Overall Higher Ed Issues Facing Us Today CACUBO Higher Education Accounting Workshop Steven Bishop, CPA, Partner 1

Transcription

1 Overall Higher Ed Issues Facing Us Today 2018 CACUBO Higher Education Accounting Workshop Steven Bishop, CPA, Partner 1

2 Agenda Perkins Loan Program Federal Changes Reauthorization DOE Oversight Tax Act Changes Revenue Recognition Accounting and Reporting Challenges Internal Public Perception Issues/Challenges 2

3 Perkins Loan Program 3

4 Perkins Loan Program Topics to Cover Update Summary of the Liquidation Process Strategies during Phase-Out 4

5 Perkins Loan Program Update September 30, 2017 Perkins Loan Program Sunset October 6, 2017 Dear Colleague Letter: GEN Key Points Graduate students could not receive loans after 9/30/16 unless first disbursement for 16/17 award year occurred before 10/1/16 Undergraduate students could not receive loans after 9/30/17 unless first disbursements for 17/18 award year occurred before 10/1/17 No Perkins Loan disbursements permitted after June 30,

6 Perkins Loan Program Update October 6, 2017 Dear Colleague Letter: GEN Key Points (continued) Distribution of Assets Dept of Ed will start collecting their share Federal Capital Contribution ( FCC ) effective with FISAP filing for 6/30/18 which is due 10/1/18 Will be similar to Excess Liquid Capital calculation Will take into consideration the following Institutional Capital Contribution ( ICC ) and loans from institution to the pool FCC previously returned Will NOT take into consideration unreimbursed cancellation amounts 6

7 Perkins Loan Program Update October 6, 2017 Dear Colleague Letter: GEN Key Points (continued) Institutions may continue to service loans under current federal guidelines Institutions may not charge an administrative cost allowance to the program after June 30, 2018 More information is promised prior to due date of FISAP (10/1/18) Loans nondefaulted and defaulted may be assigned at any time BUT By assigning the institution loses all rights and title to the loans without recompense (ie, lose your ICC and short term loans to the pool) 7

8 Summary of Liquidation Process Liquidation guidance continues to be updated most recent guidance dated January 9, 2018 all previous guidance continues to be superceded and updated ALWAYS USE CURRENT GUIDANCE! Use the following document: Federal Perkins Loan Program Assignment and Liquidation Guide Link: - all the perkins items are located along the right hand side 8

9 Summary of Liquidation Process 9

10 Summary of Liquidation Process 10

11 Summary of Liquidation Process 11

12 Summary of Liquidation Process 12

13 Strategies during Phaseout Key Strategy between now and June 30, 2018 Do NOT voluntarily liquidate! Voluntary means you are giving up any right to your ICC invested in your fund and any short term loans that the institution loaned the pool and has not yet reimbursed back! Review your FISAP filed October 1, 2017 specifically lines 29.1 through 30.3 Is amount on line 29.3 more than 20% of FCC/ICC combined? If so, your school has given short term loans to the pool and needs to be reimbursed any of its own funds above what was required Might show on lines 29.1 less 30.1 Go back and review deposits into the fund over time versus withdrawals to make sure properly reflecting ICC and Short term loans DOE would tell you to payback your short term loans FIRST with all funds being collected on the pool 13

14 Strategies during Phaseout Gather a team of institutional representatives: Student Financial Aid, Admissions, Finance, Development Liquidation should occur once short term loans repaid AND cost to service exceeds cash collected that the institution gets to keep (ICC) Strategize of if the institution needs to continue offering a lower interest rate pool for eligible students Weigh items and Options: Cost effectiveness, Self serviced or third party, Donor support, Financing options 14

15 Federal Changes 15

16 2018 Compliance Supplement (CS) Expected release date: May 2018 Major changes: Full supplement will NOT be released only a "skinny" version with major changes will be released The 2018 CS will have to be used in conjunction with the 2017 CS Part Procurement Changes summarized in Appendix V Appendix VII (Other Audit Advisories) Still no Chapter 6 Internal Controls 16

17 DoE: Single Audit Requirement "Public and non-profit entities with institutions participating in the Title IV programs that submit a Single Audit that does not include the Student Financial Assistance Cluster as a major program will no longer be required to notify their respective School Participation Division of the low-risk assessments. Reminder: Institutions must still submit (via the Department s ez-audit system) their complete Single Audit each year by the due date regardless of whether the Student Financial Assistance Cluster was audited as a major program. The impact on year three testing requirements (after two years of low risk assessments) for fiscal year 2019 audits and beyond is still under review." 17

18 DoE: Anticipated Changes Securing Student Data Safeguards Rule of GLBA Inclusion in the OMB Compliance Supplement inevitable! Proposed steps, as published in November 2017 GAO report*: *Better Program Management and Oversight of Postsecondary Schools Needed to Protect Student Information 18

