Welcome to our Webinar

u Copies of this presentation and other resources can be found at https://ceriniandassociates.com/coronavirus-updates/

u Our presentation is based on all information and is current as of April 15, 2020. Any key changes that have occurred may not be reflected in this presentation.

u The information provided is based on our interpretation of the CARES Act after reviewing the law and consulting with other sources.

u This webinar & information is for educational purposes only and cannot be used to contest any IRS, SBA or other penalties or assessments. We make no guarantees regarding your eligibility for these programs or any related benefits.

u We will make every effort to answer questions at the end of the webinar, time permitting.

u Thank you for your attendance!

Tips & Best Practices on Use of PPP Funds

April 15, 2020

3:15pm – 4:15pm

About the Speaker

u Founder & Managing Partner at Cerini & Associates, LLP

u Industry Expertise includes nonprofit organizations, educational organizations & healthcare providers.

u Contact Information

kcerini@cerinicpa.com

About the Speaker

u Tax Director at Cerini and Associates, LLP

u Industry expertise includes Healthcare, Financial Services, Technology, Professional Services, State and Local Taxation, & International Taxation

u Contact Information:

emcwilliams@cerinicpa.com

What we plan on covering today

u Updates on the PPP Program

u Permitted Uses & a look toward forgiveness

u Best Practices for tracking and internal control environment around the PPP Funds

PPP Program Updates

PPP Program Updatesu Many of our clients and contacts have received funding!

u Nearly every major bank has a system online, but some are working more efficient than others.

u Most banks are still not accepting new customers for these loans.

u Additional non-bank lenders have been approved

u Square

u Paypal

u Intuit (Quickbooks)

u Estimates are that 60% of the available funding has been committed to approved (ETRAN assigned) loans.

u Talks of legislative support to increase funding but has stalled.

u FAQs provided an additional measure – alternative size standard – to allow funding

Permitted Uses & A Look Toward Forgiveness

Permitted Uses of PPP Loan ProceedsCategory Permitted Uses of PPP Loans Forgivable Uses of PPP Loans

a Payroll Costs Payroll CostsRent RentInterest on Mortgages Interest on MortgagesUtilities UtilitiesGas, Electric, Water, Telephone Gas, Electric, Water, TelephoneInternet Internet

c Interest on prior debt

Up to 25% of the PPP loan can be used for category b and c uses; 75% mustbe spent on category a. This limitation is no longer on forgiveness but also onuses.

Payroll costs include cash compensation up to $100,000 per year annualized,group health benefits, retirement contributions and State & Local taxes.

b

DON’T FORGET – THE FORGIVENESS CLOCK STARTS 8 WEEKS FROM DISBURSEMENT!

Example: General BackgroundAn organization has 100 employees and an annual wage expense for 2019 of $9,000,000. There are healthbenefits of 1,000,000 per year and a retirement contribution of $500,000. There are 10 employees who makemore than $100,000 per year, totaling $700,000.

Their PPP Loan is calculated as follows:Wages 9,000,000$ Total Payroll Cost 10,500,000 Less: Comp in Excess of $100,000 (700,000) Health Benefits 1,000,000 Retirement Contribution 500,000 Total Payroll Costs 9,800,000$ Average Monthly Payroll (/12) 816,667 Multiplier 2.5 PPP Loan Amount 2,041,667$

The organization has a monthly lease of $190,000, inclusive of utilities and pays payroll 2x per month. Theorganization pays an average of $10,000 per month in interest on a prior debt obligation, interest only.

Scenario 1 – No turnover, layoff, comp changes

Wages 9,000,000$ PPP Loan Amount 2,041,667$ Health Benefits 1,000,000 PPP Uses (2,033,333) Retirement Contribution 500,000 Excess Loan Received 8,333 Total Payroll Costs 10,500,000$

Per Period 437,500 Forgivable Uses 2,013,333

Loan Proceeds Outside $ Total FTE Covered Period 100 Payroll 1 408,333 29,167 437,500 FTE Base Period 100 Payroll 2 408,333 29,167 437,500 %age retained 100%Payroll 3 408,333 29,167 437,500 Reduction - Payroll 4 408,333 29,167 437,500 Salary Reduction >25% - Rent 190,000 190,000 Periods 4 Rent 190,000 190,000 Reduction - Interest 10,000 10,000 Total Reductions - Interest 10,000 10,000 Loan Forgiven 2,013,333 Total Uses 2,033,333 116,667 2,150,000 Loan Balance 28,333

*based on current understanding of forgiveness – no regulations issued. Subject to change.

