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Topic: Federal

State and Local Cybersecurity Improvement Act Update: Get Started Protecting Sensitive Data and Systems

On May 18, 2021, the House of Representatives passed the State and Local Cybersecurity Improvement Act (SLCIA) to address cybersecurity vulnerabilities and promote additional cybersecurity collaborative efforts between the Department of Homeland Security (DHS) and state, local, tribal, and territorial governments. The bipartisan bill was received in the Senate on July 21, 2021, read twice, and then referred to the Committee on Homeland Security and government affairs, where it has been sitting since. Once it passes, it will go to the President’s desk, where it will then immediately provide incentives to address the increasing danger of malicious cyberattacks on state and local IT infrastructure.

Giving state and local governments the resources to protect against hackers

The SLCIA updates the Homeland Security Act of 2002 to give the DHS leeway to utilize centers like the Cybersecurity and Infrastructure Security Agency (CISA) and Multi-State Information Sharing and Analysis Center (MS-ISAC). This will allow them to work with state, local, tribal, and territorial governments as needed, upon request.

This collaboration will encourage conducting cybersecurity exercises and hosting trainings meant to address current or future cyber risks or incidents. It will also provide operational and technical assistance to state and local governments to implement security resources, tools, and procedures to improve overall protection against attacks. The goal is to provide state and local governments with the support they need to defend themselves from hackers.

Resources to bolster government security capabilities

The SLCIA establishes a $500 million DHS grant program that will empower government institutions to increase their focus on cybersecurity. The bill also:

  • Requires CISA to develop a strategy to improve cybersecurity of state, local, tribal, and territorial governments, enabling them to identify federal resources to capitalize on as well as set baseline objectives for their efforts;
  • Indicates state, local, tribal, and territorial governments must develop a comprehensive cybersecurity plan to guide their usage of any grant money they receive;
  • Establishes a state and local cybersecurity resiliency committee made up of representatives from state, local, tribal, and territorial governments to provide awareness of cybersecurity needs; and
  • Enjoins CISA to assess the feasibility of a rotational program for the detail of approved government employees holding cyber positions.

The bill gives state and local governments the push they need to begin defending their networks. This can include the development of new strategies to boost their cybersecurity capabilities and acquisition of the funding needed to ensure their implementation. By investing in cybersecurity ahead of an attack, an entity is more likely to save money and protect its data.

Assessing eligibility for cybersecurity grants

Cybersecurity grants are available to municipalities of all sizes — but it’s important to start strategizing now by considering your IT infrastructure and cybersecurity frameworks. By applying for the grants, you indicate that you are taking your entity’s security seriously and taking the proper steps to qualify.

The State and Local Cybersecurity Improvement Act will provide up to $1 billion in grants for state, local, tribal, and territorial governments, allowing them to directly address their cybersecurity threats and risks. The program’s funding starts at $2 million for 2022, $400 million for 2023, $300 million for 2024, and $100 million for 2025.

To be eligible, an entity must:

  • Maintain responsibility for monitoring, managing, and tracking its information systems, applications, and those user accounts owned and operated by the government;
  • Show it has a process of continuously prioritizing the assessment of its cybersecurity vulnerabilities and threat mitigation practices; and
  • Have a tangible plan that outlines:
    • How to manage and audit network traffic.
    • How the government plans to use the information to improve its systems’ resiliency and strength.

Our perspective

While the bill is still waiting on the Committee on Homeland Security and Governmental Affairs there are some things you can do to make sure you are ready. State and local governments should focus on building teams that can handle the grant application process — and be prepared to implement once awarded. This bill indicates that governments are past the point of merely updating a firewall or running a generic virus program — things like multifactor authentication and zero-trust architecture are viewed as the next steps (which was required for federal agencies in a 2021 executive order).

How we can help

Prior to starting the grant application process, your IT leaders should start thinking about how to handle security gaps with various procedures and consistent tests. MGO can help. Our Technology and Cybersecurity team can provide guidance as you prepare for the future.

