Accounting for Shuttered Venue Operators Grants

By Tammy Ricciardella, CPA


On Dec. 27, 2020, the Economic Aid to Hard-Hit Small Businesses, Nonprofits and Venues Act (the Act) became law as a part of the Consolidated Appropriations Act, 2021 (CAA). The American Rescue Plan Act also provides $16 billion in grants to shuttered venues, to be administered directly by the Small Business Administration’s (SBA) Office of Disaster Assistance.

The SBA has issued guidance that is available on its site as of July 22, 2021. Recipients of this funding should refer to the site often as additional information is expected to be released as the program is developed. Included in the SBA information is a very extensive list of Frequently Asked Questions related to the Shuttered Venue Operators Grant (SVOG) (last updated July 22, 2021 as of the date of this article). Please refer to the SBA Frequently Asked Questions (FAQs) and other information for more detailed answers to questions about the program.

Under the terms of the SVOG recipients are not required to repay the funding as long as funds are used for eligible uses as defined in the guidance by the dates specified by the program.

Nonprofit Accounting for an SVOG

The AICPA recently issued nonauthoritative guidance that recipients should consider in determining the accounting treatment for an SVOG. This Technical Question and Answer (TQA) applies to both nonprofit entities and private business entities.

The TQA notes that nonprofit entities should account for the SVOG as a government grant in accordance with the “contributions received” subsections of the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 958-605, Not-for-Profit Entities – Revenue Recognition. Under this guidance, an entity must first determine if a contribution is conditional or unconditional. If a recipient is required to meet conditions imposed by the government to be entitled to receive or keep the funds, then the contribution is conditional. The recognition of contribution revenue is then deferred until the conditions are substantially met or explicitly waived. As a reminder, an entity cannot factor in the likelihood that the condition will be met in determining whether a grant is conditional or unconditional.

Under the SVOG, since entitlement to the payments from the SBA is conditioned upon having incurred eligible expenses there is deemed to be a barrier to entitlement. Also, under the SVOG noncompliance with the terms and conditions is grounds for the SBA to recoup the funds so there is deemed to be a right of return. Based on these two facts, the SVOG would be considered a conditional contribution under FASB ASC 958-605. Therefore, contribution revenue would be recognized only to the extent that eligible expenses have been incurred at that date.

Each nonprofit that receives an SVOG will need to evaluate its individual facts and circumstances in determining the extent to which conditions have been substantially met at a given reporting date. Payment amounts received that exceed recognizable contribution revenue would be reported as a refundable advance in the liability section of the statement of financial position. This is based on the fact that entitlement to the funds is conditioned on eligible expenses that are expected to be incurred in subsequent accounting periods.

To the extent a nonprofit determines that conditions have been met and have recognized contribution revenue it will also need to consider whether there are restrictions imposed by the government on the use of these funds. Since under the SVOG, payments can only be used for eligible expenses as defined by the SBA, these funds would also be considered to be donor restricted. Due to the relationship of the conditions and the restrictions, meaning both are hinged on eligible expenses being incurred as defined by the SBA, these would likely be satisfied simultaneously. However, each nonprofit entity has to make this assessment for its specific facts and circumstances.

If a nonprofit entity deems that the condition and restriction are satisfied simultaneously, the entity would record the contribution revenue in net assets with donor restrictions with a reclassification to net assets without restrictions to reflect the satisfaction of the donor restriction in its statement of activities. If the nonprofit entity has elected and disclosed one of the simultaneous release accounting policy options as outlined in FASB ASC 958-605-45, it could report contribution revenue directly in net assets without donor restrictions.

If a for-profit business entity receives an SVOG it should refer to the TQA for the guidance options that are outlined specifically for business entities for more information.

Single Audit Impact

Per the website, Assistance Listing 59.075, an SVOG is subject to a single audit under the Uniform Guidance if the nonprofit entity receiving the funds has total federal expenditures in the fiscal year under audit in excess of the $750,000 threshold.

The website also notes “that if the awardee is a for-profit entity, subparts A through E of the Uniform Guidance are not required and will not be applied. SBA will, however, comply with any audit requirements in subpart F that apply to the for-profit community.” The AICPA Governmental Audit Quality Center currently has an inquiry into the Office of Management and Budget (OMB) and the SBA about the meaning of this statement as it relates to for-profit entities. Stay tuned for more information on this topic on both the OMB and SBA websites.


Copyright © 2021 BDO USA, LLP. All rights reserved.

This article originally appeared in BDO USA, LLP’s “Nonprofit Standard” newsletter (Fall 2021). Copyright © 2021 BDO USA, LLP. All rights reserved.

2022 Cost-Of-Living Adjustments for Qualified Retirement Plans

The Social Security Administration (SSA) and Internal Revenue Service (IRS) have announced the government’s annual cost-of-living adjustments (COLA) for 2022:

  • There was a notable 5.9% increase in Social Security and Supplemental Security Income benefits, which represents the largest benefits increase since 1982 (2008 comes in a close second with a 5.8% increase).
  • The IRS adjustments consist of generally across-the-board increases, including the IRS annual compensation amounts and limits for elective deferrals. These and other increases reflect the current inflationary environment, in sharp contrast to 2021’s relatively flat adjustments. However, catch-up contribution limits for 2022 remain unchanged.


