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S E S S I O N F O U RJuly 10, 2020 | 11:00 A.M. ET

Housekeeping Items

• The webinar will be recorded and shared as soon as it is available via email• All materials were emailed to you this morning – also available on

RKL’s Business Recovery Resource Center at rklcpa.com• All lines are muted• NASBA CPE requirements – in order to receive CPE for this webinar:

• Participants must be connected to the session (both audio and presentation) for its entirety

• Participants must answer three questions/elements of engagement• One (1) hour of CPE in the field of business law will be granted if you meet

these requirements

DISCLAIMER: The presenters, Ryan Hurst, Barry Pelagatti and Joe Noll, and RKL LLP and its subsidiaries/affiliates are not held responsible for information that has changed or will change and makes no representation or warranty as to the ongoing accuracy of the information presented orally or in writing. Attendees should consult with legal, accounting and other advisors.

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Meet Your Team for Today’s PresentationPA Reopening and PPP Updates

Your PPP Loan and Debt Covenants

Adapting & Thriving in a Remote Environment

RYAN HURST, ASA | Partner, Business Consulting Services Group

Ryan is a Partner in RKL’s Business Consulting Services Group and an in-demand transaction consultant. Ryan’s areas of expertise include advising clients on buying and selling businesses; succession planning; conducting valuations for a variety of transactions and structures; litigation support for shareholder disputes; and strategic alternatives analyses.

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JOE NOLL, MCSD, MCDBA, MCITP| Partner/President, RKL eSolutions

Joe is an RKL Partner and President of RKL eSolutions. He leads a team of technology experts who partner with clients in 49 states and several countries to implement solutions related to business software, IT support, network integration, application development and more.

BARRY PELAGATTI, CPA | Partner, Audit Services Group

Barry is a Partner in RKL’s Audit Services Group and leader of the firm’s Financial Services Industry Group. With more than two decades of service to financial institutions throughout the Mid-Atlantic, Barry directs the strategy, growth and management of RKL solutions for banks, credit unions and other institutions, ranging from assurance and tax services to data security assessments and business continuity planning. Barry also serves as Managing Partner of RKL’s Exton Office.

Thank you to Clark, Inc. for its unexpected and highly appreciated donation to CASA of Lancaster County on behalf of RKL.

We’re humbled by your generous response to our weekly webinar series and your gesture to pay it forward to a very deserving local organization that represents the best interest of local children in court.

A Moment of Gratitude

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casalancaster.org clarkinc.org

PA REOPENINGUPDATE

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National Trends and Hotspots

6 Source: ArcGIS.com, Johns Hopkins University Coronavirus COVID-19 Global Cases Dashboard; as of July 9, 2020

If you have traveled, or plan to travel, to an area where there are high amounts of COVID-19 cases, it is recommendedthat you stay at home for 14 days upon return to Pennsylvania. If you travel to the following states, you will need to quarantine for 14 days upon return:

• Alabama

• Arizona

• Arkansas

• California

• Florida

• Georgia

• Idaho

• Louisiana

PA Interstate Travel Advisory

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• Mississippi

• Nevada

• North Carolina

• South Carolina

• Tennessee

• Texas

• Utah

Source: PA Department of Health

• Traveled to a restricted state (15 states)• Tax credits for emergency paid sick leave (if <80 hours used previously)• Remote work• Pay the employee (eligible PPP expense)• PTO

• Traveled to an unrestricted state (34 states)• No requirement to quarantine but many companies are implementing restrictions

• In either case, implementing a policy is a best practice

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Q: My employee traveled outside PA – what should I do?

Risk Indices in Carnegie Mellon Analysis1) COVID Case Risk: # of reported

COVID-19 cases / population of area 2) Commute Risk: Additional # of

infected workers commuting from neighboring counties / total # of workers in the county

3) ICU Capacity Risk: # of 60+ year olds in area / # of unoccupied ICU beds

4) Re-Opening Contact Risk: % of workers in an area employed in currently “physically closed” industry sectors

5) Population Density Risk: Population of region / area of region

6) Population Age Risk: % of population in area > 60 year old

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● High Risk●●●● Low Risk

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No Changes

Still high risk Risk profile worsened

• PA General Assembly – backed primarily by Republican legislators – petitioned the PA Supreme Court to end the governor’s exercise of emergency authority.

• The high court rejected the argument that the legislature can unilaterally terminate the governor’s emergency powers by resolution.

• This is particularly relevant to any future shutdown orders in the event of a resurgence in part or all of Pennsylvania.

PA Supreme Court Rejected State Lawmakers’ Bid to End Governor’s Coronavirus Orders

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POLLING QUESTION

To be eligible for CPE, 3 polling questions must be answered.

