On October 2, 2020, the U.S. Department of Education (ED) published “Round 3” for Frequently Asked Questions related to the Higher Education Emergency Relief Fund (HEERF) grants. This document addressed questions related to the usage of the HEERF grants for institutional and student purposes.
McClintock & Associates (M&A) has reviewed and dissected the document, which is located here. After reading through the document, we identified our takeaways and analysis for many of the questions below.
In addition, the Department will host a HEERF Reporting Requirements Webinar on Wednesday, October 14 from 2:00 – 3:30 pm ET. During this webinar, Principal Deputy Under Secretary Diane Jones and Assistant Secretary for Postsecondary Education Bob King will provide an overview of HEERF grant reporting requirements along with other Department officials. We strongly encourage each institution to invite one of their financial officers/advisors to partake in the webinar as well. More information is available at ED’s HEERF reporting page here. The link has the details on how to join.
M&A Insight
Question 1
As was expected, ED clearly indicated that the institutional portion can be utilized to purchase items that ensure the physical safety of students on campus. This includes cleaning supplies, facility cleaning services, thermometers, face masks, barriers, etc.
The document specifies the institutional HEERF grant can be used for non-permanent changes to ensure social distancing. They key point is that ED specifically indicates “non-permanent” changes. Thus, we conclude that large scale permanent changes to the owned or leased property would not be allowable to be covered using the institutional HEERF grant. For example, a complete restructuring of the reception area on a permanent basis would most likely not be an allowable expenditure for the institutional HEERF grant. However, ED has indicated that non-permanent would be reviewed on a case-by-case basis. Physical changes made for the safety of the students may be allowable As a result, institutions should be certain to document how any type of physical expenditure claimed using the institutional HEERF grant is a non-permanent change or, if a permanent change, how this increased the physical safety of the students.
Question 2
Importantly, ED indicates that the HEERF grants are not Title IV funds. This is consistent with our interpretation and the guidance we have been providing. The HEERF grants are not part of the student financial aid compliance audit to which for-profit institutions are subject. However, these funds are subject to audit under government auditing standards. Thus, these funds should be audited as part of a for-profit institution’s financial statement audit or as part of a nonprofit institution’s Uniform Guidance Single Audit.
Question 3
If distributions of HEERF grants were made to students who were not deemed to be Title IV eligible, institutions should ensure these distributions occurred prior to June 17, 2020, which is prior to ED’s Interim Final Rule. If distributions were made after this date to students who were not deemed to be Title IV eligible, institutions should consider covering these emergency grants with their own internal funding and reissuing these funds to students who are Title IV eligible.
Question 4
We have interpreted the example provided to be mainly related to students who were still enrolled. For students who withdrew from an institution as a result of the pandemic, the institution was able to utilize the R2T4 waiver relief in many cases. We don’t believe the intention is to allow an institution to “double dip” by using institutional HEERF grants to reimburse refunds provided on a student’s account and also utilize the R2T4 waiver relief in regard to student refunds/credit balances.
Question 6
ED provided guidance which enables an institution to utilize the institutional HEERF grant to buy back paid time off from faculty. We believe that an extension of this same concept would enable an institution to utilize the HEERF grant to cover overtime incurred for faculty due to extended hours or additional classes being taught as a result of social distancing. Our opinion is that the institution would want to document how overtime hours have increased from prior years, or how class sizes are smaller, which is creating the additional overtime hours. Also, see Question 12 below.
Question 7
ED has reiterated that institutions have one year from the Grant Award Notification (GAN) date to use the HEERF grants. In addition, ED clarified that institutions have another 90 days to liquidate (make final payment on) previously obligated funds. Therefore, the expenditures have to have been incurred by the one-year date from the GAN, and institutions have an additional 90-days to draw down these funds. No expenditure can be claimed if not incurred by the one-year anniversary of the GAN date.
