On December 27, 2020, the Consolidated Appropriation Act, 2021 (Act) was signed into law which includes relief funds for the COVID-19 pandemic. This Act is hopefully going to provide continued relief to individuals and our economy. The Act’s relief provisions included $81.88 billion for the Education Stabilization Fund and $23 billion specifically for the Higher Education Emergency Relief Fund (HEERF) per Section 314(a). Summaries of these provisions have been written by regulatory counsels who specialize in the industry and various trade associations. McClintock & Associates wants to highlight a few items critical to the work auditors will perform.
- The Act allocated $20 billion to private and public nonprofit institutions to be used for student and institutional HEERF grants.
- The Act allocated $681 million to private, for-profit institutions to be used as additional student HEERF grants. These new funds allocated to for-profit institutions are solely for disbursements to students. We recommend that institutions utilize and expend these funds for their students. A significant amount of lobbying efforts occurred to include students of for-profit institutions in this legislation. An unwillingness to use these funds may reflect negatively on the institution(s) involved and the sector as whole.
- Section 314(c)(3), allows the funds to be used to provide financial aid grants to students (including students enrolled exclusively in distance education) while noting that institutions should prioritize financial aid grants to students with exception need, such as students who receive Pell grants. Also, the financial aid grants to students can be used for any component of the student’s cost of attendance of for emergency costs that arise due to coronavirus, such as tuition, food, housing, health care, or childcare. The Coronavirus Aid, Relief and Economic Security Act (CARES Act) (signed into law on March 27, 2020) had a requirement that the emergency financial aid grants to students related to the disruption of campus operations and thus was narrower in scope.
- The Act allows for expanded uses of the HEERF grants as noted in section 314(c)(1). Under Section 314(c), the Act indicates the funds can be used to defray expenses related to the coronavirus and indicates lost revenue and payroll. The CARES Act had specifically indicated that the institutional HEERF grants were related to costs associated with significant changes to the delivery of instruction as a result of the coronavirus. Thus, the Act has liberalized the use of these funds.
- An institution receiving funds under section 314(a)(1) of the Act, shall provide at least the same amount of funding in emergency grants to students as was required under sections 18004(a)(1) and (c) of the CARES Act. We interpret this to be the same amount of dollars, in total.
- Under section 314(d)(2), an institution which previously received a HEERF grant under the Cares Act may use those funds pursuant to section 314(c) subject to the following requirements. An institution which repurposes institutional HEERF grant funds under Section 314(d)(2) shall ensure that not less than 50 percent of the funds received under section 18004(a)(1) of the CARES Act are used for financial aid grants to students under either section 18004(c) of the CARES Act or section 314(c)(3) of this Act.
- It should be noted that specific details of the allowable items noted above (student emergency grants utilized for tuition, repurposing institutional HEERF grants, using HEERF grants for lost revenue and payroll, etc.) are not included in the law so institutions should await the U.S. Department of Education’s guidance before expending the funds for these purposes pursuant to the Act’s provisions. While the expanded uses of the student and institutional HEERF grants are beneficial, having clear regulatory guidance from ED is critical to ensuring compliance is maintained. We are concerned as to how timely this guidance will be issued as a result of the change in presidential administrations. (As a reminder, at least 50% of the total HEERF grants received by an institution must still be spent on student disbursements). ED indicated they intend to release the funding within 30 days and hopefully additional guidance will be forthcoming within this same time period.
- The Act requires under section 315 that an institution, to the greatest extent practicable, continue to pay its employees and contractors during the period of disruptions or closures related to the coronavirus.
- We are aware that ED’s Office of Inspector General has begun to audit the usage of the HEERF grants (student and institutional portions). Institutions should ensure that complete and accurate documentation exists for the related expenditures and distributions. This would include, not all inclusive: policies and procedures to award and utilize the funds, linking the institutional funds to the significant change in instruction of education, drawdown timing and trusteeship of the funds, compliance with the cash management regulations, supporting invoices, cancelled checks / electronic distribution of funds to students, information provided to the students on the purpose of the grants, and, if applicable, applications the students were required to signed to obtain the grant. These expenditures should also be supported by the recording of these transactions the institution’s general ledger. We also anticipate that non-federal auditors will also be requesting this information as part of the annual audit (see below).
- The Office of Management and Budget released a Compliance Supplement Addendum on December 23, 2020 which covers the audit procedures related to HEERF grants for nonprofit institutions which fall under the Uniform Guidance audit requirements. While this Compliance Supplement Addendum doesn’t directly apply to for-profit institutions, it provides guidance which is useful in assessing audit procedures. As a reminder, the financial statement audit of a for-profit institutions is conducted in accordance with Government Auditing Standards and, as such, compliance with the HEERF grant provisions are part of this audit.
Unrelated to the Act, institutions are reminded that the quarterly reporting of the HEERF grant usage must be posted to their website by January 10, 2021 for both the student and institutional portions. The student reporting can be cumulative, and the institutional reporting must be for the 4th quarter of 2020 along with any amendments to the 3rd quarter 2020 report, if applicable. In addition, the first annual HEERF reporting period opens on January 5, 2021 and is due by February 1, 2021. The HEERF annual report will include student and institutional disbursements incurred through December 31, 2020. Note that the version issued by ED on 7/22/20 had the initial reporting period to only include March 13, 2020 through June 30, 2020. The final form for the annual submission can be found here.