COVID-Related Fraud Risk on the Rise

Feb 19, 2021

Many small business owners do not believe their businesses can or will fall victim to occupational fraud. Due to this belief and budget restrictions, many small businesses do not make this a priority, which leaves them vulnerable.

According to the Association of Certified Fraud Examiners’ 2020 Report, financial statement fraud is the costliest type of occupational fraud affecting organizations. Financial statement fraud is not only costly from a fiscal standpoint, but it also impacts trust within the organization, the community, and with investors.

The rapid advance of COVID-19 has placed a significant strain on organizations and individuals alike. Donald R. Cressey’s fraud triangle theory includes the three major factors that are commonly present when financial statement fraud occurs: Pressure, Opportunity, and Rationalization.

Here is how COVID-19 has impacted these factors:

Pressure – Organizations are facing challenges never experienced before. COVID-19 has left many facing revenue loss, supply chain disruptions, and employee wellness concerns. All these factors, and more, are causing undue pressure to meet financial expectations.

Opportunity – While organizations are receiving state and federal funding to cope with the financial impact of COVID-19 disruption, there are dramatic shifts in operations with remote working and a reduction of in-office staff. This means internal controls are reduced and accessibility increased. These become prime opportunities for fraud.

Rationalization – Mounting stress impacts individual decision-making skills, leading people to rationalize actions they would otherwise regard unacceptable or illegal. Employees may rationalize they are “owed” financial support because of the work they do.

Some potential areas to consider when thinking about your organization include:

  • Revenue recognition – The timing and amount of revenues recognized.
  • Allowances and reserves – Changes in methodology and unusual adjustments.
  • Valuations – Significant estimates used in projections, declining cash flows, and idle assets.
  • Treatment of expenses – Expenses are recorded in the proper period.
  • Disclosures – The adequacy and sufficiency of disclosures.
  • Margins – Reasonableness of margins given the current year operations.
  • Internal control – Opportunity for control override.

These are just a few of the common ways for financial statement fraud to occur. While we all work diligently to recover from the COVID-19 disruption, we need to be aware of the heightened risks and adjust our processes and tasks to monitor for this risk.

If your company needs assistance, William Vaughan is here to assist you.

Connect With Us.

Juli Seiwert, CPA

419.891.1040 | juli.seiwert@wvco.com

Categories: Audit & Accounting, COVID-19

SBA Unveils New PPP Forgiveness Applications & Guidance

Jan 21, 2021

On Tuesday, the U.S. Small Business Administration (SBA) and Treasury released new PPP loan forgiveness guidance along with new forgiveness applications.

These applications include:

  • PPP Loan Forgiveness Application Form 3508S – this new one-page application is for borrowers who received a PPP loan of $150,000 or less. While no supporting documentation is required to be submitted with the application, borrowers are advised to maintain payroll, nonpayroll, and other documents that could be requested during an SBA loan review or audit.
  • Form 3508EZ – this streamlined application is for borrowers that meet certain safe harbors
  • Form 3508 – the full application is for those who don’t qualify for using either of the previous two forms
  • Form 3508D – this two-page document is to be submitted by certain individuals who are required to disclose a controlling interest in an entity applying for a PPP loan

Borrowers using Forms 3508 and 3508EZ must submit payroll and nonpayroll documentation when applying for loan forgiveness. The instructions included with these forms provide lists of the required documents.

In addition to the new forms, an interim final rule (IFR) was released which simplified previous loan forgiveness rules and integrated changes made by The Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act (P.L. 116-260) which provided an additional $248 billion of funding to the PPP and allowed for a second-draw.

The SBA also noted it had approved roughly 60,000 PPP loan applications submitted by nearly 3,000 lenders for over $5 billion from the program’s re-opening through Jan. 17.

As always, we encourage you to connect with your William Vaughan Company advisor with questions on how this may impact your individual circumstances, or check out our COVID-19 Resource Center for additional insights.

Categories: COVID-19

SBA Releases New Forms In Preparation for Paycheck Protection Program Re-Opening

Jan 11, 2021

The U.S. Small Business Administration (SBA), in consultation with the Treasury Department, announced the Paycheck Protection Program (PPP) will reopen today initially for community financial institutions (CFIs) that serve minority- and women-owned businesses to make loans. Specifically, CFIs can begin making loans to first-time PPP borrowers today and second-time PPP borrowers on Wednesday.

The SBA and Treasury said the PPP would open to all lenders a few days after the opening for CFIs, but they did not specify a date. Borrower loan application forms were also released:

Form 2483 is updated from previous iterations starting with the original PPP program. Form 2483-SD is a new form for qualified PPP borrowers to seek a second draw of a forgivable loan as they try to navigate economic seas churning in the throes of the COVID-19 pandemic.

Finally, the SBA released additional guidance outlining top-line summaries of the first-draw and second-draw PPP loans and a pair of procedural notices.

For more information regarding the PPP and second-draw loans under the Consolidated Appropriates Act, 2021, check out our latest webinar here or review our PPP Application Guide here. As always, connect with your William Vaughan Company advisor for questions or concerns.

Categories: COVID-19

Americans Begin to Receive Second Round of COVID-19 Stimulus Checks

Dec 30, 2020

Tuesday afternoon, U.S Treasury Secretary Steven Mnuchin took to social media announcing the disbursement timeline for the second round of stimulus checks. He noted the following:

  • Direct Deposit – Individuals who have direct deposit set up with the IRS can start looking for their second stimulus payments as early as last evening (12/29) and continue into next week.
  • Paper Checks – The IRS will begin sending out paper checks today, Wednesday (12/30/20), which means people should begin receiving those checks within the next two weeks.*
  • Status of Payment – Mnuchin also stated later this week, you can check the status of your payment here

*To speed up delivery, a limited number of people will receive their second stimulus payment by debit card. But the form of payment for your second stimulus check may be different than your first payment. Some people who received a paper check last time might receive a debit card this time, and some people who received a debit card last time could receive a paper check. The pre-paid cards will come in white envelopes that “prominently displays the U.S. Department of the Treasury seal,” the IRS said. The card will bear the Visa name on the front and the name of the issuing bank, MetaBank, will be on the card’s back. The information included with the card will explain that this is your Economic Impact Payment. There’s more information on the pre-paid cards here.

