Starting a new semester, pivoting between on-campus and online instruction, managing the rise in COVID-19 cases… Higher education already has enough uncertainty on its plate. The last thing you need is confusion about critical aid from the Higher Education Emergency Relief Fund (HEERF).
Stipulated as part of the CARES Act, HEERF provides student and institutional aid under various programs. However, a general lack of information on this and other CARES Act awards has led to confusion for recipients.
While we previously covered the basics of this fund, there’s much more to discuss regarding the reporting requirements. This includes additional announcements from the U.S. Department of Education (ED) to inform institutions about use and reporting of HEERF awards. The ED’s oversight plan will focus on use of the funds, including the requirement to use at least 50% of the allocation as direct aid to students.
Here’s what we know right now about HEERF awards and their requirements.
What costs are eligible under this award?
There are two categories of uses of funds: Student Aid and Institutional Aid. NACUBO guidance has referred to these as Part A and Part B, respectively.
Part A – Student Aid
According to the ED, institutions must spend 50% of funds received for emergency financial aid grants to students. ED guidance makes it very clear that Part A payments must be made directly to students who have filed (or are eligible to file) a Free Application for Federal Student Aid (FAFSA). An institution cannot use these funds to reimburse itself for refunds to students. They also can’t be applied to costs incurred by changing delivery of instruction to students.
Part B – Institutional Aid
These funds (up to 50% of the total funds received) can be used to replace lost revenue caused by campus closures. It can also cover costs incurred for significant changes to the delivery of instruction to students. Examples of allowable use of Part B funds include:
- Refunds to students for room and board, tuition and other fees if those refunds are related to changes in instruction delivery and interruptions in instruction due to COVID-19
- Technology expenses incurred for significant change to the delivery of instruction due to COVID-19
- Additional financial aid grants to students for eligible expenses under a student’s cost of attendance specifically related to the disruption of campus operations due to COVID-19.
Institutions must be able to establish a clear nexus to COVID-19 disruption and not fall into one of the several specific exclusions defined by the ED for Part B expenditures.
What are the reporting requirements?
Institutions should be prepared to report the use of Part A and B funds. We recommend you keep detailed records to support expenditure of all HEERF funds. You should also continue monitoring ED guidance for data collection as it is released.
On July 29, 2020, the ED released a reporting form to be used to collect information on various programs under HEERF. The notice includes a timeline for submission of information:
- January 29, 2021, for the reporting period from March 13-June 30, 2020
- September 30, 2021, for the reporting period from July 1, 2020-June 30, 2021
- September 30, 2022, for the reporting period from July 1, 2021-June 30, 2022
The ED is accepting comments on their reporting procedures, including input on data requests, recommendations to reduce the burden of reporting, and requests for clarity on existing guidance. Comments must be submitted through the Federal Register portal. The comment period closes September 28, 2020.
What are the accounting requirements?
There’s time to determine the specifics of ED reporting for use of HEERF awards. However, now is the time to learn the requirements for recording CARES Act funds (as you prepare your fiscal year 2020 financial reporting). These can differ for public and private institutions.
For public institution accounting:
HEERF grants awarded to public colleges and universities are considered nonexchange transactions with eligibility requirements under Governmental Accounting Standards Board (GASB) Statement No. 33, Accounting and Financial Reporting for Nonexchange Transactions.
Under GASB 33, revenue can be recognized when eligibility requirements are met. HEERF funds should be reported as unearned until allowable costs and any other eligibility requirements have been met. Both Part A and Part B funds contain eligibility requirements and therefore should be reflected as unearned revenues until eligibility requirements have been met.
For Part A funds, as funds are drawn from the ED system, cash received is offset by an unearned grant revenue with a restriction for student aid and is recognized as nonexchange grant revenues as student aid expenses are incurred.
Part B funds will also be unearned with revenue recognition as funds are expended, and restricted assets will decrease as expenses are incurred. However, because Part A has a 50% requirement for emergency aid to students, the Part B amounts contain contingency limits. If Part B expenditures are incurred at a faster rate than Part A disbursements to students, then Part B revenue recognition will be limited to revenue recognized for Part A.
For private institution accounting:
HEERF grants awarded to private colleges and universities are considered conditional contributions under Financial Accounting Standards Board (FASB) ASU 2018-08, Clarifying the Scope and the Accounting Guidance for Contributions Received and Contributions Made (ASC Topic 958).
Under ASU 2018-08, a contribution is conditional when both of the following attributes are met:
- One or more barriers exist
- The right to receive or retain payment or delivery of the promised asset depends on meeting those barriers
HEERF includes multiple barriers, including an institution’s signature of a certification agreement and limitations on the institution’s use of funds. Additionally, because the HEERF falls under Uniform Guidance requirements, there is an implied right of return. Therefore, because both attributes for a conditional contribution exist under HEERF, funds received should be recorded as a refundable advance (liability) and only recognized as revenue when the conditions are met.
Part A funds will be restricted for student aid and recognized as grant revenue as student aid expenses are incurred. The recognition of revenue and fulfillment of the restriction are simultaneous, so the revenue will be in net assets without donor restrictions.
Regarding Part B funds, revenue is restricted due to requirements that funds be used for COVID-19 education disruptions, because grant revenue will be recognized as the related funds are expended. The restriction will be fulfilled simultaneous to the recognition of revenue and can be reported in net assets without donor restrictions.
We encourage institutions to submit comments to the ED to improve the clarity around the HEERF requirements and relieve some administrative burden on tracking COVID-19-related expenses and reporting related data.
In the meantime, James Moore’s higher education CPAs will keep providing updates and clarification as it becomes available. ED and NACUBO are continually updating HEERF guidance, and we’re tracking it closely to keep you informed.
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