Question 9
If an institution has drawn down HEERF grants and has not expended them, we recommend that institutions utilize these funds for allowable expenditures or return funds, not to be used immediately for grants to students, to G5. Returning these funds to G5 will not jeopardize future access to them. In addition, we continue to recommend the use of a separate interest-bearing bank account in accordance with federal regulations. If an institution has drawn down these funds and not utilized them, ensure the bank account is being monitored, as interest earnings over $500 need to be returned to the Federal government.
Question 10
ED confirmed that institutional HEERF grants can be used to upgrade computer systems (equipment, software, online licensing fees, etc.). However, these upgrades can’t have been previously planned prior to the pandemic. Logically, this makes sense, as the HEERF grants weren’t intended to cover expenditures which would have been incurred regardless of the pandemic.
Question 11
For institutions which received HEERF grants under section 18004(a)(1), ED was very clear that lost revenue is not an allowable usage of the funds. Lost revenue was not indicated in the statute for 18004(a)(1), and comments during an ED June webinar seemed to have contradicted the law. As expected, ED’s guidance is consistent with the statute for this item.
Question 12
This was a very specific question in regard to maintaining faculty when instruction was occurring during a period of time in which the Paycheck Protection Program (PPP) loan didn’t apply to the instructional salaries. In its answer, ED discussed the ability to utilize the institutional HEERF grant to cover additional instructors as a result of the demands of online instruction, reduced class sizes and training of faculty for online instruction. This is consistent with our analysis noted above for Question 6. Any increase in instructional costs required as a result of the transition to online education are allowable expenditures for the institutional HEERF grant. The key is for institutions to document why the instructional costs incurred, how they differed from prior year, and to have some baseline metrics to support the reimbursement (i.e. increase in overtime hours, smaller class sizes, increased number of classes or hours of instruction).
Question 14
This question alluded to using the institutional HEERF grants for high-level officers, senior administrators and/or executives who were specifically involved in operational changes as a result of the pandemic. ED’s response was not specific and indicated it depends. ED also reiterated the prohibitions on using the institutional HEERF grant for this purpose. This is an area which could have abuse, and the facts would vary significant per institution. Therefore, it is very difficult for ED to provide a clear answer. M&A highly recommends that the institutional HEERF grant is not used to cover the payroll costs of any senior administrators or executives, regardless of the duties and tasks performed during the pandemic. This is an item fraught with peril.
While ED didn’t specifically mention contracted services in this guidance, we believe that contracted services obtained by an institution as a result of significant changes to the delivery of instruction are allowable expenditures. This could include operational consulting, legal and professional services, and training. Conferences and webinars could be allowable, unless these items would have been incurred anyways. From our understanding, ED will be providing additional guidance on this question.
M&A Open Questions
While this ED released clarified several items, the following questions are still outstanding in our mind.
- One of the big open items is whether an institution could utilize the institutional HEERF grant to cover rent for the period of time in which a location was temporarily shuttered. ED issued a Fact Sheet in August 2020 on guidance for contracted services that were cancelled or otherwise not performed due to the pandemic. M&A’s question is whether rent would be considered a contracted service and, if so, whether a location which was temporarily shuttered would certainly meet the definition of “otherwise not performed.” An institution would have to account for any landlord abatements and use of the PPP loan prior to claiming any institutional HEERF grants. However, to date, ED hasn’t provided clear guidance on this expenditure, and thus, we deem this to be a riskier item.
- The second key open item is the payment of faculty costs during a period of time in which an institution was temporarily shuttered and online education didn’t occur. If the institution continued to pay the applicable faculty, are these eligible expenses for the institutional HEERF grant? Does Question 6 or 12 justify reimbursement of faculty costs not covered by the PPP loan? Previous guidance from ED provides relief to enable the institutional HEERF grants to be used for dining hall and dorm employees who would have otherwise been paid through housing fees. An extension of this logic would extend to employees who would have overseen student clinics and thus would have been paid, to some extent, by the clinic revenue. These clinic revenues are part of the educational program.