While Congress remains in discussion about an increase to a $2,000 stimulus amount, what we know for now is:

  • As it currently stands, the checks will be for $600 for eligible adults, and $600 per dependent, meaning a family of four could receive $2,400.
  • Individuals who earned less than $75,000 and those married filing jointly who earned less than $150,000 in 2019 are eligible for the full amount.
  • Those who made more are eligible for reduced stimulus checks at a rate of $5 per $100 of additional income.
  • The checks phase out completely for individuals that earned $87,000 and couples that made $174,000 in 2019.

If you have questions regarding your stimulus check, please contact your William Vaughan Company advisor or contact us at 419.891.1040. We’d be happy to help!

Categories: COVID-19

COVID Relief Bill Signed Into Law By President

Dec 28, 2020

The recent bill passed by Congress (Consolidated Appropriations Act [CAA]) finally became law after being signed by President Trump on Sunday, December 27th. It was feared disagreements over individual stimulus amounts and other various provisions deemed “wasteful spending” by the President would lead to a stalemate and ultimately to a pocket veto and subsequent death of the bill. Cooler heads prevailed, however, with businesses and individuals getting another financial shot in the arm. Below is a summary of the major highlights from the 5,600+ page law and the tax implications therein.

Individual Taxpayer Provisions
First and foremost, on the mind of most individuals impacted by COVID-19 are the second wave of stimulus payments and the unemployment benefits extension. Individuals will each be receiving a stimulus check in the amount of $600* ($1,200 per couple) as well as $600 per dependent child, e.g., a family of four will receive $2,400. These benefits will begin to phase-out when AGI reaches $75,000 ($150,000 for couples filing jointly) at a rate of $5 per $100 in excess of AGI thresholds. As with the first round of stimulus, these checks will be tax-free and will likely be reported as advance payment of credits on each taxpayer’s 1040.

*President Trump pushed back on this bill and advocated for stimulus checks of $2,000 per individual but staunch opposition from the Senate tabled these suggestions for what could be yet another stimulus under the next administration.

In addition to the $600 stimulus checks, Congress voted to extend the federal unemployment supplement albeit at a reduced rate of $300 per week (down from $600 under the CARES Act) through March 14, 2021. Along with the unemployment subsidy comes extensions of the Pandemic Unemployment Assistance (PUA) and Pandemic Emergency Unemployment Compensation (PEUC) programs as well.

Further notable tax provisions as they relate to individuals are as follows:

  • Special charitable contribution deductions for non-itemizers of $300 ($600 for married filing joint returns) for the 2021 tax year
  • Extended suspension of the 60% charitable contribution limitation through 2021
  • Extended deferral period for employee’s share of Social Security tax to December 31, 2021
  • Permanent extension of the reduced medical expense deduction floor (7.5% of AGI)
  • Ability for lower-income individuals to use 2019 earned income to calculate earned income tax credit and a refundable portion of the child tax credit (helps those who had lower earned income in 2020 due to COVID-19 receive potentially larger refunds)
  • Permits rollover of unused amounts in health and dependent care flexible spending arrangements

Business Taxpayer Provisions
The biggest provision of the Consolidated Appropriations Act, 2021 in the business arena was the decision to reverse the IRS position regarding the deductibility of expenses used for PPP loan forgiveness as well as a second wave of PPP loans. Details of these provisions can be found in our recent blog post here. For the purpose of this post, we will address the other main tax provisions for businesses found in the CAA.

The existing Employee Retention Tax Credit (ERTC) was modified retroactive to the beginning of the CARES Act. Before the passage of the CAA, businesses had to choose whether they would take advantage of PPP loan forgiveness OR claim the ERTC. Now, for 2020, businesses can request forgiveness of their PPP loans AND claim the ERTC. Provisions in the law state wages paid for with PPP loan proceeds cannot be used in calculating the ERTC in order to prevent double-dipping but for businesses with enough wages and other expenses to qualify for both, that option now exists. For 2020, the ERTC calculation is the same. The credit is capped at 50% of $10,000 of wages per employee for the year.

The law also provides for an extension of the ERTC into 2021 which increases the credit available to 70% of wages up to $10,000 per employee per calendar quarter. In addition, it raises the number of employees counted when determining relevant qualified wages from 100 to 500, reduces required year-over-year decrease in gross receipts from 50% to 20%, and clarifies that group health plan costs can be considered qualified wages EVEN WHEN no other wages are paid.

Other notable business provisions include:

  • Extension of Families First Coronavirus Response Act (FFCRA) paid sick leave and expanded FMLA sick leave tax credits through March 31, 2021
  • Full expensing of “restaurant” meals purchased in 2021 and 2022 provided other requirements for deductibility are met
  • Five-year extension of the Work Opportunity Tax Credit (WOTC)
  • Five-year extension of the employer credit for paid family and medical leave
  • Extended suspension of the corporate 60% charitable contribution limitation through 2021

Due to the sheer volume of text in the Consolidated Appropriations Act, 2021, it is impossible to capture everything in this post. As always, please contact your William Vaughan adviser to discuss how we can help you navigate the myriad of provisions provided for by this law to best serve you and your business.

By: Jon Floering, CPA

Categories: COVID-19, Tax Compliance

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