About the authors

Francisco Colon is a Partner at MGO with extensive experience in external audit, fraud examinations, litigation support, operational and internal controls reviews, and buyer/seller due diligence. He specifically focuses on assisting organizations with evaluating and updating their internal controls with a focus on strategic alignment and fraud litigation deterrence management in a variety of industries, including tribal government, gaming, technology, cannabis, hospitality, government contracting, distribution, manufacturing, and private equity. Contact Francisco at [email protected].

Disasters and Your Taxes. What you need to know.

Homeowners and businesses across the country have experienced weather-related disasters in recent months. From hurricanes, tornadoes and other severe storms to the wildfires again raging in the West, natural disasters have led to significant losses for a wide swath of taxpayers. If you’re among them, you may qualify for a federal income tax deduction, as well as other relief from the IRS.

Eligibility for the casualty loss deduction

Casualty losses can result from the damage, destruction or loss of property due to any sudden, unexpected or unusual event. Examples include floods, hurricanes, tornadoes, fires, earthquakes and volcanic eruptions. Normal wear and tear or progressive deterioration of property doesn’t constitute a deductible casualty loss. For example, drought generally doesn’t qualify.

The availability of the tax deduction for casualty losses varies depending on whether the losses relate to personal-use or business-use items. Generally, you can deduct casualty losses related to your home, household items and personal vehicles if they’re caused by a federally declared disaster — meaning a disaster that occurred in an area that the U.S. president declares eligible for federal assistance. Casualty losses related to business or income-producing property (for example, rental property) can be deducted regardless of whether they occur in a federally declared disaster area.

Casualty losses are deductible in the year of the loss, usually the year of the casualty event. If your loss stemmed from a federally declared disaster, you can opt to treat it as having occurred in the previous year. You may receive your refund more quickly if you amend the previous year’s return than if you wait until you file your return for the casualty year.

The role of reimbursements

If your casualty loss is covered by insurance, you must reduce the loss by the amount of any reimbursement or expected reimbursement. (You also must reduce the loss by any salvage value). Reimbursement also could lead to capital gains tax liability.

When the amount you receive from insurance or other reimbursements (less any expense you incurred to obtain reimbursement, such as the cost of an appraisal) exceeds the cost or adjusted basis of the property, you have a capital gain. You’ll need to include that gain as income unless you’re eligible to postpone reporting the gain.

You may be able to postpone the reporting obligation if you purchase property that’s similar in service or use to the destroyed property within the specified replacement period. You also can postpone if you buy a controlling interest (at least 80%) in a corporation owning similar property or if you spend the reimbursement to restore the property.

Alternatively, you can offset casualty gains with casualty losses not attributable to a federally declared disaster. This is the only way you can deduct personal-use property casualty losses incurred in areas not declared disaster areas.

The loss amount vs. the deduction

For personal-use property, or business-use or income-producing property that isn’t completely destroyed, your casualty loss is the lesser of:
• The adjusted basis of the property immediately before the loss (generally, your original cost, plus improvements and less depreciation), or
• The drop in fair market value (FMV) of the property as a result of the casualty (that is, the difference between the FMV immediately before and immediately after the casualty).

For business-use or income-producing property that’s completely destroyed, the amount of the loss is the adjusted basis less any salvage value and reimbursements.

If a single casualty involves more than one piece of property, you must figure the loss on each separately. You then combine these losses to determine the casualty loss.

An exception applies to personal-use real property, such as a home. The entire property (including improvements such as landscaping) is treated as one item. The loss is the smaller of the decline in FMV of the entire property and the entire property’s adjusted basis.

Other limits may apply to the amount of the loss you may deduct, too. For personal-use property, you must reduce each casualty loss by $100 (after you’ve subtracted any salvage value and reimbursement).

If you suffer more than one casualty loss during the tax year, you must reduce each loss by $100 and report each on a separate IRS form. If two or more taxpayers have losses from the same casualty, the $100 rule applies separately to each taxpayer.

But that’s not all. For personal-use property, you also must reduce your total casualty losses by 10% of your adjusted gross income, after you’ve applied the $100 rule. As a result, smaller personal-use casualty losses often provide little or no tax benefit.