Code Section 2022 2021 2020 2019 2018
401(a)(17)/404(l) Annual Compensation $305,000 $290,000 $285,000 $280,000 $275,000
402(g)(1) Elective Deferrals 20,500 19,500 19,500 19,000 18,500
408(k)(2)(C) SEP Minimum Compensation 650 650 600 600 600
408(k)(3)(C) SEP Maximum Compensation 305,000 290,000 285,000 280,000 275,000
408(p)(2)(E) SIMPLE Maximum Contributions 14,000 13,500 13,500 13,000 12,500
409(o)(1)(C)(ii) ESOP Limits 1,230,000










414(q)(1)(B) HCE Threshold 135,000 130,000 130,000 125,000 120,000
414(v)(2)(B)(i) Catch-up Contributions 6,500 6,500 6,500 6,000 6,000
414(v)(2)(B)(ii) Catch-up Contributions 3,000 3,000 3,000 3,000 3,000
415(b)(1)(A) DB Limits 245,000 230,000 230,000 225,000 220,000
415(c)(1)(A) DC Limits 61,000 58,000 57,000 56,000 55,000
416(i)(1)(A)(i) Key Employee 200,000 185,000 185,000 180,000 175,000
457(e)(15) Deferral Limits 20,500 19,500 19,500 19,000 18,500
1.61-21(f)(5)(i) Control Employee 120,000 115,000 115,000 110,000 110,000
1.61-21(f)(5)(iii) Control Employee 245,000 235,000 230,000 225,000 220,000
219(b)(5)(A) IRA Contribution Limit 6,000 6,000 6,000 6,000 5,500
219(b)(5)(B) IRA Catch-Up Contributions 1,000 1,000 1,000 1,000 1,000
Taxable Wage Base for Social Security 147,000 142,800 137,700 132,900 128,700


Retirement Plan Corrections Options Available Through EPCRS

Earlier this year, the Internal Revenue Service (IRS) issued Revenue Procedure 2021-30, which provides retirement plan sponsors additional opportunities to use voluntary and self-correction features of the Employee Plans Compliance Resolution System (EPCRS). This guidance continues a trend of the IRS seeking ways to make it easier for plan sponsors to correct errors that may occur in running a tax-qualified retirement plan.


EPCRS consists of three tiers of correction—the Self Correction Program (SCP), the Voluntary Correction Program (VCP), and the Audit Closing Agreement Program (CAP). As their names imply, both the SCP and the VCP are user-initiated programs while the Audit CAP applies to plans undergoing an audit initiated by the IRS. Learn more about EPCRS and the types of errors that can be corrected under the three levels.

Summary of Recent Changes

IRS Rev. Proc. 2021-30 makes a host of changes that affect the ways plan sponsors can address errors through EPCRS. The most prominent of these changes include:

Replacing anonymous VCP submissions with anonymous, no-fee VCP pre-submission conferences: Starting January 1, 2022, the anonymous submission procedure under VCP will be replaced by an anonymous, no-fee, pre-submission conference. Some plan sponsors may view this change as negative because they will no longer be able to file a submission anonymously, but the new system may be even more advantageous for plan sponsors. With the pre- submission conference, plan sponsors can still confer with the IRS anonymously on complex issues and, notably, will not owe a fee if they decide not to move forward with a submission.

Expanded opportunity to self-correct errors by amending the plan document: The notice makes it easier for plan sponsors to self-correct an operational failure by making a retroactive plan amendment. Starting July 16, 2021, plan sponsors can amend the plan document to reflect an increase in a benefit, right, or feature—even if that correction applies to only those participants affected by the problem. In the past, such a correction via plan amendment would have had to apply to all eligible participants.

Extended timeframe for self-corrections: The time allotted to correct certain “significant” operational and plan-document failures has been increased from two years to three years from the year in which the error occurred. Similarly, the notice extends the sunset of the safe harbor correction method for automatic enrollment failures by three years (from December 31, 2020, to December 31, 2023), giving those sponsors who may have missed the earlier deadline for correcting missed elective deferrals more time to act.

New methods for recouping defined benefit plan overpayments: The IRS expanded and simplified the correction practices plan sponsors can use when participants or beneficiaries of defined benefit plans receive annuity payments above what is stipulated by the plan document. The update includes two new overpayment correction methods that further ease the repayment burden of participants and beneficiaries and, if the plan meets certain funding requirements, relieves plan sponsors of the administrative burden of implementing a plan repayment process.

Increased threshold for de minimis failures: Previously, the IRS didn’t require plan sponsors to correct plan overpayments or excess employee or employer contributions of $100 or less. The recent notice increased this de minimis threshold to $250, a change that could reduce administrative stress. For example, if the overpayment is $250 or less (after adjusting for earnings), the plan is not required to seek the return of the overpayment from the participant. The plan is also not required to notify the participant that the overpayment was not eligible for tax-free rollover (unless the overpayment resulted from exceeding a statutory limit). Defined contribution plan sponsors must still contribute any shortages and can still rely on the $75 de minimis rule, which allows the plan to ignore the need for a distribution if the cost of making the distribution exceeds the benefit (up to $75).


