Print Friendly, PDF & Email
 

Accounting Considerations When Establishing an Emergency Relief Fund

Charter Schools across the country have stepped up to assist families during this unprecedented time.  In addition to successfully adapting to entirely remote learning and providing tools such as laptops and other technology, many Charter Schools provide curbside pickup meals to their students.  As this worldwide pandemic continues, many Charter Schools have established Emergency Relief Funds to support other needs of their students and families.  These might include gift cards to grocery stores, or financial assistance with rent, utilities, and medical expenses.

AAFCPAs offers key considerations for Charter Schools establishing an Emergency Relief Fund:

Solicitation of Funds

  • Schools should only accept funds earmarked for the specific relief effort. Donors cannot earmark funds for a specific individual or family.
  • As with all donations, the charity must acknowledge the donation in writing for any gifts over $250, and the communication must acknowledge if any benefit was received in exchange for the contribution.

Providing Disaster Relief to Individuals

In general, providing relief to victims of a disaster is a charitable activity, and under Internal Revenue Code Section 139, qualified disaster relief payments in connection with a qualified disaster are not taxable as income to the recipients. Since President Trump declared the Coronavirus pandemic a National Emergency these relief payments are not taxable income.

If a charity wishes to provide support to victims of a disaster:

  • The relief must benefit a charitable class and the charitable class must be large enough or sufficiently indefinite that potential beneficiaries cannot be individually identified. The Charter School student population and families may be considered a charitable class as long as the payments are available for the current COVID-19 Pandemic and all future disasters, as it is impossible to identify students and families who would be affected.
    • AAFCPAs advises clients to adopt a written policy to address the relief efforts for a future disaster.
    • If the school does not want to make payments available for future disasters, then they can expand the population to include other families from the geographical region or other schools.
  • The charity must apply a needs-based test. The needs-based test, although subjective, should be applied with common sense and sympathy to the plight of the victim.
    • AAFCPAs advises clients to keep appropriate documentation. The IRS suggests the following:
      • Complete description of the assistance;
      • Cost of the assistance;
      • Purpose for which the assistance was given;
      • The charity’s objective criteria for disbursing the assistance;
      • How the recipients were selected;
      • Name, addresses, and amounts distributed to each recipient;
      • Any relationship between a recipient and an officer, director, key employee, or substantial contributor; and
      • The composition of the selection committee.

Internal Control Considerations

Payments to individuals and distribution of gift cards are easily suspectable to fraud in the absence of the right controls.  When making distributions from a Disaster Relief Fund, AAFCPAs advises clients to consider the following best practices:

  • Establish a group or committee who will oversee the grant program;
  • Develop criteria for eligibility and disbursement limits;
    • What will the charity require to substantiate eligibility?
  • Document what the approval process will be when distributing funds;
    • What documentation from the recipient will you obtain to confirm they received the distribution?
  • Develop a tracking mechanism for gift cards.

We applaud our Charter School community for establishing these funds to help their families get through this pandemic.  With proper internal controls and oversight, these programs will continue to meet the purpose for which they were established.

If you have questions, please contact John Buckley, CPA, CGMA at jbuckley@nullaafcpa.com, 774.512.4039; Christopher Consoletti, Esq. at 774.512.4180, cconsoletti@nullaafcpa.com; or your AAFCPAs Partner.

About the Authors

Chris Consoletti
Chris, in conjunction with AAFCPAs’ multi-disciplinary team of CPAs, investment & business advisors, provides effective tax planning and research, tax compliance, charitable planning, and asset protection solutions for trusts & estates, corporations and partnerships. Chris provides clients with corporate law analysis and recommendations related to entity formation, management and board structure, executive compensation, limited liability protection, and the applicable laws of relevant states and jurisdictions. He evaluates and assesses opportunities and risks associated with complicated tax challenges or controversies.
John Buckley CPA
John has been successfully serving AAF clients for over 20 years. He has extensive experience with the audits of diverse associations, educational institutions, and other community-based agencies. John specializes in working with nonprofit organizations that are subject to federal, state, and other regulatory requirements. John is AAF’s Educational Services Division Leader, which includes services to independent schools, charter schools and Charter Management Organizations (CMOs), colleges, education services organizations, Chapter 766 schools, and other educational institutions. He has extensive experience with these types of organizations, including working with capital campaigns, financing agreements, and charter school replication.