On May 15, 2020 the Department of Education (ED) officially extended the audit deadline by 6 months, giving schools added flexibility for audit submissions. Schools with fiscal years ending on December 31, 2019, will now be able to submit their audits as late as December 31, 2020. This comes as a huge relief to many institutions that may have experienced delays as a result of COVID-19.
Last fall, ED also released the finalized Borrower Defense to Repayment (BDTR) regulations. The new regulations have a wide range of impacts on the post-secondary education industry as a whole, one of which would require an additional supplemental schedule to all audited financial statements submitted to EZ-Audit after July 1, 2020.
For those keeping score at home, as the BDTR regulations are currently written, any December 31, 2019 fiscal year-end schools that take advantage of the audit extension, may be required to submit their audits with the new supplemental schedule included.
McClintock & Associates does not believe this to be the original intent of the audit extension and is likely an unforeseen consequence based on the previous wording of the regulations. Wording that was obviously written and released without any knowledge of the impending global pandemic. We are actively reaching out to representatives within ED and communicating with other various partners within the industry for guidance and expectations to follow.
But, let’s assume that your school is now tasked with preparing the supplemental schedule. What does this actually entail? In general, the schedule is meant to be a presentation of every input that is used in calculating the three financial responsibility ratios in the reporting entity’s composite score. Additionally, each amount is to have an annotation locating the amount in the audited financial statements. For many items in the calculation, this will be fairly straightforward, referencing an amount on the face of the financials or within a particular footnote.
However, the BDTR rules also allow for differentiation between the treatment of pre-implementation and post-implementation right-of-use (RUA) assets, lease liabilities, fixed assets, and pre-implementation and post-implementation qualified debt. This can add a level of complexity depending on the events and changes that occurred during the reporting period.
McClintock and Associates have written several other articles speaking to this very topic, including:
Beginning to Make Sense of the New Borrower Defense Regulations – September 25, 2019
We have drafted the financial statement supplemental schedule which provides the required information per the BDTR regulations and computes the composite score ratio.