Scenario 2 – reduction in staffThe organization had 1 employee leave voluntarily on January 15, 2020 and a second laid off on February15, 2020. The employees did not make over $100,000 per year, had salaries of $92,222, health benefits of $10,000 and retirement benefits of $5,000.

Wages 8,815,556$ PPP Loan Amount 2,041,667$ Health Benefits 980,000 PPP Uses (1,997,593) Retirement Contribution 490,000 Excess Loan Received 44,074 Total Payroll Costs 10,285,556$

Per Period 428,565 Forgivable Uses 1,977,593

Loan Proceeds Outside $ Total FTE Covered Period 98 Payroll 1 399,398 29,167 428,565 FTE Base Period 99 Payroll 2 399,398 29,167 428,565 %age retained 99%Payroll 3 399,398 29,167 428,565 Reduction 19,976 Payroll 4 399,398 29,167 428,565 Salary Reduction >25% - Rent 190,000 190,000 Periods 4 Rent 190,000 190,000 Reduction - Interest 10,000 10,000 Total Reductions 19,976 Interest 10,000 10,000 Loan Forgiven 1,957,617 Total Uses 1,997,593 116,667 2,114,259 Loan Balance 64,074

FTE CalcJanuary 15, 2020 100 January 31, 2020 99 February 15, 2020 99 February 28, 2020 98 Total FTEs 396 Periods 4 Base FTEs 99

*based on current understanding of forgiveness – no regulations issued. Subject to change.

Scenario 3 – increases in staffing and compensation

*based on current understanding of forgiveness – no regulations issued. Subject to change.

The organization had some raises take effect in early 2020 - $300,000 in total, all for staff below $100,000.The organization had 5 new hires at 95,000 per year salary, $10,000 per year health benefits and $5,000of retirement benefits.

Wages 9,775,000$ PPP Loan Amount 2,041,667$ Health Benefits 1,050,000 PPP Uses (2,175,000) Retirement Contribution 525,000 Loan Shortfall (133,333) Total Payroll Costs 11,350,000$

Per Period 472,917 Forgivable Uses 2,041,667

Loan Proceeds Outside $ Total FTE Covered Period 102 Payroll 1 443,750 29,167 472,917 FTE Base Period 100 Payroll 2 443,750 29,167 472,917 %age retained 102%Payroll 3 443,750 29,167 472,917 Reduction - Payroll 4 443,750 29,167 472,917 Salary Reduction >25% - Rent 190,000 190,000 Periods 4 Rent 190,000 190,000 Reduction - Interest 10,000 10,000 Total Reductions - Interest 10,000 10,000 Loan Forgiven 2,041,667 Total Uses 2,175,000 116,667 2,291,667 Loan Balance -

Scenario 4 – straight 30% reduction in comp

*based on current understanding of forgiveness – no regulations issued. Subject to change.

The organization reduces all compensation by 30% across the board, no changes in staffing or benefits.

Wages 6,300,000$ PPP Loan Amount 2,041,667$ Health Benefits 1,000,000 PPP Uses (1,618,333) Retirement Contribution 500,000 Loan Shortfall 423,333 Total Payroll Costs 7,800,000$

Per Period 325,000 Forgivable Uses 1,598,333

Loan Proceeds Outside $ Total FTE Covered Period 100 Payroll 1 304,583 20,417 325,000 FTE Base Period 100 Payroll 2 304,583 20,417 325,000 %age retained 100%Payroll 3 304,583 20,417 325,000 Reduction - Payroll 4 304,583 20,417 325,000 Salary Reduction >25% 15,208 Rent 190,000 190,000 Periods 4 Rent 190,000 190,000 Reduction 60,833 Interest 10,000 10,000 Total Reductions 60,833 Interest 10,000 10,000 Loan Forgiven 1,537,500 Total Uses 1,618,333 81,667 1,700,000 Loan Balance 504,167

Scenario 4 – compensation reduction calculation

Prior Quarter Covered Period Excess ReductionPer Pay Period Per Pay Period Reduction % Floor Excess Per Pay Period

Employee 1 3,333 2,333 30% 25% 5% 167 Employee 2 3,542 2,479 30% 25% 5% 177 ….Employee 90 3,875 2,713 30% 25% 5% 194

304,167 212,917 15,208

Employees making more than $100,000 do not count toward this calculation, hence 90 employees.

The base measurement is "most recent prior full quarter", not annual base salary.