19 DoE: Anticipated Changes Compliance involves MANY departments across campus Article: 19

20 DoE: Cybersecurity ifap.ed.gov Ifap.gov

21 Uniform Guidance Status Funding under pre-ug rules continues to wind down Year 3 for audits under UG! Procurement policy implementation Under current published regulations, institutions will have to adopt UG procurement policies and implement them no later than July 1, 2018 Threshold for micro-purchases FAR/NDAA Reminder: UG sections Conflict of interest 21

22 Data Collection Form No updates expected for FY 2018 Updates expected for FY 2019 Comments due June 4, 2018 Proposed changes are to include the following as part of the DCF: The text of the federal award audit findings, the text of the corrective action plan, and the notes to the schedule of expenditures of federal awards (SEFA) Proposed revisions and draft DCF can be viewed on FAC homepage: 22

23 Higher Ed Reauthorization PROSPER Act some key attributes: Pell grant bonus Increase to undergraduate loan limits and institutional authority to limit loans Elimination of origination fees and introduction of streamlined repayment options Changes to FWS requirements Elimination of programs: FSEOG, subsidized FDL, PLUS loans for grad students, Public Service Loan Forgiveness TEACH grants Grad student eligibility for FWS Pell grant leveling 23

24 Higher Ed Reauthorization Other changes: Modification of the Return of Title IV funds process FWS - increase in institutional match Mandated disbursements Mandated annual counseling Waiting consideration by the House of Representatives since December

25 FY19 Budget Request Suggestions related to higher ed include: Elimination of subsidized student loans, "saving" $28.5 billion over 10 years Creation of single income-driven repayment plan Elimination of Public Service Loan Forgiveness program Elimination of the Federal Supplemental Educational Opportunity Grant (SEOG) Expansion of Pell Grant eligibility to include high-quality, short-term programs Reformed Federal Work-Study program with funds allocated to schools based on enrollment of Pell recipients 1% increase for veteran and dependent benefits, including GI Bill education assistance 25

26 DOE Ratios US Department of Education Proposal Revising the composite score for private (and for-profit) institutions due to new standards Require an audited Supplemental Schedule to be submitted with inputs for the composite score calculation Proposed Timeline: Effective July 1,

27 Tax Act Changes 27

28 Tax Act Changes 1. Executive Compensation 2. Employee Benefits 3. Charitable Giving 4. Tax Exempt Bonds 5. Unrelated Business Income 6. Internal Revenue Service 7. Other Reporting Issues 28

29 Excise Tax on Excess Compensation New 21% excise tax Applies to tax-exempt organization employees Applies to compensation in excess of $1,000,000 Physicians excluded (clinical) Next steps Understand who may qualify Review compensation arrangements Educate compensation committee Factor into budgets 29

30 Employee Benefits Moving expenses Included as taxable compensation Family and Medical Leave Wages New credit for wages paid to employees during family and medical leave Available only for 2018 and 2019 Excludes wages mandated by state or local government Fringe benefits Certain fringe benefits now treated as unrelated business income for tax-exempt organizations Parking Transit 30

31 Employee Benefits Parking and Transit Outstanding Questions What amounts will be considered taxable? Pretax amounts withheld Costs to provide parking A combination of the two If no pretax benefit is provided is the value based on FMV 31

32 Charitable Contributions/Giving Potential hurt Increased standard deduction for individuals Potential help Increased estate and gift tax exemption Increased charitable contribution limitation Athletic Seating Elimination of the 80% deduction for payments made for athletic seating. How point systems will be impacted 32

33 Tax-exempt bonds Private activity bonds still tax free Advance refunding bonds no longer tax free 33

34 Unrelated Business Income Loss Basketing Net operating loss deduction limited to activity from which it arose Planning Opportunity: Use a taxable C corporation Tax Rate 21%; Blended rate under section 15 for fiscal years straddling 2017/2018; [No basketing until year beginning after 12/31/17] 34

35 Tax rate changes- 990T & Taxable C corporations Taxable income $50,000 $50,000 Effective tax rate 15% 21% Prior Law New Law Increased tax/(savings) Tax liability $7,500 $10,500 +3,000 Taxable income $75,000 $75,000 Effective tax rate 18% 21% Tax liability $13,500 $15,750 +2,250 Taxable income $150,000 $150,000 Effective tax rate 27.8% 21% Tax liability $41,700 $31,500 ($10,200) 35

36 Guidance forthcoming Definition of activity Multiple rental activities Alternative investments Allocation and ordering of NOLs 36

37 Unrelated business activities/taxable C corporations- Next Steps Understand what activities are reported on your 990T Understand loss and revenue generators Consider impact of revenue recognition rules Calculate tax impact with new rates Evaluate potential benefit of unrelated business income activities reported in taxable C corporation versus 990T Consider non-tax reasons Unrelated business income is not on Form 990 (public disclosure) Transfer of existing activities from 990T to taxable C corporation 37