The requisite records

Documentation is critical to claim a casualty loss deduction. You’ll need to be able to show:
• That you were the owner of the property or, if you leased it, that you were contractually liable to the owner for the damage,
• The type of casualty and when it occurred,
• That the loss was a direct result of the casualty, and
• Whether a claim for reimbursement with a reasonable expectation of recovery exists.

You also must be able to establish your adjusted basis, reimbursements and, for personal-use property, pre- and post-casualty FMVs.

Additional relief

The IRS has granted tax relief this year to victims of numerous natural disasters, including “affected taxpayers” in Alabama, California, Kentucky, Louisiana, Michigan, Mississippi, New Jersey, New York, Oklahoma, Pennsylvania, Tennessee, and Texas. The relief typically extends filing and other deadlines. (For detailed information for your state visit: https://bit.ly/3nzF2ui.)

Note that you can be an affected taxpayer even if you don’t live in a federally declared disaster area. You’re considered affected if records you need to meet a filing or payment deadline postponed during the applicable relief period are located in a covered disaster area. For example, if you don’t live in a disaster area, but your tax preparer does and is unable to pay or file on your behalf, you likely qualify for filing and payment relief.

A team effort

If you’ve incurred casualty losses this year, tax relief could mitigate some of the financial pain. We can help you maximize your tax benefits and ensure compliance with any extensions.

$432 Billion in COVID-19 Relief Slated for State, Local, and Tribal Governments

Throughout the COVID-19 pandemic, state, local, and Tribal governments have been on the frontlines, organizing and providing essential medical care and navigating the endless complications created by shutdowns in their communities. Until now, these government agencies have received aid to directly support COVID-19 responses, but not address disastrous budget deficits, looming layoffs and other emerging issues.

That all changed on March 11, when President Biden signed the American Rescue Plan Act of 2021 into law. The bill allocates $432 billion in direct financial support to U.S. territories, states, and local and tribal governments. In the following, we highlight how the bill affects state, local, and Tribal governments, and breakdown the details of key provisions.

American Rescue Plan of 2021: Impact on State, Local and Tribal Governments

The American Rescue Plan of 2021 contains wide-ranging programs designed to support state, local, and Tribal governments through the financial crises resulting from the COVID-19 pandemic. These include active support for COVID-19 response and planning, funds for in-state capital improvement projects, emergency housing support, and much more.

Much of the relief funding is allocated and disbursed automatically using metrics that include population, economic conditions, and unemployment rates. While each program has different disbursement details, broadly speaking, payments are delivered in two or more installments, the first coming within a 60-day window following the bill becoming law, and future installments through 2022 and beyond.

Other programs will require state and local authorities to apply for grants based on specific needs.

One of the highlights of the revised funding and plan is looser restrictions on how funds from the Coronavirus State Fiscal Recovery Fund can be utilized. The accepted uses include:
• Funding government services that have been curtailed due to decreases in tax revenue caused by the pandemic.
• Aid to households, small businesses and nonprofits, and impacted industries like tourism, hospitality and travel.
• Making “necessary investments” in water, sewer, or broadband infrastructure.

While potential uses have been broadened, all programs require stringent rules for intended use, tracking and reporting.

Highlights of the American Rescue Plan of 2021

Coronavirus State Fiscal Recovery Fund

Sec. 9901, SSA-Sec. 602

50 States and the District of Columbia receive $195.3 billion in aid:

  • $25.5 billion will be split evenly among each state and the District of Columbia, with each state and the District of Columbia receiving $500 million in aid.
  • $168.55 billion distributed based on each state’s share of total unemployed workers over the period of October 2020 to December 2020.
  • District of Columbia receives additional $1.25 billion.
  • Tribal governments receive $20 billion (further discussion to come).
  • U.S. territories receive $4.5 billion.
  • U.S. Treasury receives $50 million to cover costs of administration of the fund.