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PPP UPDATE

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• Loan application extended to August 8, 2020• $130B remains available

• Borrower names released earlier this week for loans >$150,000• Demographic data released on others• Still a push from major news outlets to have all borrower names released

• No new borrower guidance since June 25, 2020

PPP – Recent Events

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Q: If I select the 24-week period, should I apply for forgiveness as soon as I use all PPP funds?

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• Borrowers may apply for forgiveness prior to the end of the covered period if all loan proceeds were used.

• Per IFR released June 22 – If the borrower applies for forgiveness before the end of the covered period and has reduced any employee’s salaries or wages in excess of 25 percent, the borrower must account for the excess salary reduction for the full eight-week or 24-week covered period.• The Salary/Wage Reduction Safe Harbor would need to be fulfilled by the time the application

is submitted.

• If a borrower applies early, what will happen to the FTE haircut if no safe harbor is met?• Guidance is silent on any impact an early application would have with respect to FTE reductions.

• Applying early also depends on lender readiness.

• Note: Borrower must apply for forgiveness within 10 months of the end of the covered period to avoid required payments of principal and interest.

Reminder: SBA may review any loan. What was taken off the table for loans <$2M was the financial needs certification.

Q: What are the deadlines for forgiveness?

Lender ReviewBorrower Preparation SBA Preliminary ReviewLender issues decision to SBA on loan forgiveness:• Approval (in whole or in part)• Denial without prejudice

(borrower may request lender reconsiders)

• Denial (borrower may appeal within 30 days of notice from lender)

Up to 60 days from receipt of completed forgiveness application

Borrower prepares application and documentation required by lender for forgiveness

Deadline: effectively 10 months after end of covered period

Lender submits documentation to SBA:• Loan Forgiveness Calculation Form• PPP Schedule A• Borrower Demographic Information

Form (if submitted to lender)

Remits payment to lender within 90 days of lender’s submission to SBA• “Subject to an SBA review of the loan

or loan application”

SBA Detailed ReviewSBA may begin a review of any PPP loan of any size at any time in SBA’s discretion• SBA notifies lender which notifies borrower

within five business days• Lender provides additional documentation

Lender shall not approve forgiveness until SBA completes its review

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Q: What are some of the most common questions you receive where you still need guidance?

• What are considered “transportation costs” in eligible utilities?

• How strict a definition of mortgage interest is applied to personal property?

• With respect to the owner’s compensation being capped at 2019 levels, is there any prohibition on a pay increase to the owner’s actively employed spouse or other relatives?

• When will my lender be ready to accept applications?

• Will forgiven expenses become tax deductible? • This will require a Congressional mandate.

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If using a 24-week covered period, focus on employee cash compensation first

POLLING QUESTION

To be eligible for CPE, 3 polling questions must be answered.

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YOUR PPP LOAN AND DEBT COVENANTS

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Recent modifications to the PPP program have created a potentially longer carrying period for the loan in your accounting records:

• PPP loan funding started in April 2020, with an expected eight-week life span

• Since then, changes have occurred, with additional clarity on forgiveness process• Forgiveness period can be for up to 24 weeks (five months)• Borrower has to then complete and submit forgiveness application (up to 10 months)• Lender has UP TO 60 days (two months) to review forgiveness application• SBA has UP TO 90 days (three months) to review and approve forgiveness application

POTENTIAL 20-MONTH SPAN BEFORE KNOWN FORGIVENESS!

QUESTION: How does that impact your compliance with DEBT COVENANTS?

Loan Forgiveness

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REMINDER: Account for PPP Loan as Debt UNTIL Forgiven

For most companies, PPP loans should be accounted for as debt instruments. Proceeds should be recorded as debt instruments under ASC 470, Debt, on a company’s balance sheet.• Balance Sheet Presentation

• The company should recognize the entire loan amount as a financial liability (if a classified balance sheet is presented, the liability will be classified as current or noncurrent under ASC 470-10-45), with interest accrued as an additional liability and expensed over the term of the loan.

• Cash Flow Statement Presentation• For cash flow statement purposes, the company should present the receipt of the PPP

funds as a cash inflow from financing activities. Any interest paid will be presented as a cash outflow for operating activities, and any principal repaid will be presented as a cash outflow for financing activities. In addition, if any amount is forgiven, that amount would be disclosed as a non-cash financing activity.

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• Under ASC 405-20, Extinguishments of Liabilities, Paragraph 40-1, a debt instrument is considered extinguished only if the borrower is legally released from being the primary obligor.

• As it relates to the PPP, borrowers must formally apply for loan forgiveness, including providing documentation to verify the existence and accuracy of the qualified expenses. Therefore, the PPP obligation should be derecognized only when the debt is formally forgiven.

• Financial institutions have 60 days to review submissions, and SBA has 90 days to approve, so it could take up to at least five months to get legal release AFTER you file your application.

