PPP Loan Forgiveness – A Process to Optimize Results Presented by: George D. Shaw, CPA Kimberley A. Train, CPA, ABV May 1, 2020
DGC FIRM OVERVIEW At DGC, our professional curiosity drives everything we do — how we work; how we advise; how we partner with and seek out value for our clients. Regional firm with over 180 employees including 22 Partners, A Whole New World for Partnership Audits: Overview many with Big 4 experience Offices in Boston and Woburn Significant Partner and Principal involvement in engagements Clients include privately-held businesses, their owners, and high net worth individuals Tax, Assurance, IT Risk and Business Advisory including forensic accounting, cybersecurity, valuation, succession planning, and transaction advisory services Access to global network through membership in Moore Global Network Limited PAGE 2
WELCOME George D. Shaw, CPA Partner gshaw@dgccpa.com 781-937-5125 Kimberley A. Train, CPA, ABV Partner ktrain@dgccpa.com 781-937-5112 PAGE 3
OVERVIEW Objective: We will discuss the Paycheck Protection Program and outline key elements essential to maximizing loan forgiveness. Topics include: CARES Act language and provisions Allowable uses for covered loans Eight-week covered period Dilutive adjustments to forgiveness Restorative adjustments to forgiveness Considerations before you request forgiveness Lender-specific requirements The impact of fraud on the process PAGE 4
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PAYCHECK PROTECTION PROGRAM “Keeping American Workers Paid and Employed Act” The Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) was passed on March 27, 2020 $349 Billion in funds were allocated to the Paycheck Protection Program (“PPP”) Application process opened on April 3, 2020 Funds were exhausted 13 days later on April 16, 2020 The Paycheck Protection Program and Health Care Enhancement Act was passed on April 24, 2020 $310 Billion in additional funds with $60 Billion directed to small banks, small credit unions and community financial institutions The portal opened for applications on April 27, 2020 PAGE 6
RECENT DEVELOPMENTS ON QUALIFICATIONS Certification: “… ability to access other sources of liquidity sufficient to support their ongoing operations” to attest to eligibility to receive PPP funding Retain information and documentation supporting the need for liquidity to support ongoing operations and meet eligibility requirements If eligibility cannot be supported and borrower is concerned about certification, then funds should be returned by May 7, 2020 to be within “limited safe harbor” Public companies, venture capital and private equity firms are under scrutiny Treasury Secretary Mnuchin stated that SBA will audit small business loans above $2 million PAGE 7
ALLOWABLE USES OF COVERED LOANS Payroll costs Salary, wage, commission, or similar compensation Payment of cash tip or equivalent Payment for vacation, parental, family, medical, or sick leave Allowance for dismissal or separation Payment required for the provisions of the group health care benefits, including insurance premiums Payment of any retirement benefit Payment of state or local tax assessed on the compensation of employees Partner compensation is included in payroll costs 1099s to file for separate PPP loan Interest on mortgage obligations or other debts incurred before February 15, 2020 Rent under a leasing agreement that was incurred before February 15, 2020 Utilities for services that began before February 15, 2020 PAGE 8
EIGHT-WEEK PERIOD Begins as of date of first disbursement of loan funds Issues include: State and local government restrictions Industry restrictions Cash vs. accrual Pay periods do not necessarily match eight-week period (see below) PAGE 9
PERCENTAGE OF FORGIVENESS 120% 100% 25% 80% 60% 40% 75% 60% 100% 70% 20% 0% Goal: 100% Forgiveness FTE Dilution Test Wage/Salary Dilution Test Restoration Test PAGE 10
REQUESTED FORGIVENESS 120% 100% 25% Goal = 100% forgiveness 80% Include only allowed costs At least 75% must be used for payroll costs 60% 40% 75% 20% 0% Goal: 100% Forgiveness FTE Dilution Test Wage/Salary Dilution Test Restoration Test PAGE 11
FULL-TIME EQUIVALENT TEST 120% Full-time equivalents (FTEs) 100% Borrower’s choice (benchmark period) 25% February 15, 2019 – June 30, 2019 80% January 1, 2020 – February 29, 2020 Seasonal 60% Twelve-week periods (three options) 40% 75% 70% 20% 0% Goal: 100% Forgiveness FTE Dilution Test Wage/Salary Dilution Test Restoration Test PAGE 12
WAGE/SALARY DILUTION TEST 120% Less than $100K wages and salary (2019) 100% Test for more than 25% reduction 25% Measure covered period against Q1 2020 80% 60% 40% 75% 60% 70% 20% 0% Goal: 100% Forgiveness FTE Dilution Test Wage/Salary Dilution Test Restoration Test PAGE 13
RESTORATION TEST 120% Restore FTE Restore wages and salaries 100% By June 30, 2020 25% 80% 60% 40% 75% 70% 60% 100% 20% 0% Goal: 100% Forgiveness FTE Dilution Test Wage/Salary Dilution Test Restoration Test PAGE 14
FRAUD RISKS Ghost employees Fabricated spending Fictitious documentation Improper certifications Related parties Email scams Risks associated with not knowing your customer PAGE 15
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GUIDELINES FOR FORGIVENESS Place funds in a separate bank account Re-confirm and document eligibility Make sure funds used only for eligible purposes Stay within the eight-week window Track use of funds and document, document, document! Utilize a robust, dynamic model to forecast and track funds Monitor SBA and Department of Treasury websites and/or speak with your CPA Timely application for forgiveness Documentation tips will be included in the appendix PAGE 17
QUESTIONS? PAGE 18
DGC’S PAYCHECK PROTECTION PROGRAM TEAM George D. Shaw, CPA Jackie Reinhard, CPA Partner Principal gshaw@dgccpa.com jreinhard@dgccpa.com 781-937-5125 781-937-5721 Kimberley A. Train, CPA, ABV Rick Strout, CPA Partner Principal ktrain@dgccpa.com rstrout@dgccpa.com 781-937-5112 781-937-5716 PAGE 19
APPENDIX PAGE 20
PAYROLL: WHAT INFORMATION TO GATHER Federal payroll tax reports: 2019 IRS Form 941, Form 940, annual Forms W-3 or 944 Compensation payroll reports (1/1/2019 through 6/30/2020) Gross wages by employee (payroll reports by pay period) State and local employer taxes assessed (SUTA) Group health care benefits, including insurance premiums paid by the organization under a group health plan Employer costs only Do not include employee withholdings for their portion of contributions to the plan Retirement plan benefits paid by the organization Employer costs only Do not include employee withholdings for their portion of contributions to the plan PAGE 21
OTHER COSTS: WHAT INFORMATION TO GATHER Other costs include: (1) Rent, (2) Mortgage Interest, (3) Utilities Provide copies of the following: Cancelled checks (during the eight-week covered period) Wire transmittals (during the eight-week covered period) Invoices Account transcripts Mortgage in effect as of February 15, 2020 Rent agreements in effect as of February 15, 2020 Utilities provide copies of invoices and cancelled checks to demonstrate service before February 15, 2020 PAGE 22
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