IRS issues guidance on payroll tax deferral from presidential executive order

The IRS issues guidance on payroll tax deferral from presidential executive order, Employers can now defer payroll tax withholding on employee compensation for the last four months of 2020 and then withhold the deferred amounts in the first four months of 2021, confirms a recent update from the IRS. President Trump’s memorandum on Aug. 8 gave employers the ability to defer payroll taxes for employees affected by the COVID-19 pandemic to provide financial relief.

The guidance directs that employers can defer the withholding, deposit, and payment of the employee portion of the old-age, survivors, and disability insurance (OASDI) tax under Sec. 3102(a) and Railroad Retirement Act Tier 1 under Sec. 3201 from employee wages from Sept. 1 to Dec. 31, 2020.

Employers must then withhold and pay the deferred taxes from wages and compensation during the period from Jan. 1, 2021, and April 30, 2021, with interest, penalties, and additions to tax to begin accruing starting May 1, 2021. Included in the notice is a line that indicates, if necessary, employers can “make arrangements to otherwise collect the total Applicable Taxes from the employee,” such as if an employee leaves the company before the end of April 2021, but does not provide details on what that entails.

Employees with pretax wages or compensation during any biweekly pay period totaling less than $4,000 qualify for the deferral. Amounts normally excluded from wages or compensation under Secs. 3121(a) or 3231(e) are not included in calculating the applicable wages. The determination of applicable wages should be made on a period-by-period basis.

Organizations may choose whether to enact the payroll tax deferral. We are closely monitoring updates related this and other presidential executive orders and will communicate if more information becomes available. For questions or assistance with this payroll tax deferral, contact us.

Barbacane, Thornton & Company is a highly regarded, regional certified public accounting and consulting firm specializing in auditing and tax services for government agencies and nonprofits.

We are proud to announce that Robert Yemola, CPA, a Supervisor with our firm was named one of 15 firm ambassadors by the Pennsylvania Institute of Certified Public Accountants (PICPA) for 2020. Robert is a graduate of Juniata College where he received his Bachelor of Science in Finance and subsequently his Master of Accounting. He joined our firm in 2015.

PICPA Firm Ambassadors are an elite group of young professionals who serve as a link between their firms, their professional networks, and the PICPA. Appointed by the PICPA, Firm Ambassadors are trained and equipped with resources to help them serve as leaders and foster connections within their firms and professional networks.

When do we move from “unprecedented” to “normal”? In March we labeled all of the following unprecedented: all staff working from home, all audits conducted in a remote environment, a relaxed dress code, attendance at client Board meetings via zoom, observing minutes of Board meetings watching You Tube, executing a client seminar on a virtual platform, and meeting our team member Bob’s new baby girl by way of video on Microsoft teams! Now, 4-1/2 months later we consider these activities to be the way we conduct business and maintain relationships. Many have called the necessary changes our “new normal” or the “new reality”. Looking back on this timeframe, it does not seem to matter how we categorize the pivot, but that we maintain who we are and stay connected to the WHY we do business.

There is significance in what has not changed for our firm. Our core values of Integrity, Quality, and Responsiveness have been at the forefront of our decision making as we work to navigate and help our clients navigate the impact of the pandemic on their internal controls and financial reporting. We define integrity to mean that we do the right thing, for the right reason, the right way and that we are accountable for our actions. Quality is to exceed expectations, always adhere to all professional standards, and to do it right the first time, then double check! Responsiveness means that we work to meet or exceed deadlines and that we are present for our clients as a trusted advisor, friend, and support system.

We have worked to be advanced from a technology perspective for many years. When the shutdown happened, our staff went home fully automated with audit software, Microsoft teams, a client secure portal in place, and access to Zoom to facilitate meetings. We took the opportunity of completing the December year-end audits to learn and explore ways to manage efficiencies and maintain client relationships with the thought that our remote audits would continue. In July we held a virtual seminar to share with our clients the way that remote auditing can work and, in many ways, improve efficiency while maintaining a high level of quality. We are excited to be able to offer a fully integrated remote audit experience to all our clients as we enter our June year-end audit cycle.