Adopt a Procedure for Identifying Mistakes

With the level of complexity involved in maintaining a retirement plan, the occasional procedural mistake is bound to occur. When it does, plan sponsors should act swiftly to self-identify the issue and use the SCP or VCP to begin the resolution process.

As a first step, however, plan sponsors must adopt a procedure for quickly identifying mistakes. In fact, having a procedure in place is a requirement for accessing the SCP. Once established, plan sponsors should conduct regular internal audits to ensure that their procedures remain effective in identifying plan violations and continue to reflect current compliance parameters.

Written by Beth Lee Garner and Joan Vines. Copyright © 2021 BDO USA, LLP. All rights reserved.

Higher Education in the U.S. – Rising Costs, Enrollment Challenges and the Need for Innovative Solutions

By David Clark, CIA, CFE, CRMA, Seth Miller Gabriel, Umer Yaqub

The higher education landscape has changed over the last few decades, with increasing concern regarding declining enrollment and institutions’ ability to drive revenue by attracting and retaining students at levels necessary to support operations. The impact of COVID-19 on colleges and universities has hastened this transformation. Demographic changes, policy changes, rising operational costs and a shifting cost/revenue model have resulted in many institutions facing the very real prospect of closing their doors. Out of this new reality, higher education institutions are seeking innovative ideas to balance budgets and address these unprecedented challenges.

The downturn in higher education enrollment has been forecast for many years. Lower birth rates have been driving down the overall student applicant pool by 2.6 million, or 13 percent, for a decade. The number of college-aged students is expected to drop even more as American families get smaller and the full impact of COVID-19 on the nation’s birth rate is realized. At the same time, the number of international students attending U.S. institutions has also decreased, as tighter visa polices have been established and universities around the world have become increasingly competitive. Lastly, increasing costs of attendance and ballooning levels of student loan debt have many potential applicants questioning the value and need for a “traditional” college education, especially in the face of evolving norms around virtual learning. Rising costs for colleges and universities

As the number of tuition-paying students has decreased, the cost of attracting those students and operating a college campus has increased. Over the last few decades, many colleges have invested in new dormitory, athletic and student center facilities in hopes of enrolling more students. This has come at a cost, not only in terms of construction but also in terms of redirecting investments (such as the maintenance of existing buildings) to these new facilities. Other costs have also increased—including salaries for professors and other staff and the bill for healthcare and other benefits—all while institutions are faced with the very real need to lower tuition costs to support access to higher education.

COVID-19 accelerated these negative economic factors for many schools. Having students attend courses online rather than in person resulted in dormitory rent incomes falling, meal plan cancellations and bookstores closing. Other high-dollar revenue centers like ticket sales for sports events and parent spending during campus visits dried up. This lack of income did not stop personnel costs, building costs (even a closed building costs money to maintain) and debt service costs (as many colleges took loans for those buildings) from continuing.

How public-private partnerships can help

Innovative project delivery, including public-private partnerships (P3s), have the potential to provide institutions with more options when facing changing financial needs, especially related to physical infrastructure. These partnership options can range from changing lightbulbs to relocation of campuses. Energy savings performance contracts (ESPCs), such as one with a private partner designing, installing, financing and maintaining the move to energy efficient LEDs, are one of the easiest solutions for a college to lower its annual expenses. Building maintenance can be transferred to a private partner for decades based on a set availability payment, or an entire campus can be transferred via a sale-leaseback agreement. These structures allow a college or university to address its maintenance backlog (or the maintenance that should have been done to campus buildings and is now a major financial liability) and return its focus to the core mission – education.

The involvement of private investment can also allow for a focus on new, non-education direct revenue for colleges or universities. A P3 structure could allow a college or university to activate unused or underused real estate to generate needed income. Possible projects include developing and operating data centers and lifelong learning communities on campus. These new facilities can also have the added benefit of providing needed internship and career opportunities for students, as well as engaging alumni.

Hope for the future of higher education

From lower enrollment to higher costs, the landscape of higher education is evolving and presenting financial pressures that many institutions have struggled to contend with. While the near and long term remain uncertain, innovative project delivery, optimized long-term facility management and public-private partnerships offer a clear and brighter path forward.

This article originally appeared in BDO USA, LLP’s “Nonprofit Standard” newsletter (Fall 2021). Copyright © 2021 BDO USA, LLP. All rights reserved.

Top Considerations for the Nonprofit Sector

By Divya Gadre, CPA

Since navigating the headwinds of the past year, nonprofit organizations have reimagined their operations to maintain relationships with donors, volunteers and the communities they serve while discovering new means to protect mission funding. Even so, the impacts of the pandemic and calls to further social justice work won’t subside overnight, leaving many organizations continuing to reassess their processes, approaches and impact.

In this article we outline five considerations nonprofits are contending with and how organizations can approach them:

  1. COVID-19 Relief Funds

Since the outbreak of the COVID-19 global pandemic, some nonprofit organizations have benefited from different types of federal financial aid. These include the Paycheck Protection Program (PPP), Economic Injury Disaster Loans (EIDL) and the Main Street Lending program advances and loans, the Higher Education Emergency Relief Fund (HEERF), the Employee Retention Credit (ERC), the Families First Coronavirus Response Act (FFCRA) which paid sick and child care leave and related federal tax credits, shuttered venue relief, special relief for hospitals and healthcare providers, and the ability to defer certain federal payroll deposits interest free. To ensure compliance, nonprofits should consider the following questions:

  • Is your organization covering the same cost by two sources of stimulus funding?
  • Are your costs and stimulus aid accounted for appropriately? Consider whether the funding is a loan or revenue, and investigate potential debt covenant implications. Be mindful of maintaining appropriate controls to process your funding and complying with the specific requirements related to your federal assistance, such as the single audit.