Coronavirus Local Fiscal Recovery Fund

Sec. 9901, SSA-Sec. 603

Local governments to receive $130.2 billion in aid to be split among counties, metropolitan cities, and non-entitlement units of local government:

  • Counties receive $65.1 billion in population-adjusted payments, with additional adjustments for Community Development Block Grant (CDBG) recipients.
  • Metropolitan cities receive $45.57 billion.
  • Non-entitlement units of local government receive $19.53 billion, distributed by individual states and funded by the U.S. Treasury. Each jurisdiction receives population-adjusted payments based on such jurisdiction’s share of the state population.

Coronavirus Capital Projects Fund

Sec. 9901, SSA-Sec. 604

$10 billion available for states, territories, and Tribal governments to support critical capital projects directly enabling work, education and health monitoring in response to COVID-19:

  • Each state receives $100 million.
  • U.S. territories receive $100 million to be split among them.
  • Tribal governments and the state of Hawaii receive $100 million to be split among them.
  • Remainder of funds to be allocated to states based on population.

NOTE: The Treasury Department will establish an application process for grants from the fund within 60 days of enactment of the law.

Local Assistance and Tribal Consistency Fund

Sec. 9901, SSA-Sec. 605

$2 billion for eligible revenue-sharing counties and tribal governments:

  • Eligible revenue-sharing counties will receive $750 million allocated based on economic conditions for each FY 2022 and FY 2023.
  • Eligible tribal governments will receive $250 million allocated based on economic conditions for each FY 2022 and FY 2023.

NOTE: Payments from this fund may be used for any governmental purpose other than a lobbying activity and will remain available until September 30, 2023.

Other State, Local, and Government Funding Sources

Additional federal government programs have received funding earmarked to support recovery efforts in states, Tribes, and territories. These funds can be applied for via grant applications depending on each government agency’s circumstances.

Homeowner Assistance Fund

Sec. 3206

$10 billion allocated to states, territories, and tribes through grants to prevent homeowner mortgage defaults, foreclosures, and displacements.

Funds may be used to reduce mortgage principal amounts, assist homeowners with housing payments and other aid needed to prevent eviction, mortgage default, foreclosure, or the loss of utility services.

Funds may also reimburse state and local governments that have provided similar assistance since January 2020.

Each state, along with the District of Columbia and Puerto Rico, will receive at least $50 million. Additional amounts will be set aside for other U.S. territories and tribes.

States, territories, and Tribes receiving funding will have to set aside at least 60% of their allocation to assist homeowners who make less than 100% of the local or national median income.

Homelessness Assistance and Supportive Services Program

Sec. 3205

$5 billion allocated to state and local governments to provide supportive services for homeless and at-risk individuals. Permitted fund uses include tenant-based rental assistance, housing counseling and homeless prevention services, and acquiring non-congregate shelter units.

Low-Income Home Energy Assistance Program (LIHEAP) and Water Assistance Program

Sec. 2911
Sec. 2912

$4.5 billion allocated to fund the LIHEAP program, and $500 million provided in state grants to assist low-income households with drinking water and wastewater services.

FEMA Disaster Relief Fund

SEC. 4005

$50 billion to reimburse state and local governments for the costs of ongoing COVID-19 response and recovery activities, and other emergencies.

Funding to remain available through FY 2025.

Final thoughts

With billions of dollars in aid becoming available to state, local and tribal government agencies, the use of these funds is going to be tracked very closely by federal regulators. If you have any questions about how funds can be utilized, and how to track and report this use, MGO’s dedicated State and Local Government team can help. Contact Us.

Forging a Path Forward: Maximizing Paycheck Protection Program Loan Forgiveness

With the announcement that the Payroll Protection Program (PPP) has been funded a second time, many small businesses that did not receive funding the first time through are rushing to fill out applications and get much needed emergency funding through the Small Business Administration’s program.

For companies that have already received PPP funding, or expect to in this second wave, now is the time to focus on meeting the conditions for maximal loan forgiveness. In the following we will discuss what the PPP loans are intended for, how to use them for those purposes, and finally, how to document that use when applying for forgiveness.

