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Tax-Exempt Human Service Sector – COVID-19 Update

This article was written and produced by Gerald Archibald, CPA and Terrence Phillips, CPA, The Bonadio Group. Looking to get in touch with Jerry or Terry? Reach out today.

Meeting Daily Business Functions in the Corvid-19 Crisis:

In addition to continuing vital program services during the COVID-19 crisis, tax-exempt human service providers will be required to maintain and continue daily business functions (accounting/financial reporting; human resources; information technology; management, regulatory, and quality service requirements). These daily activities will be provided either remotely or with reduced onsite staffing. Providing vital quality services and maintaining policies and procedures related to critical business functions will result in each organization encountering a number of unique challenges that need to be addressed. These challenges can generally be met by modifying established policies and procedures to address any gaps in services and/or internal controls. In addition to the foregoing, there has been and will continue to be, an avalanche of information on emergency regulations from New York State Oversight Agencies (OPWDD, OMH, OASAS, SED, OCFS, DHCR, and DOH). Each of these human service provider sectors are represented by State-wide human service Provider Associations related to the types of program services provided. Maintaining daily knowledge and updates with respect to this rapid flow of information and regulatory requirements should be assigned to one or more of your Management Team members, preferably in an Emergency Task Force model. As described further below, significant emergency financial aid supports have been and will continue to be offered by federal, state, and local governments. The benefits and requirements of these governmental supports must be thoroughly evaluated and understood by each provider to determine eligibility, application requirements, and quantification of each request for support.

Subject matter experts at The Bonadio Group recognize that provider organizations have been stretched to the maximum related to both management and program service delivery. We believe it is our duty and responsibility to provide you with timely information and support throughout the COVID-19 crisis. Accordingly, this is the first communication in which we are providing helpful and valuable information categorized by separate links. We believe the following links will be expanded as the crisis continues. The information and related links established to date include the following:

1. Federal Emergency Regulations (including CDC Advisories):

2. New York State Emergency Regulations:

3. CARES Act

There are significant provisions for financial assistance in the recently passed the CARES Act for tax-exempt organizations. We recommend that you review the various financial assistance programs (SBA, EIDL, PPP) and determine which best meets your organization’s needs. As part of your review, please develop your assumptions as to future cash flow needs in relation to your organization’s current financial liquidity. This approach should result in a financial assistance request that will clearly support your cash flow needs through June 30, 2020. We fully expect, based on news media reports, that additional stimulus and financial assistance dollars may be made available, depending upon future events related to the COVID-19 crisis.

4. Advocacy and Trade Associations:

Additionally, we’ve received many questions from our clients over the past several weeks, while emergency Federal legislation was being debated and enacted. The following “Top 10 Practical Business Considerations” should be considered vital to meeting the impact and challenges for Tax-Exempt organizations associated with the COVID-19 crisis.

Prepare a Rolling 13-Week Cash Flow Projection – Organizations’ Management Teams must evaluate and consider the impact on the organization’s cash flows caused by the COVID-19 crisis. Typical areas of consideration include, but are not limited to, the following:

  • Necessary closure of any program services.
  • Additional services and supports necessary in 24/7 residential programs.
  • Impact on governmental and non-governmental revenue sources.
  • Consideration of financial incentives for staff who continue to provide direct services.
  • Maintaining timely billing processes and including periodic collection follow-up procedures.
  • Identifying and quantifying all other cash flow impacts from other sources (e.g., grants, Foundations, deficit funding contracts, etc.).

Obviously, we all know that a critical component of meeting the challenges of COVID-19 will be to understand and predict the amount of cash and credit financing available to your organization on a prospective basis. The preparation of reasonable assumptions and a rolling 13-week cash flow projection will provide you with the vital information necessary to manage financial resources as efficiently and frugally as possible.

Billing Cycle Management – Any interruption of typical cash flow during a crisis must result in organized and coordinated efforts to maintain reasonable cash flow from third party payors, grants, and other revenue sources. For example, Governor Cuomo’s mandatory closures of schools and day programs as well as emergency proclamations has prompted State oversight agencies to issue modified regulations and procedures related to program services, billing, and documentation requirements. Of particular importance is the mandatory requirement for each organization to understand and implement the appropriate policies and procedures to expedite billing and collection processes. A specific example in this area includes the changes made to EMEDNY procedure codes to establish new billing codes, which may or may not impact on the timing of future cash flow for program services provided.

Unemployment Insurance Impact – Many tax-exempt service providers are self-insured for NYS Unemployment coverage. Self-insurance for unemployment costs results in additional negative financial impact to the provider agency if temporary or permanent layoffs have been implemented. Alternative considerations to minimize the impact of unemployment costs include, but are not limited to, staff job sharing, reassignment of responsibilities, and potentially outsourcing your employees to another provider, as opposed to a direct layoff of personnel who will apply for unemployment benefits. The Federal emergency legislation known as the CARES Act provides certain loan incentives and other financial support to encourage employers to continue staff employment through June 30, 2020. The information provided in the topical links included above will provide more detail related to these areas of support.