Organizations should involve auditors, bankers and key board members in discussions around managing and abiding by the various requirements of pandemic-related federal financial aid. Nonprofits should be cognizant of any federal program rules (which frequently change) and should be sure to document the organization’s compliance with those requirements.

  1. New Accounting Standards

The Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) 2016-02, Leases, is now effective for many nonprofit organizations. The impacts of adopting ASU 2016-02 include:

  • Lease arrangements have to be classified as either finance leases or operating leases.
  • The right-of-use asset model, which shifts from the risk-and-reward approach to a control-based approach.
  • Lessees will recognize an asset on the statement of financial position, representing their right to use the leased asset over the lease term and recognize a corresponding lease liability to make the lease payments.
  • The lease liability is based on the present value of future lease payments using a discount rate to determine the present value based on the rate implicit in the lease, if readily determinable, or the lessee’s incremental borrowing rate.

To prepare, organizations should discuss the new lease standard with their accounting advisors and evaluate the impact the standard will have on all facets of the organization’s leasing activities. Organizations should also identify and classify all leases based on the criteria in the ASU, and prepare financial statements based on the guidance. The organization should determine if the impact of adopting the standard causes any potential issues with meeting current debt covenants. Lastly, organizations should review current lease disclosures and update them to meet the ASU’s criteria.

The FASB issued ASU 2020-07, Presentation and Disclosures by Not-for-Profit Entities for Contributed Nonfinancial Assets, to increase the transparency of the presentation and disclosure of these items. Important items to note are:

  • The ASU should be applied retrospectively to all periods presented and is effective for annual reporting periods after June 15, 2021 and interim periods within annual periods after June 15, 2022. Early adoption is permitted.
  • The ASU requires that contributed nonfinancial assets be presented as a separate line item in the statement of activities, apart from contributions of cash and other financial assets.
  • The ASU outlines specific disclosures related to contributed nonfinancial assets that organizations will have to add to their financial statements.

To prepare, organizations should discuss this new standard with their accounting advisors and evaluate the impact the standard will have on the presentation and disclosure of contributed nonfinancial assets.

  1. Cybersecurity and Breaches

As many nonprofits have moved to adopt a fully remote or hybrid work environment, there are significantly more employees working from home, using personal devices, internet providers and cybersecurity practices that likely aren’t as robust as an organization’s systems. As a result, there has been an increase in cybercrime, and these occurrences are only expected to continue to rise as bad actors become more advanced. This is especially harmful to nonprofits because of the sensitive information they may have in their records pertaining to staff and the communities they serve. A breach could present significant reputational risk and damage future fundraising efforts and partnerships.

For this reason, it’s imperative that nonprofits prioritize risk management to implement procedures to safeguard against cyberattacks as well as prepare their organizations to respond to a cyber breach. Organizations should develop a robust plan and implement procedures to guide the steps the organization will undertake if a breach were to occur.

  1. Sudden Increased Use of Technology

For some organizations, remote work has highlighted their reliance on manual workflows. Certain internal processes that worked before, such as cross-organization collaboration in communal workspaces and in-person reviews of invoices, are no longer the status quo.

As a result, organizations should reassess systems, controls and processes from a remote work point of view and develop a plan to share with management and board members/committees. The plan should reflect the organization’s goals for adopting technology across departments, a funding plan and actionable steps to facilitate implementation.

  1. Diversity, Equity and Inclusion (DEI)

The events of the past year have drawn heightened attention to organizations’ social impact, and nonprofits should carefully consider their organizational approach to DEI. Begin with an exploration of these terms and define what they mean for your organization and its mission. Consider the following questions:

  • Is your organization prepared to be transparent about the steps it is taking to become more diverse and encourage inclusive practices? How does your organization communicate its values to the public and new or existing staff and volunteers?
  • Does your nonprofit create opportunities to listen to the voices directly from community, grassroots or young leaders in low-income, underserved and/or marginalized populations?
  • How can your nonprofit open its board recruitment and staff hiring pipeline to talented candidates from underrepresented groups?
  • How can your organization work with existing and future collaborative and community partners to ensure they share similar values and approaches to DEI? Are you having these conversations at the onset of new partnerships?
  • How will your nonprofit assess the progress you are making toward your goals? What will success look like?

No matter what stage your organization is in with regard to a DEI strategy, you should ensure that it’s ingrained seamlessly in all processes. Organizations can broaden their view by relying on experts, board members and external consultants, to brainstorm the most impactful approach.

As we emerge from the pandemic, the nonprofit landscape will continue to evolve. To support operational sustainability and social justice work, it’s imperative for organizations to monitor how these considerations impact their mission and processes, and their ability to remain agile enough to adapt to change.

This article originally appeared in BDO USA, LLP’s “Nonprofit Standard” newsletter (Fall 2021). Copyright © 2021 BDO USA, LLP. All rights reserved.