We understand the importance and significance of timely audits now more than ever. Many of our nonprofit clients continue to seek grants and funding to help them pivot to meet the pandemic needs of our communities and our school clients struggle to manage the changes in their budgets and financial condition while working to maximize resources to meet the demands of virtual learning and other necessary changes to the way they deliver education opportunity to their citizens. Timely audits will in many instances be the conduit to help demonstrate financial need as well as financial accountability. We take that charge seriously and look forward to continuing our forty-two-year history of providing audit and accounting services to the communities we serve.

Above all else, we are hopeful that our families, clients, friends, and neighbors will be safe and well and that the ravages of the pandemic will subside in the months to come. In the meantime — we are here and ready to serve.

Pamela W. Baker, CPA, CGFM

By Zeeshan Ali, CPA

Background:

The U.S. Office of Management and Budget (“OMB”) issued a memo on Administrative Relief for Recipients and Applicants of Federal Financial Assistance Directly Impacted by the Novel Coronavirus (COVID-19) due to the loss of operations.  The memo brought some misconceptions regarding the single audit submission deadline. Although an extension has been provided, it was granted only to certain entities and does not apply to all recipients.  The Coronavirus Aid, Relief, and Economic Security (CARES) Act provided economic relief to many organizations, however, this raised a question as to whether or not these funds will be subject to the Single Audit requirements, and its impact on the filing requirements. 

Impact of PPP Loans by Not for Profits:

According to the AICPA Governmental Audit Quality Control Center (GAQC), if a Not for Profit organization has obtained loans under the Paycheck Protection Program, these loans will NOT be subject to the Uniform Guidance Single Audit requirements. However, if the Not for Profit organization has obtained loans under the Small Business Administration (SBA) Economic Injury Disaster relief Loan program (EIDL) for COVID-19, these loans will be subject to the single audit and major program determination requirements. The OMB has not yet released the guidance regarding presentation of these loans in the Schedule of Expenditures of Federal Awards and the Catalog of Federal Domestic Assistance (CFDA) numbers though. This results in a series of unanswered questions regarding the compliance requirements, and the audit challenges.

Filing extensions for Not for Profit entities:

The OMB issued M-20-17 on March 19, 2020, which extended the timeline for single audit submission as follows:

1. Automatic six months extension is granted to NFPs through June 30, 2020 fiscal year ends
2. Granted to NFPs affected by the crisis caused by the loss of operations and/or increased costs due to Covid 19
3. NFP entities are required to document the reason for the delay and include this documentation when filing the audit reporting package (it will be important for us to remind clients that they will need to document if they choose to extend beyond their due date)
4. The U.S Department of Housing and Urban Development (HUD) Real Estate Assessment Center (REAC) has extended filing deadlines for Multifamily Housing Entities audit submissions that are due April 30 and May 31.

Additional guidance for federal agencies:

The memo M-20-11 issued by OMB on March 9, 2020 is intended to provide guidance to federal agencies relating to grant class exceptions in instances where the agency has determined that the purpose of the Federal awards is to support the continued research and services necessary to carry out the emergency response related to COVID-19. The OMB authorized the federal awarding agencies to take the following actions, as they deem appropriate:

1. Flexibility with SAM registration: Awarding agencies can relax the requirement for active System for Award Management (SAM) registration at time of application in order to expeditiously issue funding.
2. Flexibility with application deadlines: Awarding agencies may provide flexibility with regard to the submission of competing applications in response to specific announcements, as well as unsolicited applications.
3. Waiver for Notice of Funding Opportunities (NOFOs) Publication: For competitive grants and cooperative agreements, awarding agencies can publish emergency Notice of Funding Opportunities (NOFOs) for less than thirty (30) days without separately justifying shortening the timeframes for each NOFO. Awarding agencies would still be required to document and track NOFOs published for less than thirty (30) days under this emergency waiver
4. No-cost extensions on expiring awards: To the extent permitted by law, awarding agencies may extend awards which were active as of March 31, 2020 and scheduled to expire prior or up to December 31, 2020, automatically at no cost for a period of up to twelve (12) months.
5. Abbreviated non-competitive continuation requests: For continuation requests scheduled to come in from April 1, 2020 to December 31, 2020, from projects with planned future support, awarding agencies may accept a brief statement from recipients to verify that they are in a position to: 1) resume or restore their project activities; and 2) accept a planned continuation award
6. Allowability of salaries and other project activities: Awarding agencies may allow recipients to continue to charge salaries and benefits to currently active Federal awards consistent with the recipients’ policy of paying salaries (under unexpected or extraordinary circumstances) from all funding sources, Federal and non-Federal. Awarding agencies may allow other costs to be charged to Federal awards necessary to resume activities supported by the award, consistent with applicable Federal cost principles and the benefit to the project.
7. Allowability of Costs not Normally Chargeable to Awards: A warding agencies may allow recipients who incur costs related to the cancellation of events, travel, or other activities necessary and reasonable for the performance of the award, or the pausing and restarting of grant funded activities due to the public health emergency, to charge these costs to their award.
8. Prior approval requirement waivers: Awarding agencies are authorized to waive prior approval requirements as necessary to effectively address the response.
9. Exemption of certain procurement requirements: Awarding agencies may waive the procurement requirements contained in 2 CPR§ 200.319(b) regarding geographical preferences and 2 CPR§ 200.321 regarding contracting small and minority businesses, women’s business enterprises, and labor surplus area firms.
10. Extension of financial, performance, and other reporting: Awarding agencies may allow grantees to delay submission of financial, performance and other reports up to three (3) months beyond the normal due date.
11. Extension of currently approved indirect cost rates: Awarding agencies may allow grantees to continue to use the currently approved indirect cost rates (i.e., predetermined, fixed, or provisional rates) to recover their indirect costs on Federal awards. Agencies may approve grantee requests for an extension on the use of the current rates for one additional year without submission of an indirect cost proposal.
12. Extension of closeout: Awarding agencies may allow the grantee to delay submission of any pending financial, performance and other reports required by the terms of the award for the closeout of expired projects, provided that proper notice about the reporting delay is given by the grantee to the agency. This delay in submitting closeout reports may not exceed one year after the award expires.
13. Extension of Single Audit submission: Awarding agencies, in their capacity as cognizant or oversight agencies for audit, should allow recipients and subrecipients that have not yet filed their single audits with the Federal Audit Clearinghouse as of the date of the issuance of this memorandum that have fiscal year-ends through June 30, 2020, to delay the completion and submission of the Single Audit reporting package, to six (6) months beyond the normal due date.

As stated in the memorandum, the 13 provisions noted above were addressed to the Federal awarding agencies. However, it is worth noting that several of the provisions permit Federal agencies to relax certain requirements for grantees (that would mean those who receive direct funding). For our clients, we have some who receive Federal funding and many others who receive pass-through funding from State agencies. When planning for our single audits it will be necessary to determine if our pass-through entity has been permitted any of the provisions above from either a Federal or State agency.

Barbacane, Thornton & Company is a highly regarded, regional certified public accounting and consulting firm specializing in auditing and tax services for government agencies and nonprofits.

By Bob Kaufmann, CPA

As most of us sit at our makeshift home offices and adjust to the new normal of working from home, it is already evident the immediate impact COVID-19 is having on our surrounding communities. Although there are some positives; being around loved ones, pets, and no traffic for those that still have to drive every so often, the majority is overwhelmingly negative. Small businesses and the hospitality industry have taken the brunt of the pandemic thus far, but what is the impact of COVID-19 on local governments?

Revenues

Governments should anticipate a dip in revenue during the current year and amend budgets accordingly. With the increase in unemployment and many residents already living paycheck to paycheck prior to the pandemic, there will be decreases in revenue that are both recoverable and non-recoverable. For example, governments who charge an earned income tax should anticipate a decrease from the prior year as this is not a recoverable source of revenue. Additionally, it is very likely that transfer taxes take a dip as people work to secure existing homes and the housing market softens.

