As a SED provider, I truly feel for you. You have had the unenviable task of having to pivot from in-person to remote learning, you have had to find ways to meaningfully connect with your students and their families, you have seen significant (20 to 25%) declines in enrollment and related revenue, you have experienced regulatory overload and lack of guidance all at once, and yet you have come together to continuously look to make a difference in the lives of the special children you serve. We applaud you for your hard work and dedication.
Now, when you normally would be going into the holiday season, a festive time, we continue to see jumps in COVID cases that have completely hampered how you run your program and have put you and your staff at risk. In addition, due to modification of the CFR software to include additional COVID-19 related schedules, you still have the filing of the CFR ahead of you, with more work needed to pull those schedules together. We are unsure what SED will do with the additional analysis of the impact of COVID on providers, but it is pretty clear that COVID will continue to impact providers through the end of the 2020/21 school year and maybe even beyond.
As 2020, a year that will live in infamy, comes to a close, here are some things to consider:
- EI providers have been somewhat buoyed by their ability to hold onto students past September while 3 year olds have been getting evaluations to move into preschool. It is anticipated that EI providers will see a larger than normal drop in January as these children age out of EI. This should be evaluated and properly budgeted for.
- In April of 2020, SED sent its recommended methodology to the Division of Budget (“DOB”) for approval. While the methodology did not include any rate increases, it did call for a 5 year reconciliation process for 4410 and 853 schools and the addition of a 1% corridor for 4410 schools to match what already exists in the 853 schools. This revised methodology would be tremendously beneficial to providers, especially in a period where enrollment is off, which most likely will result in overspending. In conversations with DOB, there does not seem to be a tremendous level of support for the 5-year methodology. This is something that providers should be pushing hard for, as without it, we stay with the one-year reconciliation process which most likely will mean the need to file waivers to be made whole and potentially the need to cut costs and staff for the balance of the year.
- With the drop in enrollment, providers have needed to streamline budgets, often in the area of direct costs. This could result in providers hitting non-direct care screens for the year. We urge providers to analyze their spending through the creation of a mock CFR for the year to determine if they are hitting non-direct care screens. While RSU and DOB may be more willing to entertain non-direct care screen waivers for 2020/21 due to the pandemic, they have historically not looked favorably on non-direct care screen waivers. As a result, you may need to determine what adjustments can be made to limit your potential exposure.
- SED has not yet provided full guidance on how 1:1 reimbursement will work, especially in light of how service delivery has been dynamic, bouncing between in-person and remote learning. SED is developing methodology that will prorate the 1:1 aide payment to remove payment for those days a child is scheduled to receive remote services. The preliminary methodology, however, does not yet consider how providers will get paid for these services throughout the year. The lack of payment to date has put significant cash flow strains on providers who have been paying for 1:1’s but have not yet been funded for them.
- Furthermore, even though you have been forced to dramatically change the way you are doing business and where you are doing business, with many of your staff working remotely, you still need to remember that controls and documentation are still important. While appendix J of the current CFR provides some alternative allocation methodologies in light of the COVID pandemic, the OSC continues to perform audits of providers and issue finding reports, albeit not at the same frequency as before the pandemic (only 2 reports have been issued since March 1, 2020, with a couple more anticipated before year-end). Some areas that have received OSC attention in more recent audits are:
- Are pension plan contribution levels in line with plan documents and were staff who received them eligible to
- Are benefits proportionately similar across all staff, or is the management team getting a higher level of benefits
- Did outside service contractor invoices contain appropriate detail of services provided (hours, dates of service, etc.). This is required for both direct service contractors as well as contractors performing administrative services
- Was offsetting revenue recorded to the correct program within the CFR
- Are cost allocations appropriate and in line RCM and CFR guidance
- Are all charges to the CFR properly supportable with appropriate documentation, given the nature of the expenditure charged
We know that many of you were able to get a PPP loan, which has helped to provide much needed cash flow relief. Under current SED guidance, PPP loan forgiveness should be reflected as part of federal grants on CFR-1, which would result in PPP loan forgiveness being treated as offsetting revenue. We are uncertain if any additional guidance will be forthcoming from SED regarding the treatment of PPP loan forgiveness. You have 10 months from the end of your 24-week forgiveness period to apply for forgiveness. For most of you, that will take you past the end of the current fiscal year and you will have a better understanding of how forgiveness will impact your 2020/21 CFR or if any new guidance has been issued by SED.
For those of you who were not able to procure a PPP loan, you may still qualify for some relief through the ERTC program. If you are eligible (nonprofits are eligible), you could qualify for relief of up to 50% of staff salaries and health benefits up to a maximum of $5,000 per employee. You are only eligible for ERTC relief if you did not receive a PPP loan. In order to be eligible you must meet one of the following two criteria:
Eligible Employers for the purposes of the Employee Retention Credit are employers that carry on a trade or business during the calendar year 2020, including tax-exempt organizations, that either:
- Had fully or partially suspended operation during any calendar quarter in 2020 due to orders from an appropriate governmental authority limiting commerce, travel, or group meetings (for commercial, social, religious, or other purposes) due to COVID-19; or
- Experienced a significant decline in gross receipts during the calendar quarter. A significant decline in gross receipts begins with the first calendar quarter in 2020 in which an employer’s gross receipts are less than 50 percent of its gross receipts for the same calendar quarter in 2019. The significant decline in gross receipts ends with the first calendar quarter that follows the first calendar quarter in which the employer’s 2020 quarterly gross receipts are greater than 80 percent of its gross receipts for the same calendar quarter in 2019, or with the first calendar quarter of 2021.
The rules here are pretty complex, so you may want to speak to your accountant or attorney to see if you qualify.
2020 is coming to a close. Hopefully, we will never have another year with so much loss, unrest, uncertainty, isolation, and controversy again. It has been a difficult year for many … I am truly sorry for those of you who have lost loved ones. Even so, 2020 taught us that we are resilient, we are dynamic, we are resourceful, and we can continue to make a difference even through the most adverse conditions. Here’s looking to a much better 2021.
Please let us know if we can help in any way … stay safe and stay strong!
Kenneth R. Cerini, CPA, CFP, FABFA
Ken is the Managing Partner of Cerini & Associates, LLP and is the executive responsible for the administration of our not-for-profit and educational provider practice groups. In addition to his extensive audit experience, Ken has been directly involved in providing consulting services for nonprofits and educational facilities of all sizes throughout New York State in such areas as cost reporting, financial analysis, Medicaid compliance, government audit representation, rate maximization, board training, budgeting and forecasting, and more.