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PPP Loan Forgiveness – A Process to Optimize Results May 1, 2020 Presented by: George D. Shaw, CPA Kimberley A. Train, CPA, ABV
PPP Loan Forgiveness – A Process to Optimize Results
May 1, 2020
Presented by:George D. Shaw, CPAKimberley A. Train, CPA, ABV
A Whole New World for Partnership Audits: OverviewRegional firm with over 180 employees including 22 Partners, many with Big 4 experienceOffices in Boston and WoburnSignificant Partner and Principal involvement in engagementsClients include privately-held businesses, their owners, and high net worth individualsTax, Assurance, IT Risk and Business Advisory including forensic accounting, cybersecurity, valuation, succession planning, and transaction advisory servicesAccess to global network through membership in Moore Global Network Limited
DGC FIRM OVERVIEWAt DGC, our professional curiosity drives everything we do —how we work; how we advise; how we partner with and seek out value for our clients.
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OVERVIEW
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CARES Act language and provisionsAllowable uses for covered loansEight-week covered periodDilutive adjustments to forgivenessRestorative adjustments to forgivenessConsiderations before you request forgivenessLender-specific requirementsThe impact of fraud on the process
Objective: We will discuss the Paycheck Protection Program and outline key elements essential to maximizing loan forgiveness.
Topics include:
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PAYCHECK PROTECTION PROGRAM
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The Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) was passed on March 27, 2020$349 Billion in funds were allocated to the Paycheck Protection Program (“PPP”)Application process opened on April 3, 2020Funds were exhausted 13 days later on April 16, 2020The Paycheck Protection Program and Health Care Enhancement Act was passed on April 24, 2020 $310 Billion in additional funds with $60 Billion directed to small banks, small
credit unions and community financial institutionsThe portal opened for applications on April 27, 2020
“Keeping American Workers Paid and Employed Act”
RECENT DEVELOPMENTS ON QUALIFICATIONS
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Certification: “… ability to access other sources of liquidity sufficient to support their ongoing operations” to attest to eligibility to receive PPP fundingRetain information and documentation supporting the need for liquidity to support ongoing operations and meet eligibility requirementsIf eligibility cannot be supported and borrower is concerned about certification, then funds should be returned by May 7, 2020 to be within “limited safe harbor” Public companies, venture capital and private equity firms are under scrutinyTreasury Secretary Mnuchin stated that SBA will audit small business loans above $2 million
ALLOWABLE USES OF COVERED LOANS
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Payroll costs Salary, wage, commission, or similar compensation Payment of cash tip or equivalent Payment for vacation, parental, family, medical, or sick leave Allowance for dismissal or separation Payment required for the provisions of the group health care benefits,
including insurance premiums Payment of any retirement benefit Payment of state or local tax assessed on the compensation of employees Partner compensation is included in payroll costs 1099s to file for separate PPP loan
Interest on mortgage obligations or other debts incurred beforeFebruary 15, 2020Rent under a leasing agreement that was incurred before February 15, 2020Utilities for services that began before February 15, 2020
EIGHT-WEEK PERIOD
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Issues include:State and local government restrictionsIndustry restrictionsCash vs. accrualPay periods do not necessarily match eight-week period (see below)
Begins as of date of first disbursement of loan funds
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75% 70% 60% 100%
0%
20%
40%
60%
80%
100%
120%
Goal: 100% Forgiveness FTE Dilution Test Wage/Salary Dilution Test Restoration Test
25%
PERCENTAGE OF FORGIVENESS
REQUESTED FORGIVENESS
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75%
0%
20%
40%
60%
80%
100%
120%
Goal: 100% Forgiveness FTE Dilution Test Wage/Salary Dilution Test Restoration Test
Goal = 100% forgivenessInclude only allowed costs At least 75% must be used for payroll costs
25%
FULL-TIME EQUIVALENT TEST
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75% 70%
0%
20%
40%
60%
80%
100%
120%
Goal: 100% Forgiveness FTE Dilution Test Wage/Salary Dilution Test Restoration Test
25%
Full-time equivalents (FTEs)Borrower’s choice (benchmark period) February 15, 2019 – June 30, 2019 January 1, 2020 – February 29, 2020
Seasonal Twelve-week periods (three options)
WAGE/SALARY DILUTION TEST
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75% 70% 60%
0%
20%
40%
60%
80%
100%
120%
Goal: 100% Forgiveness FTE Dilution Test Wage/Salary Dilution Test Restoration Test
25%
Less than $100K wages and salary (2019)Test for more than 25% reductionMeasure covered period against Q1 2020
RESTORATION TEST
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75% 70% 60% 100%
0%
20%
40%
60%
80%
100%
120%
Goal: 100% Forgiveness FTE Dilution Test Wage/Salary Dilution Test Restoration Test
25%
Restore FTERestore wages and salariesBy June 30, 2020
FRAUD RISKS
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Ghost employeesFabricated spendingFictitious documentation Improper certifications Related partiesEmail scamsRisks associated with not knowing your customer
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GUIDELINES FOR FORGIVENESS
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Place funds in a separate bank accountRe-confirm and document eligibilityMake sure funds used only for eligible purposesStay within the eight-week windowTrack use of funds and document, document, document!Utilize a robust, dynamic model to forecast and track fundsMonitor SBA and Department of Treasury websites and/or speak with your CPATimely application for forgivenessDocumentation tips will be included in the appendix
QUESTIONS?
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DGC’S PAYCHECK PROTECTION PROGRAM TEAM
George D. Shaw, [email protected]
Kimberley A. Train, CPA, [email protected]
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Jackie Reinhard, [email protected]
Rick Strout, [email protected]
APPENDIX
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PAYROLL: WHAT INFORMATION TO GATHER
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Federal payroll tax reports: 2019 IRS Form 941, Form 940,annual Forms W-3 or 944Compensation payroll reports (1/1/2019 through 6/30/2020) Gross wages by employee (payroll reports by pay period) State and local employer taxes assessed (SUTA)
Group health care benefits, including insurance premiums paid by the organization under a group health plan Employer costs only Do not include employee withholdings for their portion of
contributions to the planRetirement plan benefits paid by the organization Employer costs only Do not include employee withholdings for their portion of
contributions to the plan
OTHER COSTS: WHAT INFORMATION TO GATHER
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Other costs include: (1) Rent, (2) Mortgage Interest, (3) Utilities Provide copies of the following: Cancelled checks (during the eight-week covered period) Wire transmittals (during the eight-week covered period) Invoices Account transcripts Mortgage in effect as of February 15, 2020 Rent agreements in effect as of February 15, 2020 Utilities provide copies of invoices and cancelled checks to demonstrate
service before February 15, 2020