The good news is some of the decline in revenue can be recovered later. However, it is likely that this could take until next year or beyond. It can be anticipated that many residents will fall behind on their real estate taxes, sewer, and trash bills. The dilemma that management and board members will face is whether or not it is ethical to charge late fees, penalties, and interest on these past due fees. If this is not something already being discussed at your monthly meeting, now would be the time to consider bringing it up and considering policy amendments. We have seen examples of both Federal and State governments extending deadlines for taxpayer generated revenue collection, placing moratorium on foreclosures, and other out of the ordinary actions. Local governments may find it necessary to follow suit.

Federal assistance

Under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), much needed assistance will be provided to local governments to supplement lost revenue and cover expenditures incurred as a direct result of the pandemic. The three areas of the CARES Act most beneficial to local governments are the economic stabilization fund, the COVID-19 relief fund, and education stabilization fund.

The CARES Act allocates $454 billion to the economic stabilization fund. The fund permits the US Treasury to purchase obligations of local governments – this will help governments that had planned on issuing debt that may have run into some trouble in the current market due to the impacts of the COVID-19. It only permits the Treasury to invest in securities that mature in greater than 6 months and therefore will not help with short term tax revenue anticipation notes.

The CARES Act allocates $150 billion to the COVID-19 relief fund. States can apply for aid and will receive no less than $1.25 billion each. Local governments will be able to apply to the state for pass through funding related to the costs incurred for necessary expenditures due to the public health emergency that were not accounted for in their most recent budget.

The CARES Act allocates $30.75 billion to the education stabilization fund with $13.5 billion earmarked for elementary and secondary education of which 90% must be passed through directly to the schools/districts. Application for these funds is more inclusive than the prior two mentioned above and include the following activities:

• efforts by local schools that pertain to the coordination and preparation with State, local, Tribal, and territorial public health departments in responding to the COVID-19 (p. 758).
• assisting principal’s/school leaders with necessary resources for the operation of schools.
• assistance for low-income students, ethnic minorities, homeless students, and students of foster care.
• training/professional development of local school staff regarding decreasing the spread of contagious diseases.
• supplies for sanitizing facilities
• planning for long-term closures (e.g. meals for students, technology for online learning, continuation of educational services etc.)
• providing mental health services
• activities for learning over the summer
• other activities necessary for the continuation of educational services for local schools.

Federal expenditures

Many federal programs have issued guidance or Q&As about expenditures that are allowable under their program as it relates to COVID-19. It is recommended that management review these issuances for any federal awards the government has available help lessen the burden on operating budgets. Additionally, there is guidance for delays and reporting deadlines and audit due dates. As each federal program varies, it is imperative that management review each program to ensure they are still in compliance with their federal awards.

The professionals at Barbacane, Thornton & Company continue to follow the evolving nature of the issues noted above and we will update our information as it becomes available.

If you have questions or would like assistance with developing strategies to manage in a changing Covid-19 environment be sure to contact us and one of our skilled professionals will be happy to work with you.

Barbacane, Thornton & Company is a highly regarded, regional certified public accounting and consulting firm specializing in auditing and tax services for government agencies and nonprofits.

By Timothy Sawyer, CPA, CGMA , Partner

As we navigate through these unprecedented times, practice our social distancing, and adapt to the changes associated with a more virtual work environment it is important to have access to information and resources.  The news has focused on the recent aid packages and what they can do for the economy, but what assistance is available for our local governments (Counties, Cities, Towns, Boroughs, Townships, School Districts, etc.)?

The Coronavirus Aid, Relief, and Economic Security Act, or CARES Act was signed into law on March 27, 2020.  The CARES Act provides relief to several groups impacted by the coronavirus pandemic and provides $2 trillion in aid, broken down as follows:

• Individuals $560 billion
• Big corporations $500 billion
• State and Local governments $339.8 billion
• Small businesses $377 billion
• Public health $153.5 billion
• Education/Other $43.7 billion
• Safety net $26 billion

For state and local governments, the $339.8 billion in aid includes:

• $274 billion toward specific COVID-19 response efforts, including$150 billion in direct aid for those state and local governments running out of cash because of a high number of cases.
• $14 billion for higher education
• $13 billion for K-12 schools
• $5.3 billion for programs for children and families, including immediate assistance to childcare centers
• $5 billion of Community Block Grants

In addition to the aid available to state and local governments through the CARES Act, for the first time in history, the Robert T. Stafford Disaster Relief and Emergency Assistance Act (“the Stafford Act”) has been invoked for a health pandemic to address the size and scale of COVID-19’s impact on the United States.  The Stafford Act provides federal funding to aid the response to the COVID-19 response.