38 Revenue Recognition 38

39 FASB Revenue Recognition FASB ASU Revenue from Contracts with Customers Retrospectively to each periods presented Current and prior year reflect new standard; beginning net assets of prior year restated (if material) Retrospectively with cumulative effect Current year reflects new standard; beginning net assets of current year restated (if material) Effective date Institutions with public bonds July 1, 2018 Institutions without public bonds July 1, 2019 Revenue streams Tuition & Housing Other revenues from contracts with customers 39

40 FASB Revenue Recognition Included What is included? Tuition revenue Housing revenue Other contract revenue with customers Clinic revenues Agreements with other institutions Agreements with others 40

41 FASB Revenue Recognition NOT Included What is not included? Contributions Grants* Leases Financial instruments (investments, debt, derivatives, etc) Guarantees Nonmonetary exchanges *see next slide 41

42 FASB Exposure Draft Revenue Recognition of Grants and Contracts by Not-for-Profit Entities Not final (even though revenue recognition for most private institutions is applicable beginning July 1, 2018) Issue 1 Reciprocal vs. Nonreciprocal Transactions (concept of exchange) Issue 2 Conditional vs. Unconditional Contributions 42

43 FASB Exposure Draft Revenue Recognition of Grants and Contracts by Not-for-Profit Entities Issue 1 Reciprocal vs. Nonreciprocal Resource provider (grantor) is not synonymous with the general public. If a grantor receives value indirectly by providing a societal benefit, this would be considered a nonreciprocal transaction (a contribution) Furthering the grantor s mission does not constitute commensurate value received The type of grantor should not override the substance of the transaction 43

44 FASB Exposure Draft Revenue Recognition of Grants and Contracts by Not-for-Profit Entities Issue 2 Conditional vs. Unconditional A condition exists A right of return/release must exist Agreement includes a barrier Measurable performance-related barrier Stipulation limits discretion by the institution on the conduct of the activity Stipulation related to the purpose of the agreement Let s look at some examples 44

45 FASB examples 45

46 FASB examples 46

47 FASB example 47

48 FASB example 48

49 FASB example 49

50 FASB example 50

51 FASB example 51

52 FASB Revenue Recognition Tuition and Room & Board Interim reporting (or not) is KEY! Most performance obligations occur within the fiscal year (i.e. the education and providing of housing for Fall/Winter semesters typically fall in the fiscal year of the institution) Summer semester will continue to be partially deferred (no change) If you have GAAP interim reporting, may need to change accounting Could request waiver from bank to keep reporting as is Add in caveat that the interim board reports are Not in accordance with GAAP If you do not have GAAP interim reporting, may not need to change accounting 52

53 FASB Revenue Recognition Tuition and Room & Board Overall thoughts for tuition and room & board: 6/30/19 revenue will be reported net of discounts (same!) 6/30/19 accounts receivable from students only includes balances where you ve performed the service (unpaid balances from previous Fall & Winter and the current Summer semesters) (this is the same!) 6/30/19 contract liability (can still call it deferred revenue) cash collected but have not performed service (cash for Fall semester collected before 6/30/19) (this is the same!) 6/30/19 refund liability might need to be recorded if refunds for Summer semester could be granted after 6/30/19 (this is new!) (if restate PY, would also have for 6/30/18) 53

54 FASB Revenue Recognition - 5 step process 54

55 Accounting and Reporting Challenges 55

56 Accounting and Reporting Issues Most Common Internal Development versus Accounting Development reports all gifts revocable and irrevocable and counts on cash basis Accounting/Reporting reports on accrual basis, irrevocable and documented gifts only So What do we do? 56

57 Public Perception Issues/Challenges 57

58 Public Perception Top 7 Issues Affecting Higher Education in 2018 (according to Inside Higher Ed) 1. Eroding Support for Higher Education 2. Challenges to the Business Model 3. Violent Activism and Balancing Free Speech, Safety and Climate 4. #MeToo Movement in the Academy 5. Student Safety in Greek Life and Athletics 6. Reckoning with the Racist Past 7. Presidents as Public Thought Leaders 58

59 Questions? 59

60 Biography I am a dedicated leader for our higher education practice having worked with 20 different colleges and universities during my career. I help my clients by monitoring the latest industry trends and advising them on best practices for growth and success. As a resource on Office of Management and Budget s Uniform Guidance, I help institutions stay current on regulatory changes and work through federal award requirements for student financial aid and research and development. I ve spoken to numerous higher education institutions on FASB and GASB changes and their impact. I m a member of the Ohio Association of College and University Business Officers, NACUBO, CACUBO, the AICPA, MICPA, Illinois CPA Society, and the Ohio Society of CPAs. My accountancy degree is from Calvin College. Steven.bishop@plantemoran.com