Preparing for Mandatory Lifetime Income Disclosures for DC Plans

As part of the overall movement toward financial wellness, Congress and the Department of Labor (DOL) are focused on giving retirees more visibility into how retirement savings translate into lifetime income. In the Setting Every Community Up for Retirement (SECURE) Act of 2019, Congress required an annual lifetime income disclosure for ERISA defined contribution plans. In August 2020, the DOL issued an interim final rule (IFR) that implements this lifetime income disclosure requirement and provides specifics on what plan sponsors must do to follow it.

The DOL’s IFR lays out the specific assumptions that are required for calculating the annuity amounts and provides model language that plan sponsors can use to describe the calculations. Plan sponsors are allowed to go beyond these baseline requirements, but they need to understand that doing so creates potential liability.

Income Disclosure Required At Least Annually in Two Ways

The rule requires plan sponsors to provide participants’ account balances and illustrate those amounts at least annually in the following two ways:

  • Monthly payments in the form of a single life annuity (SLA)
  • Monthly payments in the form of a qualified joint and survivor annuity (QJSA)

The rule doesn’t require plan sponsors to offer annuities; annuities are simply the method used to give plan participants a sense of their monthly income at retirement. This information is expected to help participants assess their preparedness for retirement and potentially encourage participants who are behind in their retirement savings to increase their contribution amounts.

The interim final rule will take effect on September 18, 2021 and will apply to benefits statements made after that date. Because this is an interim rule, the DOL is taking public comments into consideration before issuing a final version (the comment period closed as of November 17, 2020). The DOL has stated that it intends to issue a final rule in advance of the effective date.

Required Assumptions for Lifetime Income Calculations

The rule outlines four key pieces of information to be used in the SLA and QJSA calculations:

  • Participant’s vested account balance on the last day of the statement period
  • Start date for annuity payments and participant’s age at that time (the calculation assumes that the participant’s annuity will begin at age 67, unless the participant at the time happens to be older than 67, in which case the calculation uses the participant’s current age)
  • Participant’s marital status (note that even if a participant isn’t married, plan sponsors are still required to show a joint survivor annuity, which assumes that the participant’s spouse is the same age as the participant)
  • 10-year Constant Maturity Treasury (CMT) securities yield rate that will be used in conjunction with the appropriate mortality table

Required Explanations and Model Language

Alongside the lifetime income illustrations, plan sponsors must include brief, understandable explanations of 11 items. These items include: benefit start date and age assumptions; marital, interest rate, and mortality assumptions; definitions of SLAs and QJSAs and how they work; the fact that these illustrations are estimates only and don’t constitute guarantees; and other factors to consider which may significantly influence monthly payments.

Plan sponsors can choose to use the DOL’s Model Benefit Statement, which provides model language for each of the required explanations. Plan sponsors can choose to modify the model language to a limited extent, but the DOL has stated that the language used must be substantially similar to the DOL’s model language.

Going Beyond the Standard Disclosures May Create Liability

Many plan sponsors have expressed concern that the DOL’s required baseline assumptions lead to an inaccurate illustration of lifetime income for several reasons, including the fact that they don’t consider any future contributions from participants. If plan sponsors feel that the required disclosures don’t accurately portray the full picture, the DOL allows plan sponsors to include expanded illustrations as long as they are clearly explained and reasonable assumptions are used.

But plan sponsors that are worried about liability issues may want to stick closer to the language in the ruling. The DOL has stated that plan sponsors who use the regulation’s assumptions and model language won’t be held liable under the law if a participant is unable to purchase an annuity equivalent to the provided illustrations.

The DOL’s rule may not be perfect. But plan sponsors should understand that sticking to the model language is the safest route to avoid potential liability. Plan sponsors should review their participant statements and work with their service providers to ensure they are in compliance with the rule once it becomes effective. Your representative can help you review the DOL’s interim final rule.

Plan Sponsor Alert: 401(K) Plan Restatements Required by July 2022

Every six years, the Internal Revenue Service (IRS) requires employers with qualified, pre-approved plans to restate their plan documents – reflecting changes that have occurred since the plan documents were created or last restated. For defined contribution plans, the current restatement cycle – called Cycle 3 – opened on Aug. 1, 2020 and will close on July 31, 2022, meaning all plan documents need to be not only restated by then, but also certified by the IRS, and adopted by employers. Missing this deadline will force plans out of compliance and may result in IRS penalties.

The restatement process involves plan sponsors working with document providers such as third-party administrators and ERISA attorneys to re-write plan documents to include changes from all mandatory and voluntary amendments.

Cycle 3 reflects all legislative and regulatory changes passed before Feb. 1, 2017. Changes that were a result of the 2019 hardship distribution regulations, the 2019 Setting Every Community Up for Retirement Enhancement (SECURE) Act, and the 2020 Coronavirus Aid, Relief and Economic Security (CARES) Act are not part of the restatement but need to be addressed in separate, good faith amendments often called “snap on” amendments.

Plan sponsors may be wondering why restatements are necessary when their plans have been recently amended to reflect these recent changes. Those revisions are good faith, interim amendments; after a six-year cycle, the IRS requires that all pre-approved plans be restated to comprehensively address changes made by interim amendments.