At least ten Federal Agencies (DHS, HHS, DOE, DOC, HUD, FCC, DOA, DOJ, DOL, DOT) will issue COVID-19 related grants pursuant to HR6074, HR6201 and HR748 and the emergency declaration. The specific requirements for each grant will vary, but will be governed by cost principles and administrative requirements in Title II of the Code of Federal Regulations (2CFR), including:

• Allowable and Unallowed Costs
• Procurement Rules
• Audit Requirements
• Monitoring & Reporting
• Indirect Costs

Under the Stafford Act, local governments, are eligible to receive federal grants under the act.  There are four categories of eligible areas under the Act that a local government can receive assistance from:

1. Activities to reduce immediate threats to public health and safety – EOC Costs, Training, Disinfection of Public Facilities
2. Emergency Medical Care – Temporary medical facilities, Hospital Surge Capacity, Treatment in a temporary facility, EM Transport
3. Medical Sheltering – Only when existing facilities become or expect to be overloaded in the future and cannot meet needs
4. Other Essentials – Pet shelters, Food-Water-Medicine, PPE, Security, Law Enforcement, Communication, Search and Rescue

Things for state and local governments to consider when seeking assistance under the Stafford Act include that the federal cost is set at 75% with the remaining to be covered by the state or local government. Most importantly, the request for public assistance must be made within 30 days of the disaster declaration.

Since state and local governments must react quickly in seeking federal assistance, remember these key steps:

• Establish Program Governance
  • Get educated on available funding sources, compliance rules, and timelines.
  • Assess organizational capabilities and gaps.
  • Define staff roles and responsibilities
• Funding Application
  • Evaluate funding sources, state/local shares and organizational impact.
  • Register and request public assistance.
  • Minimize duplication of benefits and audit risks.
• Policies and Procedures
  • Develop grant management standard operating procedures.
  • Establish process and IT Controls.
  • Enable financial systems t track transactions by funding source.
• Grant Operations
  • Execute and manage the reimbursement process
  • Maintain compliance with grant regulations
  • Perform financial reconciliations
  • Monitor and report KPIs
• Reporting and Closeout
  • Organize grant files and compliance with grant rules.
  • Determine and document final claims.
  • Respond to OIG audits and grantee monitoring visits.

Finally, here are some tips and leading practices that can be done now to mitigate some of the long-term challenges of managing FEMA grants.

• Track your costs by configuring your financial system to include “job codes” for COVID costs by site or projects.
• Designate an interdepartmental COVID-19 team that understands the Stafford Act guidelines and compliance rules.
• Track your inventory by pulling inventory records as of the date the entity began preparations for COVID-19
• Segregate staff time between overtime related to COVID-9 response activities and regular time
• Track time for temporary employees hired specifically for COVID-19 related activities
• Do not duplicate efforts from FEMA grant funds with assistance received from HHS or CDC
• Avoid cost plus percentage contracts, piggybacking, unreasonable procurements and prohibited contract clauses.
• Prepare justification memo for noncompetitive procurements during the exigency period
• Conduct cost analysis for procurements over the simplified federal acquisition threshold
• Track direct administrative cost with sufficient level of activity level details to maximize grant reimbursements.
• Follow the rules of HHS and CDC for medical sheltering and comply with EHP regulations.
• Account for donated resources for cost share considerations.

If you have additional questions or need assistance, contact us at Barbacane, Thornton & Company and we will assist in any way that we can to answer your questions or help find answers.

Barbacane, Thornton & Company is a highly regarded, regional certified public accounting and consulting firm specializing in auditing and tax services for government agencies and nonprofits.