The basics of PPP

In response to the widespread economic fallout of the COVID-19 pandemic, federal legislators introduced the CARES Act, a historically large economic stimulus program. For many businesses, both large and small, the standout from the program was the creation of the Paycheck Protection Program, which offers forgivable loans designed to help struggling businesses retain employees and make other necessary operational costs.

The popular PPP ran out of funds within two weeks of launch – with many small businesses still desperately in need of funds. The program has since been funded a second time, and there may be future waves of funding, depending how long current stay-at-home orders are maintained and the resulting economic distress.

Loans are being disbursed by approved lenders. You can find a complete list of approved vendors here.

You can access the PPP loan application here.

How PPP funds are to be used

The PPP funds have been made available by federal legislators with the primary purpose of helping employers maintain staffing levels and pay for other costs essential to continued operation for the eight week benefit period that begins when the loan is made.

Qualified expenses for PPP loans include:

  • Payroll costs, which include:
    • Salary, wages, and commissions, up to a maximum annualized amount of $100,000 per employee.
    • Note: Severance pay and bonuses are subject to the annualized cap and should be included in payroll costs.
  • Group health benefits, retirement benefits, medical or sick leave, and any state or local taxes assessed on employee compensation.
    • Note: Not applicable if tax credits under FFCRA are taken.
  • Interest on mortgage obligations that originated before February 15, 2020.
  • Rent on lease agreements that were in force prior to February 15, 2020.
  • Utilities, including electricity, water, gas, telephone/internet, and transportation that were placed into service prior to February 15, 2020.

A sample of frequently cited costs that DO NOT qualify as PPP expenses include:

  • Payments made toward the principal portions of mortgages or other debts;
  • Accounts payable;
  • Life insurance payments;
  • Payments of interest on debts established after February 15, 2020;
  • Rent on lease agreements established after February 15, 2020.

Conditions for PPP loan forgiveness

Perhaps the most appealing aspect of the PPP loan program is the offer of forgiveness – up to 100% of the borrowed amount – if you meet specific criteria:

  1. At least 75% of loan proceeds are used to cover the qualifying costs associated with maintaining payroll over the eight-week period that begins the day the loan is made;
  2. Employee headcount levels are maintained;
  3. Compensation levels for employees earning $100,000 or less are maintained; and
  4. No more than 25% of the total loan amount is used on qualified, non-payroll expenses, including utilities, rent, etc.

Accessing PPP Loan Forgiveness

The lenders providing PPP loans will be responsible for determining loan forgiveness. To receive loan forgiveness, borrowers must apply to their lender. Requirements for forgiveness will include:

  • A formal application;
  • Documentation verifying employees and pay rates for the applicable 8 week period;
  • Documentation supporting other qualified, covered expenses;
  • Certification that presented information is true and accurate.

Lenders may require additional documentation, and will determine levels of forgiveness on a case-by-case basis.

Approach to maximizing loan forgiveness – document, document, document

Obviously, the first and most important rule for PPP loan forgiveness is to strictly follow all requirements for how funds can be used within the eight-week period following receiving the loan. But beyond that, an equally essential step is the ability to provide necessary documentation to lenders on how the funds were used to secure forgiveness. Following are some steps for optimizing documentation and record-keeping.

Create an Eight Week Budget Plan
Planning the use of funds will not only help make sure funds are directed to qualified PPP expenses, but will also help make sure the funds are used appropriately within the allotted eight week period.

Track Qualifying Expenses
Keep distinct records of all qualifying expenses PPP funds are used for. Whether a simple Excel spreadsheet or a function of your ERP, tracking expenses will help provide a visual of your organization’s progress, and can be shared with lenders following the eight week period as supplementary documentation.

Utilize Third Party Documentation Whenever Possible
Since payroll costs are at the center of the use of PPP funds, if you use a third party payroll provider, include their reports in your documentation. Similarly for other expenses, save all receipts and other documentation provided by utilities, etc.

