Higher Education and COVID-19: Tips for Navigating Federal Relief Funding

When the COVID-19 pandemic took hold in the United States, colleges and universities had no choice but to drastically alter the way they operated. In early March, the University of Washington became the first higher education institution to close its classrooms and facilities, and others soon followed suit as they transitioned to online learning environments to protect their students, staff and the general public.
 
While remote instruction is not new—in fact, the practice has been around in various forms for decades—this sudden shift to online education has impacted more than just students’ and faculty members’ psyches. The abrupt shuttering of campus life has also generated unprecedented uncertainty around the future of higher education institutions and, in turn, questions around how colleges and universities can best utilize federal relief funds. 
 
When the Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law on March 27, approximately $14 billion was earmarked to support postsecondary education students and institutions through the Higher Education Emergency Relief Fund (HEERF). Among other things, HEERF helps colleges and universities mitigate costs associated with the transition to online learning and provides emergency financial assistance to students whose lives were upended by the pandemic.
 
While such federal assistance has undoubtedly provided some relief, BDO’s May 20 webinar, “COVID-19: Higher Education Update,” revealed that many higher education institutions are facing similar hurdles as they plan for their Fall semesters. Here are a few guiding principles they should keep in mind as they continue to navigate this time.
 
Look to the Department of Education for guidance on interpreting new legislation.
Almost all (89 percent) of webinar attendees anticipated that COVID-19 will have a moderately negative or severely negative impact on their institution’s revenue for the Fall 2020 – Spring 2021 academic year.
 
While higher education institutions might be eager to start using federal aid to prevent such losses, it is critical that they have a complete understanding of how they need to distribute and account for funds. Even if done in good faith, devising plans to allocate and track federal relief funds without this clarity can result in accidental misappropriation.
 
The Department of Education is continuing to release clarifications around federal relief funds to help colleges and universities determine which types of aid they are eligible for and which relief programs best suit their needs. The Department has also released guidelines for submitting applications and has shared insights into reporting requirements to help higher education institutions navigate the fund tracking process.  
 
This is especially important for colleges and universities to keep in mind as they monitor the Health and Economic Recovery Omnibus Emergency Solutions (HEROES) Act’s progress and await the passage of the next federal relief package. Looking to the Department of Education’s guidance before enacting a plan can help higher education institutions ensure that they are not caught in a situation where they are viewed as misusing federal funds, even if they had the best of intentions.
 
Determine which funding options best meet your institution’s unique needs.
Federal relief options are not one-size-fits-all. While colleges and universities are facing many of the same challenges right now, they also all have unique factors that can affect which types of federal relief they are eligible for and how they can use these funds.
 
For example, some colleges and universities (which are tax-exempt under Section 501(c)(3) of the Internal Revenue Code) are eligible to receive financial relief through the CARES Act’s Paycheck Protection Program (PPP). Per the Small Business Administration and the Department of the Treasury, only small businesses with 500 or fewer employees (or the appropriate size standard in certain industries) qualify for PPP loans.
 
Colleges and universities that qualify for PPP funding must be mindful of the fact that these dollars may be subject to different requirements than other types of aid geared toward higher education institutions. Since the PPP’s main intent is payroll protection, recipients of PPP loans who wish to qualify for loan forgiveness must ensure that 60 percent of PPP funds are dedicated to retaining employees and keeping their salaries at pre-COVID-19 levels (down from the original 75 percent limit), while the remaining 40 percent can cover other costs, such facility maintenance expenses (an increase over the original 25 percent cap). Although the CARES Act did not include those limits, SBA program rules created them. On June 5, 2020, the Paycheck Protection Program Flexibility Act of 2020 overruled the SBA by legislating the new 60 percent/40 percent allocation for use of PPP loan proceeds that could qualify for forgiveness.  
 
The PPP aside, colleges and universities should research their different relief options to make sure they are maximizing their chances of receiving the aid they need. For example, some Higher Education Emergency Relief Fund dollars are specifically reserved for Minority Serving Institutions (MSIs) such as Hispanic Serving Institutions (HSIs), Asian American and Pacific Islander Serving Institutions (AAPISI), Tribal Colleges and Universities (TCUs) and Historically Black Colleges and Universities (HBCUs). Other institutions may be eligible to receive funding through FEMA or the Department of Health and Human Services for affiliated hospitals or support to first responders.
 
Regardless of which federal applications they pursue, higher education institutions should make sure they understand the requirements associated with any relief funds they receive so that they are set up for success upon reopening in the Fall.
 
Carefully document how you use federal relief funds.
Though it goes without saying, it is imperative for higher education institutions to document how they use federal aid. This way, they are prepared to submit any necessary reporting documents and are in good standing in the event of an audit. Further, HEERF funding is expected to be considered as a part of an institutions’ Singe Audit, so associated controls and support will be expected to be in place.
 
The seasonal nature of higher education employment can make reporting how funds are used uniquely challenging. For example, it can be tricky for colleges and universities to abide by the 60 percent/40 percent PPP use of loan proceeds rule while accounting for the employment fluctuations that may come with adjunct and visiting professors or any other non-tenured positions. Understanding which employees you are counting in your eligible employee totals and diligently recording employment drops associated with temporary positions—along with other non-COVID-19-related departures, such as resignations—might help when it comes to making a case for PPP loan forgiveness.
 
To this end, higher education institutions need to establish and communicate expectations for how funds are to be used, and what documentation must be maintained to support related costs.  Institutions may benefit from creating a committee or task force whose goal is to prevent potential fraud, waste and abuse of federal relief funds. This way, colleges and universities can put formal processes in place that grant them a little more peace of mind when it comes to navigating federal funding requirements.
 
Update your risk planning models as you prepare to reopen.
Nearly half (45 percent) of webinar attendees reported that their largest concern related to COVID-19 was navigating reopening facilities. As we prepare to enter the next phase of recovery—whether it means continuing to hold courses online or introducing new ways to learn and live on campus—higher education institutions must reconsider how they approach and mitigate risk. Learn more about what the return to work might look like for all industries here.
 
If we have learned anything from the pandemic, it is that situations with an extremely low likelihood, but a tremendously high impact pose a much greater risk—and warrant much more preparation—than previously thought. As they say goodbye to their 2020 graduates and plan for their Fall semesters, higher education institutions are leading the charge, not only in the way they are navigating this uncharted territory, but also in the way they are shaping the hearts and minds of our future leaders.
 
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