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Posted by Mike Burns on Fri, Mar 27, 2020 @ 05:30 PM

Coronavirus 3Repercussions from the COVID-19 virus affect almost every facet of your not-for-profit’s operations, from the delivery of your services to managing your workforce. Many cultural organizations and educational institutions must grapple with the public health safety measures that may have temporarily shuttered their operations. Protecting your employees and staff from contracting the highly contagious COVID-19 virus may be resulting in new policies around meetings, and remote work arrangements. To help protect your staff still on the premises, you may be called to increase the frequency and scope of your cleaning services.

At the same time, organizations must grapple with the impact the coronavirus disease 2019 is having on the financial markets, which could affect everything from future endowment draws, bank covenants, and future fundraising. The following provides some tips to help your not-for-profit manage the various ramifications of the COVID-19 virus.

Provide Regular Communications with Employees, Board Members, and Other Stakeholders

The most important step organizations can take for the COVID-19 virus is to establish ongoing communication with your employees and key stakeholders. As new developments emerge, your organization should be prepared to update its response plan and readjust expectations about any COVID-19 virus-related operational impacts. State governments and federal directives continue to change as we collectively understand more about the U.S. impact of coronavirus disease 2019.

Take Advantage of Paid Leave Tax Credits

To help organizations address the impact the COVID-19 pandemic is having on the workforce, Congress established paid sick leave and associated tax credits. The Families First Coronavirus Response Act signed into law on March 18 contains two components that have a corresponding tax credit for organizations. The first requires organizations with fewer than 500 employees to provide paid sick leave for employees who are unable to work because they are experiencing coronavirus symptoms or they must care for quarantined family members or children whose childcare/schooling have been closed as a result of the pandemic. Organizations with less than 50 employees are exempt if to provide paid leave would jeopardize their ability to continue as a going concern. Not-for-profit organizations can claim a refundable payroll tax credit for employees that use the coronavirus paid sick leave program equal to the applicable per-employee daily benefit, not to exceed the applicable per employee-cap. (Further details on the amounts and program can be found here).

A related provision establishes a family leave credit for employees. The coronavirus family leave provision requires employers to provide paid leave for employees who cannot work due to the COVID-19 virus’s impact on childcare arrangements described above. Under the coronavirus family leave program, the rate of pay during the leave is required to be at least two-thirds of the employee’s pay, not to exceed $200 per day (maximum $10,000). The employer tax credit or the family leave is equal to the paid leave.

Establish Parameters for Work from Home Arrangements

Your organization will need to decide which types of policies it will put in place to support alternative working arrangements. Information technology teams should ensure VPN and other remote access points are functioning and well-protected as more employees may be compelled to use off-site work locations.

Address Travel Restrictions

Fundraising events, conferences, and other large gatherings may need to be reconfigured indefinitely to account for the public health safety measures state and local governments are putting in place. Examine your organization’s calendar and consider how you might need to adjust organizational functions that require travel to allow for remote access. For example, could your fundraising event be turned into an online silent auction? Could your annual town hall-style event be a webinar?

Your employees’ travel insurance might not cover expenses for travel-related events affected by the COVID-19 virus. Some plans allow for “cancel for any reason claims.” Many travel cancellation and interruption plans, however, exclude refunds for cancellations that result from epidemics or pandemics.

Prepare Board and Donors for Implications of Stock Market Volatility

The COVID-19 virus financial market disruption could affect fair value measurements for endowments. If you follow a fiscal year, your not-for-profit may experience significant declines in its year-end endowment values that could affect future endowment usage. For example, a 30% decline in endowment values would — for most organizations — speak to a reduction of the forward spending policy by 10%, assuming a three-year rolling average on spending is used.

Rules around underwater endowments may have a ripple effect on the programs supported by the endowment. Many organizations have a policy of not spending from such funds, notwithstanding local laws that may allow for underwater endowment spending. It may be wise to reconsider these endowment polices as necessary. Some organizations may decide that a higher spending policy is temporarily needed. It is not too early to model out possible effects based on different scenarios, such as if the volatility surrounding the pandemic were to continue for longer than several weeks.  

Another area affected by the financial market volatility involves your debt covenants. Organizations should stress test debt covenants now to consider possible impacts, such as revenue reductions and investment losses. Some debt covenants are required more frequently than at year end, which would cause auditors to look at the possibility of forward violations. Work with your auditors and financing partners to evaluate whether debt covenants need to be restructured. Related to your debt covenant risk is the risk that may exist with your depositary institutions. While there have been few bank failures of late, the impact of unexpected events can be swift and increased monitoring of the stability of your counterparties would be prudent to make sure cash balances and are not at undue risk. 

Your organization should work with its accounting provider to measure the potential ramifications of the market volatility we experienced in the first quarter 2020 as a result of the COVID-19 virus pandemic so that it can communicate the financial impact to its board and key donors. Financial statement disclosures may be needed because the COVID-19 virus’ status as a pandemic classifies it as a Type II subsequent event, or an event that creates a degree of forward uncertainty that merits disclosure.    There are other disclosures that may be required based on business closures, threats to forward business, and other considerations. We expect most footnotes will need to have some degree of disclosures of this type. 

Communicate What Your Insurance Policy Does and Does Not Cover

Many property and casualty insurance policies contain business interruption provisions to help organizations recover if they are forced to close due to unforeseen events. Viral infections and other communicable diseases, however, are specifically scoped out of most business interruption clauses. It will be important to alert board members and other members of your leadership team about the types of insurance assistance you can expect to receive for disruptions caused by the COVID-19 virus. Your directors and officers (D&O) insurance might also have epidemic/pandemic exclusions.

Work with your insurance agent or other advisors like CBIZ Insurance to understand what kind of claims may be valid under existing policies to help your organization recover from COVID-19 virus operational disruptions.

Stay Tuned for More Information

The situation around the COVID-19 virus continues to evolve. The National Council of Nonprofits has asked Congress to consider additional relief for the not-for-profit sector, such as extending an upcoming IRS filing deadline and providing more flexibility around access to coronavirus pandemic aid. Our team will continue to provide updates as information becomes available through our coronavirus resource center. For more information, please contact us.

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Mike Burns is a Managing Director at CBIZ &MHM and is the National Not-for-Profit Practice Leader. He can be reached at 617.761.0584 or mburns@cbiz.com

 

 

 

 

 

Tags: accounting, Non-profits, NFP, Mike Burns, COVID19, Coronavirus, Families First Coronavirus Response Act, COVID-19

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