Best Practices for a Comprehensive Restatement Process

Beyond compliance, a plan restatement cycle presents the opportunity to assess whether the plan is working in a way that meets the overall goals of a company’s benefits program and that the plan document is consistent with how the plan is being operated. In addition to navigating changes related to laws and regulations, organizations are constantly evolving and experiencing change to their operations, finances, and workforces—and over a six-year period, these changes can be significant. Specifically, changes caused by acquisitions, divestitures, new hires, recruiting strategies, and other events could necessitate amendments to the plan documents. Plan sponsors should be prepared to review the required materials with legal counsel, committee members responsible for plan amendments, and others to ensure that the new plan documents are compliant.

It is possible to include other discretionary amendments — often at no additional cost depending on the service provider — when completing a plan restatement. These may include:

  • Adding a safe harbor 401(k) feature to automatically pass non-discrimination testing
  • Changing eligibility requirements
  • Adding automatic enrollment or escalation
  • Introducing a Roth deferral or in-plan Roth rollover option

Insight: Get in Touch with Your Document Provider Early

If you use a pre-approved plan and haven’t heard from your third-party administrator, attorney, or other document provider, reach out to them as soon as possible to begin the plan restatement process. Safe harbor plans that require end-of-year participant notifications may want to complete the process even earlier so participant communications include required language from the updated documents.

In general, document providers will base the plan restatement on existing plan terms unless a plan sponsor has requested specific changes. Plan sponsors should have a firm sense of the plan’s processes and procedures because any discrepancy between the restated plan documents and actual operations may result in costly errors or even plan disqualification. An unchecked box in the adoption agreement, a change in the plan’s definition of compensation, or changes to eligibility requirements can become highly problematic. The IRS does have a corrections program, but pre-planning will go a long way in avoiding this step.

Use this as an opportunity to analyze your plan and ensure it is set up in the best way possible to serve your company’s goals.

Written by Beth Garner and Nicole Parnell. Copyright © 2021 BDO USA, LLP. All rights reserved.


OMB Issues the 2021 Compliance Supplement

By Tammy Ricciardella, CPA

On August 12, 2021, the Office of Management and Budget (OMB) issued the 2021 Compliance Supplement (Supplement). The Supplement is effective for audits of fiscal years beginning after June 30, 2020. The Supplement can be accessed on the OMB website.

There are numerous changes in the Supplement this year that will be important for those with federal funding to focus on. Some highlights are as follows:The Supplement is issued annually to assist auditors by providing a source of information related to various federal programs and assist with the identification of compliance requirements. However, auditees, both for-profit and nonprofit, should be familiar with the content included in the Supplement as it relates to their federal funding. The Supplement includes information related to the Provider Relief Fund, Coronavirus Relief Fund (CRF) and Education Stabilization Fund (ESF) among many others.

Part 2, Matrix of Compliance Requirements, is important to review to determine the programs included in the Supplement and the compliance requirements that will be subject to audit. Although auditees need to ensure they comply with all requirements of their agreements from the federal agencies and pass-through entities, the Supplement is helpful to see which compliance areas will be subjected to audit for their major programs.

Part 3, Compliance Requirements, has been updated to reflect the August 2020 Uniform Guidance revisions. In addition, the section for the reporting compliance requirement has been updated to reflect changes to the Federal Funding Accountability and Transparency Act (FFATA) that is applicable for certain major programs. Auditees should be aware of these requirements to ensure they are in compliance with the FFATA reporting.

Part 5, Student Financial Assistance, has been updated significantly to reflect numerous compliance requirement changes.

All recipients with federal funding should read Appendix V, List of Changes for the 2021 Compliance Supplement, and Appendix VII, Other Audit Advisories. Appendix V lists the changes to the programs that were made in the Supplement and Appendix VII focuses on additional guidance on COVID-19 funding and other matters. Appendix VII contains a definition of COVID-19 funding and makes it clear that only funding from one of the following federal programs that was received by an entity as a new program or funding to an existing program meets the definition of COVID-19 funding referred to throughout the Supplement:

  • Coronavirus Preparedness and Response Supplemental Appropriations Act
  • Families First Coronavirus Response Act
  • Coronavirus Aid, Relief, and Economic Security Act (CARES Act)
  • Coronavirus Response and Relief Supplemental Appropriations Act (CRRSAA)
  • American Rescue Plan (ARP)

Appendix VII also outlines how to reflect donated personal protective equipment (PPE) on the Schedule of Expenditures of Federal Awards (SEFA). If an entity received donations of PPE without any compliance or reporting requirements or Assistance Listings (formerly CFDA) from donors, these should be shown at the fair market value at the time of receipt as a stand-alone footnote accompanying the SEFA. In addition, the amount of donated PPE should not be included for purposes of determining if the entity has met the threshold for a single audit.

However, if an auditee receives funds provided under an Assistance Listing, either from a federal agency directly or a pass-through entity, to purchase PPE these amounts would be included in expenditures on the SEFA.

Appendix VII reminds entities acting as a pass-through entity when awarding COVID-19 funds to subrecipients to be sure they are documenting at the time of the subaward the fact that the funds are COVID-19 funds and providing the Assistance Listing number and the dollar amount of COVID-19 funds.

