Discussion Group Questions Related to Paycheck Protection Program
PPP as federal financial assistance
The SBA is on record as saying that PPP is federal financial assistance, though the citation is in the FAQs that were directed at nondiscrimination requirements at faith-based institutions:
"5. [Q] What legal requirements will be imposed on my organization as a result of our receipt of this Federal financial assistance? Will those requirements cease to apply when the loan is either repaid in full or forgiven?
[A] Receipt of a loan through any SBA program constitutes Federal financial assistance and carries with it the application of certain nondiscrimination obligations.”
We have asked whether PPP is considered as federal financial assistance for purposes of the Uniform Guidance, but the SBA has not published any FAQs that address the issue.
Base period for calculating the FTE factor in PPP forgiveness:
Page 16 of the interim final rule on loan forgiveness: "In general, a reduction in FTE employees during the covered period or the alternative payroll covered period reduces the loan forgiveness amount by the same percentage as the percentage reduction in FTE employees. The borrower must first select a reference period: (i) February 15, 2019 through June 30, 2019; (ii) January 1, 2020 through February 29, 2020; or (iii) in the case of a seasonal employer, either of the two preceding methods or a consecutive 12-week period between May 1, 2019 and September 15, 2019. If the average number of FTE employees during the covered period or the alternative payroll covered period is less than during the reference period, the total eligible expenses available for forgiveness is reduced proportionally by the percentage reduction in FTE employees. For example, if a borrower had 10.0 FTE employees during the reference period and this declined to 8.0 FTE employees during the covered period, the percentage of FTE employees declined by 20 percent and thus only 80 percent of otherwise eligible expenses are available for forgiveness”.
This interim final rule includes other details of the forgiveness calculation. The forgiveness form and its related instructions provide the structure of the calculation.
Cost sharing on $100,000 salary cap:
The treatment is the same as the one that grantees would apply to salaries over the NIH salary cap of $197,300: the amount over the cap can’t be shifted to other federal accounts (or to the indirect cost pool) since it would shift a disproportionate amount of the compensation to the other accounts. And if the employee were a direct charge, the amount over the cap would be included in the direct cost base.
Per Uniform Guidance § 200.405 (b): "(c) Any cost allocable to a particular Federal award under the principles provided for in this Part may not be charged to other Federal awards to overcome fund deficiencies, to avoid restrictions imposed by Federal statutes, regulations, or terms and conditions of the Federal awards, or for other reasons."
Per NIH GPS 4.2.10: "None of the funds appropriated in the governing appropriation Act for the NIH (the Act), shall be used to pay the salary of an individual through a grant or other extramural mechanism at a rate in excess of that prescribed in the Act. “
Per NIH GPS 17.3: "A grant application from a university may request the university’s share of an investigator’s salary in proportion to the effort devoted to the research project. The institutional base salary as contained in the individual’s university appointment determines the base for computing that request."
NIH GPS definitions (salaries and wages): "Compensation for personal services covers all amounts, including fringe benefits, paid currently or accrued by the organization for employee services rendered to the grant-supported project. Compensation costs are allowable to the extent that they are reasonable, conform to the established policy of the organization consistently applied regardless of the source of funds, and reasonably reflect the percentage of time actually devoted to the NIH-funded project."
Per Uniform Guidance § 200.451 "Losses on other awards or contracts. Any excess of costs over income under any other award or contract of any nature is unallowable. This includes, but is not limited to, the non-Federal entity's contributed portion by reason of cost-sharing agreements or any under-recoveries through negotiation of flat amounts for indirect (F&A) costs. Also, any excess of costs over authorized funding levels transferred from any award or contract to another award or contract is unallowable. All losses are not allowable indirect (F&A) costs and are required to be included in the appropriate indirect cost rate base for allocation of indirect costs.”
Per Uniform Guidance 200.430 (h)(2): Institutional Base Salary: "(2) Salary basis. Charges for work performed on Federal awards by faculty members during the academic year are allowable at the IBS rate. Except as noted in paragraph (h)(1)(ii) of this section, in no event will charges to Federal awards, irrespective of the basis of computation, exceed the proportionate share of the IBS for that period.”
This is in the section on institutions of higher education, but the concept is the same.
Example: Assume that an investigator earns a base salary of $180,000, and the grantee supports half of his or her salary on the PPP, and the other half on an NIH grant. The PPP has a salary cap of $100,000, so only $50,000 is a PPP-eligible payroll cost. That means that the institution is left with $40,000 ($180,000 times ½, less $100,000 times ½) that it cannot cover with the PPP loan. If that amount were charged to the grant instead, then the grant would be charged $130,000 ($90,000 plus $40,000) for 50% effort. That implies a salary rate of $260,000, which is not only over the NIH cap but is more than the institutional base salary of $180,000. The grantee must absorb the $40,000 (as well as the allocated indirect costs on that amount). Put another way, a hypothetical charge of $130,000 to the grant would represent 72.2% of the salary, which is not "the percentage of time actually devoted to the NIH-funded project,” which is 50%. Alternately, the grantee might claim that the employee continued to work 100% of the time on the grant, though with the PPP loan they did not charge the full $180,000 to it. The difference of $50,000 ($180,000 less the amount not funded by the PPP--$130,000) would be cost sharing.
The same logic would apply to FICA tax, which is not an eligible payroll cost for PPP. It could not be charged to other awards. If a grantee had a fringe benefits rate, they would not be able to reduce the salary and wage base for the PPP and thereby charge the ineligible amount to federal awards through the increased fringe benefits rate that would result. If they charged fringes on an individual basis, they would simply not charge the amount associated with the individual whose payroll costs were covered by the PPP. It would become cost sharing.
Per the AICPA web site (https://www.aicpa.org/interestareas/governmentalauditquality/newsandpublications/gaqcalert/2020gaqcarchivedalerts/gaqcalertno404.html) : "One of the most common questions we have received is whether SBA PPP loans obtained by NFPs are subject to the Uniform Guidance single audit requirements. The good news is that we have recently received an answer to this question. Based on recent discussions with SBA staff, we have been informed that PPP loans made to NFPs will not be subject to single audit...On the other hand, SBA informed us that loans made to NFPs under the EIDL program are considered a direct loan program disbursed from SBA to loan recipients. Therefore, these loans are considered federal financial assistance and are subject to the Uniform Guidance single audit requirements.”