4. Health and Workers Compensation Insurance – Each employer may have variable fringe benefit models for health and/or workers’ compensation coverage. Most employers fall in the following categories:

  • Self-insured
  • Experience rated
  • Community rated
  • High deductible
  • Consumer directed

We strongly recommend that you contact your insurance broker to request any and all recommendations that could be implemented to mitigate the risk of increased costs to your organization as a result of incremental COVID-19 claims. In addition to regulatory precautions recommended by government sources, we believe that timely and frequent recommendations from your insurance broker and/or insurance carriers will be critical to effectively managing incremental costs in both mandated and non-mandated fringe benefits. Please implement procedures to maintain contemporaneous documentation related to any incidents / accidents that may occur during the COVID-19 crisis time frame.

Regulatory and Compliance Recommendations – It is important that each organization continue its ongoing efforts in maintaining an effective Compliance Program.  With the rapidly changing regulatory environment, it is critical that each Compliance Program have a plan in place to identify, process, and address each regulatory update for all affected programs and departments.  We recommend that Compliance Committee meeting agendas include these areas.  During this time of crisis, it may be beneficial for an increase in the frequency of the Compliance Committee meetings, to be able to adequately address the rapidly changing environment.

Information Technology/Enterprise Risk Management – For employees who don’t normally work remotely, these times can be daunting and frustrating. Internet service providers such as Spectrum, Comcast, and Verizon are being overwhelmed by almost the entire country working from home and using their Internet connections. This can bring slight delays in Internet communications from remotely connecting to an employee’s work network, to using services such as Zoom and Webex for remote meetings. In addition to Internet connection speeds, information security concerns abound, especially for those who deal with protected health information. Provider employees may unknowingly take pictures of their work from home technology while inadvertently displaying a screen of protected health information or the type of technology being used, giving hackers the ability to target that specific user or provider. The same HIPAA security and privacy measures should be taken when working from home as if working in the office. For example, anything printed at home should not be left in the open. If it contains protected health information, do not throw that paper in the garbage without shredding it. If you don’t have a shredder, save it to be shredded once you return to work.

Human Resources: Recruitment, Retention, and Training – Almost every organization has acknowledged that qualified and well-trained staff are their most important and valuable asset. The COVID-19 crisis requires every employer to ensure that all safety and health requirements are met. Accordingly, each employer should evaluate and consider modifications to its traditional procedures in recruiting, assignment of staff, wage structures (e.g., enhancements), and disciplinary processes. Last week, 3.2 million Americans applied for unemployment, and as a result, the workforce crisis and low unemployment statistics have reversed. Given the requirements of social distancing, recruiting, retention, and training of personnel, organizations must make maximum use of on-line applications. Those individuals who have recently been laid off may represent an excellent source of new applicants for your personnel vacancies.

Financial Procedures to Recognize COVID-19 Loss – Almost every tax-exempt organization will experience loss of revenue and incremental costs directly associated with the COVID-19 crisis. Accordingly, Organization Management, specifically your Finance Office, should implement and maintain separate and distinct account codes that will accurately track revenue loss and incremental costs associated with the COVID-19 crisis. This approach may require the use of new account and departmental codes, and modified labor distribution codes (e.g., payroll incentives, shift differentials, and program location changes). The objective of this recommendation is to ensure that all relevant documentation is maintained for purposes of identifying revenue losses and incremental costs in support of Business Interruption insurance claims and/or applications for additional Government / Foundation financial support.

Stakeholder Communications– During the course of the COVID-19 crisis, it will be critical for organizations to have timely and informative communications with key stakeholders. These communications must demonstrate that your organization has the ability to communicate timely, clearly, and effectively to funders, program service recipients, parents, families, employees, Board members, and contributors, among others. These communications should be focused on the topics of service quality and continuation, financial stability, and requests for additional financial / volunteer support. We believe that maintaining regular and routine communications with key stakeholders is imperative throughout the COVID-19 crisis.

Mitigating the Risk of Fraudulent Transactions – The requirements of social distancing and working from home fundamentally change daily, weekly, and monthly internal control procedures for many tax-exempt organizations. The COVID-19 working requirements increase the possible occurrence of fraudulent transactions, errors, or omissions since the normal internal control environment is not being followed. We believe that whenever Management or staff personnel are working from remote locations, the validity and accuracy of essential business function transactions (e.g.., payroll processing, cash disbursements, cash receipts, vendor payments, loan/banking transactions, and ACH revenue remittances) are at an increased level of risk.  Accordingly, we recommend that Management evaluate and identify those essential business functions and internal control procedures that are impacted by temporary changes in its normal processes (e.g., remote working arrangements). Corrective action procedures should be implemented to reduce the risk of fraudulent transactions, errors, or omissions occurring without being detected.

For more information please reach out to Jerry Archibald and Terry Phillips or the following names below:

The information and advice we are providing for this matter relates to COVID-19 legislative relief measures. Because legislative efforts are still ongoing, we expect that there may be additional guidance and clarification from regulators that could modify some of the advice and information provided to you, after the conclusion of our engagement. We therefore make no warranties, expressed or implied, on the services provided hereunder.