Some people make plans to read more. Others buy a gym membership with earnest (if not exactly honest) intention to go a couple times a week. At McClintock & Associates, our New Year’s resolution each year is one we know we can keep: help clients navigate the murky waters of accounting in the postsecondary education market.
We’re holding to that mission in 2020 — and offering some suggestions for institutions pondering their own resolutions. This past year was a busy one in terms of changing regulations, with seemingly not a month going by without a significant rule change, so it’s possible to have overlooked or incorrectly applied one of these changes.
Fortunately, a new year is a good time for a fresh start. Here are some resolutions for financial officers to make that happen.
1) Evaluate how you’re applying the revenue recognition standard.
All institutions, public or non-public, should have been preparing to implement the Financial Accounting Standards Board’s (FASB) new guidance on the revenue recognition standard for at least a year now. The guidance, which kicked in for privately owned institutions for fiscal years beginning on or after Dec. 15, 2018 (and a year before that for publicly traded institutions), establishes principles to report useful information to users of financial statements about revenue from contracts with customers. To manage that, institutions need to use sound judgment to ensure compliance with the new standard.
Consulting with clients and while presenting at conferences over the previous year, we see some institutions having trouble with this nuanced rule, but we’ve developed a tool to assist you through the process and capture the required documentation. Our experts are always ready to provide personal guidance.
2) Evaluate job descriptions and salaries to conform with new overtime rules.
Beginning Jan. 1, 2020, about 1.3 million more American workers will be eligible for overtime pay, following a rule change by the Department of Labor (DOL) that set a new earnings threshold for salaried employees in professional positions. Before that date, anyone who is paid more than $23,660 annually ($455 per week) and performs duties that fall into a number of “white-collar” categories is exempt from extra pay after working over 40 hours in a week. The new threshold will be $35,568 annually ($684 per week).
This could affect thousands of employees in the higher education sector, though there are several carve-outs that limit the impact. Teachers, graduates and undergraduate assistants, and academic administrative personnel may be exempt from overtime pay, even if they do meet the wage threshold. This DOL fact sheet provides a breakdown of exempt duties.
Regardless, it is up to institutions to determine an employee’s overtime eligibility by reviewing salaries and job descriptions. Failing to do so and denying overtime pay to an eligible employee could leave an institution open to fines, penalties and back pay liabilities.
3) Project the new lease standards’ impact on your composite score.
For public institutions, the FASB’s new standard on lease accounting has been in place since 2019, and the expectation was for it to become effective for private organizations on their 2021 financial statements. However, as an AICPA committee told the FASB, private companies were already burdened with trying to implement other complex new standards, especially revenue recognition. A Deloitte survey last spring also said most private entities were not planning on implementing the standards on time or were only somewhat prepared.
In general, the new standard aims to ensure lessees recognize all assets and liabilities created by leases with terms of more than 12 months on their financial statements. Previously, lessees were not required to recognize assets and liabilities from operating leases; they only needed to recognize capital leases.
This has potential to be a disruptive change for institutions, especially as recognizing more assets and liabilities can have an impact on their composite score. Institutions should begin capturing the information needed to comply with the new standard in order to project its impact on their composite score. Be proactive in the coming months — and don’t count on another delay. Our auditors are ready to help model your school’s composite score according to the new standards.
4) Comply with 1098-T reporting requirements.
A year ago, the Internal Revenue Service began enforcing the reporting changes to Form 1098-T, which requires institutions to report payments received for qualified and related expenses, rather than the amounts billed to students. The requirement was introduced in 2016, but it was in filing year 2018 that the IRS began to fine institutions that failed to file the forms properly.
The change required institutions to use only the 1098-T’s Box 1 for all payments received in the current year or prior year QTREs. See this previous McClintock Minute article for a full breakdown.
While this is a change that institutions should have been complying with no later than last year, it’s good to refresh yourself on it and all other filing requirements as we near another tax season —and of course, we have tax experts at the ready for all questions.
5) Monitor economic nexus laws.
Since the Supreme Court’s 2018 ruling in South Dakota v. Wayfair, Inc., nearly all states have enacted economic nexus laws, allowing them to tax remote sales on companies that don’t have a physical presence in the state. These laws are not uniform, of course, so it can be difficult to sift through what obligations an institution may have depending on its level activity in a certain state.
Institutions with online programs often have students, and sometimes instructors, in a large number of states. Our tax professionals are ready to assist you with a nexus study.
And one more for the road: Have a Happy New Year.
There were more regulatory and procedural changes announced in 2019 than those listed here — and surely there are more to come in 2020. However, making these resolutions and following through on them will give institutions a good start on staying in compliance. As always, McClintock & Associates is available to help institutions understand and implement these changes, guiding them into a Happy New Year and beyond.
Click here to watch a video summarizing key points from this article, and check out the other videos we have posted on our new YouTube channel.