*based on current understanding of forgiveness – no regulations issued. Subject to change.

Scenario 5 – Comp reduction & FTE Reduction

*based on current understanding of forgiveness – no regulations issued. Subject to change.

The organization reduces their FTEs by 5 starting on March 1, 2020. These layoffs were at $95,000 per yearcompensation, $10,000 per year health benefits and $5,000 per year retirement. The organization also reduced remaining wages across the board by 30%.

Wages 5,967,500$ PPP Loan Amount 2,041,667$ Health Benefits 950,000 PPP Uses (1,533,889) Retirement Contribution 475,000 Loan Shortfall 507,778 Total Payroll Costs 7,392,500$

Per Period 308,021 Forgivable Uses 1,514,715

Loan Proceeds Outside $ Total FTE Covered Period 95 Payroll 1 287,604 20,417 308,021 FTE Base Period 100 Payroll 2 287,604 20,417 308,021 %age retained 95%Payroll 3 287,604 20,417 308,021 Reduction 75,736 Payroll 4 287,604 20,417 308,021 Salary Reduction >25% 14,219 Rent 182,149 7,851 190,000 Periods 4 Rent 182,149 7,851 190,000 Reduction 56,875 Interest 9,587 413 10,000 Total Reductions 132,611 Interest 9,587 413 10,000 Loan Forgiven 1,382,104 Total Uses 1,533,889 98,195 1,632,083 Loan Balance 659,562

Scenario 5 – compensation reduction calculation

Prior Quarter Covered Period Excess ReductionPer Pay Period Per Pay Period Reduction % Floor Excess Per Pay Period

Employee 1 3,333 2,333 30% 25% 5% 167 Employee 2 3,542 2,479 30% 25% 5% 177 ….Employee 85 3,875 2,713 30% 25% 5% 194

284,375 199,063 14,219

Employees making more than $100,000 do not count toward this calculation, hence 85 employees.

The base measurement is "most recent prior full quarter", not annual base salary.

FTE CalcPayroll 1 95 Payroll 2 95 Payroll 3 95 Payroll 4 95 Total Covered FTEs 380 Period 4 Covered Period FTEs 95

Uncertainty on Forgivenessu Lack of guidance & regulations leave us uncertain on many aspects of

forgiveness calculations

u Voluntary turnover or exits?

u Employees that do not want to return?

u Unknown how FTE will be defined.

u Potential for regulations for immediate repayment of unspent amount?

u Unforgiven amount only equal to unspent amount?

u Mechanics of re-hire “safe harbor”

u June 30, 2020 window – is it only covered period or until then?

u How long do FTEs need to stay?

u What impact do post 8-week movements have?

Best Practices for Internal Controls for PPP Funds

The Teeth Behind the Cares Actu Three-Part oversight structure:

u The Pandemic Response Accountability Committee

u Authorized to conduct investigations

u Required to submit biannual report to the President and Congress

u $80 million earmarked for this Committee

u Committee will terminate on September 30, 2025

u The Congressional Oversight Committee

u Responsible for supervising the implementation of the CARES Act

u Committee will terminate on September 30, 2025

u Special Inspector General for Pandemic Recovery

u Provided authority to conduct audits and investigation of loans. Loan guarantees, and other investments

u $25 million budgeted

u SIGPR will terminate on March 27, 2025

Need for Controlsu Consider opening up a separate bank account for PPP loan funds

u Create an electronic file to store all back-up and support

u Set-up a separate cost center within your general ledger to track all expenses charged to the loan

u Carefully review the forgiveness regulations to ensure that they only seek forgiveness for allowable costs

u Ensure proper salary levels for staff were used

u Ensure accuracy of staff FTE’s

u Consider designating an internal compliance person

u Consider having accountant, compliance person, or lawyer review package

Penalties

Making a false statement orovervaluing information

$5,000 fine and/or 2 yearsin Federal prison

Embezzlement $10,000 fine and/or 5 yearsin prison

In addition to the above, you would also be responsible to pay restitution

False Claimsu False claims can include:

u Falsely claiming the company had fewer than 500 employees to qualify for the loan and did not meet alternative size standards or other exceptions

u Falsely claiming the coronavirus hurt business to qualify for the loan

u Inflating average monthly payroll cost to increase the loan amount

u Falsely claiming the loan money is going towards qualified expenses to get the loan forgiven

u Incorrectly disclosing employee counts for purposes of calculating loan forgiveness discounts

u Incorrectly reporting qualified expense amounts to increase loan forgiveness