Establish Employee Headcount
Maintaining staff numbers is a central component to PPP loan forgiveness. Depending on your organization, you may have time cards or an electronic timekeeping system. Provide copies of the timecards or reports from your timekeeping system to establish you’ve maintained headcount levels.

Rent, Leases and Mortgage Loans
Some lenders may require you to provide copies of rent, lease, and mortgage loan agreements to validate commitments that were in place prior to February 15, 2020. Be prepared to provide copies of these documents when applying for forgiveness.

Communicate with your Lender Ahead of Time
Lenders will have different requirements for establishing PPP loan forgiveness. Maintain an open line of communication with your lender to fully understand the documentation they will need. That way there will be no surprises when it comes time to apply for forgiveness.

Final thoughts

It is important to remember that PPP funds that do not ultimately qualify for forgiveness will convert into low interest loans. With that in mind, it is probably not in your organization’s best interest to bend over backward, altering payroll systems or other operations, to meet PPP forgiveness requirements.

There are a great many technical accounting issues, tax implications, and other complexities surrounding accessing, utilizing, and securing forgiveness for PPP loans. MGO has a dedicated team focused on navigating the various economic stimulus programs enacted to combat the COVID-19 pandemic. To schedule a consultation, please contact us here.

Forging a Path Forward: Maximizing Paycheck Protection Program Loan Forgiveness

With the announcement that the Payroll Protection Program (PPP) has been funded a second time, many small businesses that did not receive funding the first time through are rushing to fill out applications and get much needed emergency funding through the Small Business Administration’s program.

For companies that have already received PPP funding, or expect to in this second wave, now is the time to focus on meeting the conditions for maximal loan forgiveness. In the following we will discuss what the PPP loans are intended for, how to use them for those purposes, and finally, how to document that use when applying for forgiveness.

The basics of PPP

In response to the widespread economic fallout of the COVID-19 pandemic, federal legislators introduced the CARES Act, a historically large economic stimulus program. For many businesses, both large and small, the standout from the program was the creation of the Paycheck Protection Program, which offers forgivable loans designed to help struggling businesses retain employees and make other necessary operational costs.

The popular PPP ran out of funds within two weeks of launch – with many small businesses still desperately in need of funds. The program has since been funded a second time, and there may be future waves of funding, depending how long current stay-at-home orders are maintained and the resulting economic distress.

Loans are being disbursed by approved lenders. You can find a complete list of approved vendors here.

You can access the PPP loan application here.

How PPP funds are to be used

The PPP funds have been made available by federal legislators with the primary purpose of helping employers maintain staffing levels and pay for other costs essential to continued operation for the eight week benefit period that begins when the loan is made.

Qualified expenses for PPP loans include:

  • Payroll costs, which include:
    • Salary, wages, and commissions, up to a maximum annualized amount of $100,000 per employee.
    • Note: Severance pay and bonuses are subject to the annualized cap and should be included in payroll costs.
  • Group health benefits, retirement benefits, medical or sick leave, and any state or local taxes assessed on employee compensation.
    • Note: Not applicable if tax credits under FFCRA are taken.
  • Interest on mortgage obligations that originated before February 15, 2020.
  • Rent on lease agreements that were in force prior to February 15, 2020.
  • Utilities, including electricity, water, gas, telephone/internet, and transportation that were placed into service prior to February 15, 2020.

A sample of frequently cited costs that DO NOT qualify as PPP expenses include:

  • Payments made toward the principal portions of mortgages or other debts;
  • Accounts payable;
  • Life insurance payments;
  • Payments of interest on debts established after February 15, 2020;
  • Rent on lease agreements established after February 15, 2020.

Conditions for PPP loan forgiveness

Perhaps the most appealing aspect of the PPP loan program is the offer of forgiveness – up to 100% of the borrowed amount – if you meet specific criteria:

  1. At least 75% of loan proceeds are used to cover the qualifying costs associated with maintaining payroll over the eight-week period that begins the day the loan is made;
  2. Employee headcount levels are maintained;
  3. Compensation levels for employees earning $100,000 or less are maintained; and
  4. No more than 25% of the total loan amount is used on qualified, non-payroll expenses, including utilities, rent, etc.

