200 per employee per day, up to 10 days, if the employee has a family member in quarantine or must care for a child whose school has closed. The credit is increased to $511 per employee per day if the employee is on leave because he or she: (1) is subject to a federal, state or local quarantine or isolation order related to COVID-19; (2) has been advised by a health care provider to self-quarantine due to concerns related to COVID-19; or (3) is experiencing symptoms of COVID-19 and seeking a medical diagnosis. It is in effect for wages paid through December 2020. On a quarterly basis, the bill limits the credit to the total taxes imposed on the employer portion of the Social Security payroll tax and is refundable in certain circumstances.

Emergency Family and Medical Leave Credit

The family leave credit is limited to $200 per employee per day and cannot exceed $10,000 in aggregate per employee. Similar to the sick leave credit, the bill limits the credit to the employer portion of the Social Security payroll tax on a quarterly basis but is refundable under specified circumstances.

5. Consider Government Assistance

At the federal level, the U.S. Small Business Administration (SBA) is offering small business owners in designated states the ability to apply for a low-interest loan due to the impact of COVID-19. Through collaboration with state Governors, the SBA will provide targeted, low-interest loans to small businesses and not-for-profits that have been severely impacted by the coronavirus. The SBA’s Economic Injury Disaster Loan Program provides organizations with working capital loans of up to $2 million that can provide vital economic support to small businesses and NFPs to help overcome the loss of revenue they are experiencing.

The Economic Injury Disaster Loan Program is currently available to organizations in the following jurisdictions: California, Connecticut, Delaware, the District of Columbia, Florida, Georgia, Indiana, Maine, Massachusetts, Montana, Nevada, New Hampshire, New Jersey, New Mexico, North Carolina, Rhode Island, Utah, and Washington. To apply for this loan please click  here.

6. Establish efficient and effective lines of communication during remote work

In addition to the finance side, here are some other resources to assist with working remotely during the outbreak:

  • Microsoft  (Teams) and  Google  (Hangouts Meet) are offering conferencing tools free-of-charge for a limited time
  • GoToMeeting  will offer its services for free for three months
  • Dropbox  is providing 3 months of free enterprise subscriptions to NFPs

As we navigate the unchartered territory, we are here to work with you to optimize your business strategies and tax planning. Baker Tilly’s not-for-profit team has advanced knowledge and experience working with companies in the not-for-profit sector. We make it a point to stay abreast of industry news, trends and challenges.

Kevin O’Connell
Partner, CPA

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