PPP and Nonprofits—-The Next Chapter

I think most people are aware of the Payroll Protection Act (PPP) loans that were offered by the federal government, through the Small Business Association (SBA), that helped organizations maintain payroll during the pandemic. However, I do believe most people associate PPP with for-profit businesses. There are many nonprofits that also took advantage of the program. Most of them legally.

However, two stories in the last few weeks have highlighted the manner in which nonprofits utilized the PPP program and whether or not it was appropriate and completely within the rules, both in receiving the money and having it forgiven. The first series of articles came from USA Today, which printed an exposé on charter schools, which were/are nonprofits, and which took billions of dollars across the United States in PPP payments. The question is whether they were eligible based on standards set by the SBA or actually needed the money. Much of the writing by USA Today demonstrated there may not have been a need for funds as enrollment increased and employment didn’t decrease.

The second is an article from a lesser-known publication, jdsupra.com, that discusses how the SBA is now going through audits regarding PPP loan forgiveness applications. In particular, the article highlights nonprofits are not exempt from the auditing process. And, in addition, it appears that some nonprofits are ill-prepared to provide documents and information relevant to potential issues of the audit. The adverse decision in the audit denying the loan forgiveness can create a long-term loan for the nonprofit. Basically, nonprofits can’t skip through this process with great ease.

In both cases, it speaks to the fact that while the mission of a nonprofit is service to the community, which provides tax relief, the business inside the nonprofit isn’t much different than a for-profit company. Many of the requirements of good business practices are the same. Whether it’s accounting records or financial decisions, nonprofits still have many for-profit practices. Or at least they should.

Here’s hoping that anyone who took PPP money did so for legitimate reasons and that all nonprofits can demonstrate their worthiness of such loan forgiveness. And that the nonprofits that go through an audit are ready to demonstrate all the financial figures and organizational need that is required to allow them to serve the community going forward.