Subsequent to the release of the Supplement, OMB has announced that they plan to issue two Addenda. The first Addendum is to be issued in early Fall and likely include the Coronavirus State and Local Fiscal Recovery Fund (Assistance Listing 21.027) and updates to the Education Stabilization Fund (Assistance Listing 84.425). The second Addendum is to be issued later in the Fall. The second Addendum is expected to include the following three Treasury programs: Capital Projects Fund (no Assistance Listing yet); Homeownership Assistance Fund (Assistance Listing 21.026); and the Local Assistance and Tribal Consistency Fund (no Assistance Listing yet). The second Addendum may include additional new programs.

OMB will post the Addenda to the website when available. The Addenda will not be posted to the OMB website; however, OMB will be responsible for reviewing the Addenda prior to issuance and they will be considered an official part of the 2021 OMB Compliance Supplement.

Appendix IV, Internal Reference Tables, lists all COVID-19 programs arising from the COVID-19 funding listed earlier that have been identified as “higher risk.” The designation of “higher risk” programs from the ARP have not been made yet, so stay tuned for any communication of these in the forthcoming Addenda. The Medicaid cluster continues to be designated as “higher risk” as in prior years.

Programs Designated as Higher Risk per Appendix IV
Agency Assistance Listing (CFDA) Number Title
HHS 93.778/93.777/93.775 Medicaid Cluster
HHS 93.498 Provider Relief Fund
HHS 93.461 Testing for the Uninsured
Transportation 20.106 Airport Improvement Program
Transportation 20.500/20.507/20.525/20.526 Federal Transit Cluster
Treasury 21.019 C cronavirus Relief Fund
Treasury 21.023 Emergency Rental Assistance (This program, was established by the CRRSAA, was not included in the Supplement. )
Education 84.425 Education Stabilization Fund

The designation of these new programs as “higher risk” in the Supplement may result in additional programs being identified as major programs by your auditors in the single audit. Auditees should be aware of this effect and be prepared for this reality. This will mean that additional documentation and support may be required by the auditors.

This article originally appeared in BDO USA, LLP’s “Nonprofit Standard” newsletter (Fall 2021). Copyright © 2021 BDO USA, LLP. All rights reserved.

Provider Relief Fund Updated Single Audit Requirements

By Carla DeMartini, CPA

What is the Provider Relief Fund?

The Provider Relief Fund (PRF) is the federal program issued under the Coronavirus Aid, Relief, and Economic Security (CARES) Act aimed at supporting eligible health care providers in the battle against the COVID-19 pandemic. The PRF is administered by the Health Resources and Services Administration (HRSA). PRF provides relief funds to eligible providers of health care services and support for health care-related expenses or lost revenues attributable to the coronavirus.

There has been considerable time spent by the U.S. Department of Health and Human Services (HHS) in determining how to manage these funds and the timing and nature of audit procedures that would be applicable to these funds. The 2021 Office of Management and Budget Compliance Supplement (Supplement) includes a section on the PRF funds in Part 4, Agency Program Requirements (Assistance Listing 93.498). This section addresses many of the questions related to how and when to report PRF expenditures and lost revenues in both the HRSA reporting portal and on the Schedule of Expenditures of Federal Awards (SEFA).

Key Highlights

Eligible Expenses Timeline

PRF recipients must use payments only for eligible expenses including services rendered, and lost revenues during the period of availability, as outlined in the table below. Providers must use a consistent basis of accounting to determine expenses. PRF recipients may use payments for eligible expenses incurred prior to receipt of those payments (i.e., pre-award costs) dating back to Jan. 1, 2020, so long as they are to prevent, prepare for, and respond to the coronavirus.

SEFA reporting amounts for PRF, including expenditures and lost revenues, are based upon the PRF report that is required to be submitted to the Provider Relief Fund Reporting Portal.

The table below outlines the deadline to use PRF funds and the timing of when to report expenditures on the HRSA portal. This table is excerpted from Part 4 of the Supplement for Assistance Listing 93.498, Provider Relief Fund.


Payment Received Period 

(Payments Exceeding $10,000 in Aggregate Received)

Deadline to Use Funds PRF Portal Reporting Time Period
Period 1 From April 10, 2020 to June 30, 2020 June 30, 2021 July 1, 2021 to September 30, 2021 (HHS has announced there is a 60-day grace period)
Period 2 From July 1, 2020 to December 31, 2020 December 31, 2021 January 1, 2022 to March 31, 2022
Period 3 From January 1, 2021 to June 30, 2021 June 30, 2022 July 1, 2022 to September 30, 2022
Period 4 From July 1, 2021 to December 31, 2021 December 31, 2022 January 1, 2023 to March 31, 2023

Single Audit and SEFA Considerations

Since the PRF amounts to be reported on a recipient’s SEFA are based on the PRF report that is required to be submitted to the HRSA reporting portal and, due to the fact that the PRF report must be tested by the auditors as part of their testing on the reporting compliance requirement under the Supplement, the timing of the single audit needs to be based on when the recipient has filed the required HHS PRF report.

Thus, for single audits of fiscal year ends (FYEs) prior to June 29, 2021, PRF expenditures and lost revenues should be excluded from the SEFA.  For FYEs on or after June 30, 2021, single audits should be delayed until recipients have completed the reporting in the PRF reporting portal.