Accessing PPP Loan Forgiveness

The lenders providing PPP loans will be responsible for determining loan forgiveness. To receive loan forgiveness, borrowers must apply to their lender. Requirements for forgiveness will include:

  • A formal application;
  • Documentation verifying employees and pay rates for the applicable 8 week period;
  • Documentation supporting other qualified, covered expenses;
  • Certification that presented information is true and accurate.

Lenders may require additional documentation, and will determine levels of forgiveness on a case-by-case basis.

Approach to maximizing loan forgiveness – document, document, document

Obviously, the first and most important rule for PPP loan forgiveness is to strictly follow all requirements for how funds can be used within the eight-week period following receiving the loan. But beyond that, an equally essential step is the ability to provide necessary documentation to lenders on how the funds were used to secure forgiveness. Following are some steps for optimizing documentation and record-keeping.

Create an Eight Week Budget Plan
Planning the use of funds will not only help make sure funds are directed to qualified PPP expenses, but will also help make sure the funds are used appropriately within the allotted eight week period.

Track Qualifying Expenses
Keep distinct records of all qualifying expenses PPP funds are used for. Whether a simple Excel spreadsheet or a function of your ERP, tracking expenses will help provide a visual of your organization’s progress, and can be shared with lenders following the eight week period as supplementary documentation.

Utilize Third Party Documentation Whenever Possible
Since payroll costs are at the center of the use of PPP funds, if you use a third party payroll provider, include their reports in your documentation. Similarly for other expenses, save all receipts and other documentation provided by utilities, etc.

Establish Employee Headcount
Maintaining staff numbers is a central component to PPP loan forgiveness. Depending on your organization, you may have time cards or an electronic timekeeping system. Provide copies of the timecards or reports from your timekeeping system to establish you’ve maintained headcount levels.

Rent, Leases and Mortgage Loans
Some lenders may require you to provide copies of rent, lease, and mortgage loan agreements to validate commitments that were in place prior to February 15, 2020. Be prepared to provide copies of these documents when applying for forgiveness.

Communicate with your Lender Ahead of Time
Lenders will have different requirements for establishing PPP loan forgiveness. Maintain an open line of communication with your lender to fully understand the documentation they will need. That way there will be no surprises when it comes time to apply for forgiveness.

Final thoughts

It is important to remember that PPP funds that do not ultimately qualify for forgiveness will convert into low interest loans. With that in mind, it is probably not in your organization’s best interest to bend over backward, altering payroll systems or other operations, to meet PPP forgiveness requirements.

There are a great many technical accounting issues, tax implications, and other complexities surrounding accessing, utilizing, and securing forgiveness for PPP loans. MGO has a dedicated team focused on navigating the various economic stimulus programs enacted to combat the COVID-19 pandemic. To schedule a consultation, please contact us here.

Forging A Path Forward: CARES Act Loan and Tax Benefit Guidance

As the coronavirus (COVID-19) pandemic continues to have widespread economic impacts, small businesses, nonprofits, and similar organizations have been hit hard.

To help combat the economic fallout from the pandemic, the federal government has introduced sweeping legislation to provide emergency relief via loan and grant programs and tax breaks, credits and other incentives.

Sources of relief include:

Millions of dollars of emergency relief is now available to qualifying organizations, some of which is eligible for 100% forgiveness. Unfortunately application processes are complex and time-sensitive, strict usage rules determine what can be forgiven, and changes to tax code are complex.

MGO has created the attached one-page summary to provide basic details on what your organization may be eligible for, and the levels of relief available.

Download PDF

If you need assistance applying for loans, or applying tax incentives, please do not hesitate to reach out to our team.

The Real Oversight is NOT Having an Audit Committee

By Jim Godsey, CPA, CGMA, Partner, MGO

Everything changes, except when it doesn’t

Time and time again we’ve seen reactions to various accounting scandals, after which new policies, procedures, and legislation are created and implemented. An example of this is the Sarbanes-Oxley Act (SOX) of 2002, which was a direct result of the accounting scandals at Enron, WorldCom, Global Crossing, Tyco, and Arthur Andersen.