Summary of SEFA Reporting of PRF for FYEs Covered by the Supplement

For a FYE of June 30, 2021, and through FYEs of Dec. 30, 2021, recipients should report in the SEFA, the expenditures, and lost revenues from the Period 1 PRF report.

For a FYE of Dec. 31, 2021, and through FYEs of June 29, 2022, recipients should report in the SEFA, the expenditures, and lost revenues from both the Period 1 and Period 2 PRF reports.

For FYEs on or after June 20, 2022, SEFA reporting guidance related to Period 3 and Period 4 is expected to be provided in the 2022 OMB Compliance Supplement.

Defining the Entity to be Audited

The reporting entity required for PRF reporting purposes may not align to the reporting entity as defined for financial reporting purposes. It is important to note that the required PRF level of reporting has no bearing on the application of the requirements of 2 Code of Federal Regulations 200.514 for defining the entity to be audited for single audit purposes. Therefore, for single audits that include PRF, the single audit must cover the entire operations of the auditee, or, at the option of the auditee, such audit must include a series of audits that cover departments, agencies and other organizational units that expended or otherwise administered federal awards during such audit period, provided that each such audit must encompass the financial statements and SEFA for each such department, agency and other organizational unit, which must be considered to be a nonfederal entity.

The Supplement notes that as a best practice, recipients of PRF may wish to include a footnote disclosure in the SEFA to identify which providers by Taxpayer Identification Number (TIN) are included in the audit.

Audits of For-Profit Recipients of PRF

The AICPA Governmental Audit Quality Center (GAQC) is still trying to determine the impact and relevance of the above guidance on for-profit recipients related to PRF funding. The GAQC has emphasized to HHS the need for such guidance, and they believe that HHS will be developing additional guidance to address for-profit considerations.

This article originally appeared in BDO USA, LLP’s “Nonprofit Standard” newsletter (Fall 2021). Copyright © 2021 BDO USA, LLP. All rights reserved.

Secure Act Guidance for Safe Harbor Retirement Plans

Employers now have more flexibility in adding or amending safe harbor 401(k) or 403(b) plans, thanks to the 2019 Setting Every Community Up for Retirement Enhancement (SECURE) Act and subsequent guidance from the Internal Revenue Service (IRS). These changes should increase access to the benefits that safe harbor plans offer, such as avoiding administrative costs and burdens of performing certain nondiscrimination tests and strengthening retirement readiness thanks to meaningful employer contributions.

We outline the most significant changes that the SECURE Act made to safe harbor plans. We also explain why plan sponsors should talk with their advisors now about amendments that they may need to make to their plan documents to comply with these SECURE Act changes.

Mid-year and Retroactive Adoption of Safe Harbor Plans

Before the new law, plan sponsors had to adopt safe harbor plans before the beginning of the plan year. Now, plan sponsors can retroactively convert a traditional 401(k) plan to a safe harbor plan that uses employer nonelective contributions.

This option is particularly helpful for plan sponsors that realize mid-year that their traditional plan might not pass nondiscrimination testing for contributions on behalf of highly and non-highly compensated employees. As a reminder, plans that fail nondiscrimination testing generally return a portion of highly compensated employees’ contributions to the employee, which are subject to income tax.

Plans now have until 31 days before the end of the current plan year to retroactively implement a safe harbor plan that makes employer nonelective contributions of at least 3% to all eligible employees. If plan sponsors miss this deadline, they can still retroactively implement a safe harbor plan until the last day of the following plan year, but at this point the minimum nonelective contribution increases to 4%.

Elimination of Annual Notice Requirements for Nonelective Safe Harbor Plans

Before the SECURE Act, plan sponsors needed to send participants annual notices outlining the safe harbor contributions. The IRS guidance clarified that plans that use nonelective contributions to satisfy the safe harbor requirement no longer need to send these annual notices. This change should help reduce administrative burdens for plan sponsors that use the nonelective contribution option. It is important to note, however, that safe harbor plans that use matching contributions must still send the annual notices.

Increased Auto-escalation Contribution Cap

Plan sponsors that automatically enroll participants into a safe harbor plan that uses a qualified automatic contribution arrangement (QACA) must default the employee’s contribution to at least 3% of the employee’s pay with an annual increase of 1% to at least 6%. The automatic escalation of the employee’s contribution previously was capped at a maximum of 10%, but the SECURE Act increased that limit to 15%. Plan sponsors can choose to stop the auto-escalation at an amount lower than 15%, however, as this increase is not a required change. This higher limit could be especially helpful in enhancing the retirement readiness of employees who tend to put their retirement savings on autopilot.


Start Conversations About Safe Harbor Plan Amendments Now

Plan sponsors that use safe harbor plans—or may consider adopting one retroactively—should start conversations with their third-party administrators and other relevant service providers about possible amendments to their plan documents. Many safe harbor amendments, related to SECURE, are due by the end of the first plan year starting in 2022.

Although plans have until the last day of the next plan year to retroactively implement a safe harbor plan using employer nonelective contributions, doing so at least 31 days before the end of the current year will save one percentage point per employee (3% vs. 4%). So now is the time to start doing the necessary calculations to see whether your plan is in danger of not passing nondiscrimination testing.

Written by Beth Garner and Nicole Parnell. Copyright © 2021 BDO USA, LLP. All rights reserved.