SOX was established to provide additional auditing and financial regulations for publicly held companies to address the failures in corporate governance. Primarily it sets forth a requirement that the governing board, through the use of an audit committee, fulfill its corporate governance and oversight responsibilities for financial reporting by implementing a system that includes internal controls, risk management, and internal and external audit functions.

Governments experience challenges and oversight responsibility similar to those encountered by corporate America. Governance risks can be mitigated by applying the provisions of SOX to the public sector.

Some states and local governments have adopted similar requirements to SOX but, unfortunately, in many cases only after cataclysmic events have already taken place. In California, we only need to look back at the bankruptcy of Orange County and the securities fraud investigation surrounding the City of San Diego as examples of audit committees that were established in response to a breakdown in governance.

Taking your audit committee on the right mission

Governments typically establish audit committees for a number of reasons, which include addressing the risk of fraud, improving audit capabilities, strengthening internal controls, and using it as a tool that increases accountability and transparency. As a result, the mission of the audit committee often includes responsibility for:

  • Oversight of the external audit.
  • Oversight of the internal audit function.
  • Oversight for internal controls and risk management.

Chart(er) your course

Most successful audit committees are created by a formal mandate by the governing board and, in some cases, a voter-approved charter. Mandates establish the mission of the committee and define the responsibilities and activities that the audit committee is expected to accomplish. A wide variety of items can be included in the mandate.

Creating the governing board’s resolution is the first step on the road to your audit committee’s success.

Follow the leader(ship)

In practice we see a combination of these attributes, ranging from the full board acting as the audit committee, committees with one or more independent outsiders appointed by the board, and/or members from management and combinations of all of the above. While there are advantages and disadvantages for all of these approaches, each government needs to evaluate how to work within their own governance structure to best arrive at the most workable solution.

Strike the right balance between cost and risk

The overriding responsibility of the audit committee is to perform its oversight responsibilities related to the significant risks associated with the financial reporting and operational results of the government. This is followed closely by the need to work with management, internal auditors and the external auditors in identifying and implementing the appropriate internal controls that will reduce those risks to an acceptable level. While the cost of establishing and enforcing a level of zero risk tolerance is cost prohibitive, the audit committee should be looking for the proper balance of cost and a reduced level of risk.

Engage your audit committee with regular meetings

Depending on the complexity and activity levels of the government, the audit committee should meet at least three times a year. In larger governments, with robust systems and reporting, it’s a good practice to call for monthly meetings with the ability to add special purpose meetings as needed. These meetings should address the following:

External Auditors

  • Confirmation of the annual financial statement and compliance audit, including scope and timing.
  • Ad hoc reporting on issues where potential fraud or abuse have been identified.
  • Receipt and review of the final financial statements and auditor’s reports
  • Opinion on the financial statements and compliance audit;
  • Internal controls over financial reporting and grants; and
  • Violations of laws and regulations.

Internal Auditors

  • Review of updated risk assessments over identified areas of risk.
  • Review of annual audit plan, including status of the prior year’s efforts.
  • Status reports of ongoing and completed audits.
  • Reporting of the status of corrective action plans, including conditions noted, management’s response, steps taken to correct the conditions, expected time-line for full implementation of the corrective action and planned timing to verify the corrective action plan has been implemented.

Establish resources that are at the ready

Audit committees should be given the resources and authority to acquire additional expertise as and when required. These resources may include, but are not limited to, technical experts in accounting, auditing, operations, debt offerings, securities lending, cybersecurity, and legal services.

Taking extra steps now will save time later

While no system can guarantee breakdowns will not occur, a properly established audit committee will demonstrate for both elected officials and executive management that on behalf of their constituents they have taken the proper steps to reduce these risks to an acceptable tolerance level. History has shown over and over again that breakdowns in governance lead to fraud, waste and abuse. Don’t be deluded into thinking that it will never happen to your organization. Make sure it doesn’t happen on your watch.