Forgiveness of Debt

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ASC 405-20-40-1 states the following (emphasis added):A debtor shall derecognize a liability if and only if it has been extinguished. A liability has been extinguished if either of the following conditions is met:1. The debtor pays the creditor and is relieved of its obligation for the liability. Paying the creditor includes the following:

• Delivery of cash• Delivery of other financial assets• Delivery of goods or services• Reacquisition by the debtor of its outstanding debt securities whether the securities are cancelled

or held as so-called Treasury Bonds

2. The debtor is legally released from being the primary obligor under the liability, either judicially or by the creditor. For purposes of applying this Subtopic, a sale and related assumption effectively accomplish a legal release if nonrecourse debt (such as certain mortgage loans) is assumed by a third party in conjunction with the sale of an asset that serves as sole collateral for that debt.

Forgiveness of Debt (continued)

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• Debt covenants could be impacted depending on reporting requirements:• When is your reporting year-end?• How often does your lending institution require you to communicate covenant

compliance?• Do you have POSITIVE or NEGATIVE covenants? OR BOTH?• Were my PPP funds received from the same lender that established the covenants?

• What should I do if I have debt covenants?• Talk to your lender(s) immediately and frequently during the forgiveness process.• Request a covenant waiver letter, or a modification for the PPP funds.• Calculate ratios (if applicable) with and without PPP debt included (non-GAAP).• Inform your Senior Management and/or Audit Committee of any possible triggers.

Debt Covenants

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• Achieve certain financial ratios, such as:• Debt/EBITDA• Debt/Equity• Debt/Assets

• Provide yearly audited financial statements• Ensure accounting practices are in accordance with GAAP (*)

(*) SEE NEXT SLIDE

POSITIVE Debt Covenants – Common Examples

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• Borrower CANNOT:• Borrow more debt

• This could be a major issue if your lender did NOT participate in PPP, and you needed to obtain PPP funds from another participating institution

• Issue debt more senior than the current debt (*)

• Enter into certain types of arrangements

(*) PPP loans are unsecured, require no guarantors and are 100% guaranteed by the SBA, BUT it is still DEBT for GAAP purposes, SO you need to carefully review all of your debt covenants!

NEGATIVE Debt Covenants – Common Examples

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• Could trigger:

• Demand penalty payments

• Increased predetermined interest rate

• Increased collateral requirements

• Demand full payments

• Terminate the debt agreement

Debt Covenants: VIOLATIONS

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• You must determine the appropriate disclosures for the loan per the disclosure requirements in ASC 470-10-50

AND

• Consider the impact of any debt covenant compliance issued on BOTH your audit report and required disclosures:• Potential going concern issues• Emphasis of a matter paragraphs in audit report• Need to discuss formal waivers or modifications from your lender• Additional representations required by management to auditors• Additional testing (i.e. costs) of information related to PPP loan• Potential non-GAAP disclosures

COMMUNICATE! COMMUNICATE! COMMUNICATE!

Disclosures Also Need to Consider Debt Covenants

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Adapting & Thriving in a Remote Environment

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About RKL eSolutions RKL eSolutions is a wholly owned subsidiary of RKL LLP, providing business solution software and networking solutions for clients in a variety of industries including manufacturing, healthcare, not-for-profit, entertainment, professional services and more.

We help companies enhance, extend and evolve their IT infrastructure and represent a wide range of ERP, CRM and accounting software from Sage including Sage Intacct, Sage 100 cloud, Sage 500, Sage 300 and Sage X3.

We provide expert IT Services covering Cisco, VMware, Microsoft, Linux, Kubernetes and Tegile. We offer various levels of managed services and cybersecurity.

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About RKL eSolutions Quick facts:

• Founded in mid-2001 in Lancaster County with three team members; today, RKL eSolutions employs more than 90 team members in 26 states.

• 90% of our workforce is remote, expanding our talent pool and requiring an intentional focus on fostering a culture that makes team members feel connected and engaged.

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POLLING QUESTIONTo be eligible for CPE, 3 polling questions must be answered.

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What kinds of questions do you get from peers in leadership about transitioning to a more remote working environment?

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Top Questions from Leaders• Can work be productive remotely?

• Is remote work something people will find enjoyable?

• Are people equipped properly to work from home?

• What tools, protocols and new behaviors do we need to adopt to foster good communication and collaboration?

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Frequently Asked Question: How can companies benefit from transitioning to a more remote working environment?

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Benefits of Remote Work for Employers• Reduce the cost of physical office space. Fewer employees

on-site everyday means less space required in your office footprint.

• Reduce travel costs. Depending on your business, reduction of business flights and other travel.

• Expand the talent pool. You are less restricted in hiring talent. You potentially can hire talent anywhere thus increasing the pool for potential candidates.

• Boost employee happiness, productivity and retention.

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Frequently Asked Question: What are the benefits of remote work to employees?

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Benefits of Remote Work

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Benefits of Remote Work for Team Members• Less time wasted commuting. Each situation is different

but it could reduce several hours of commute each week. Reduction of commute can:

• Save money on gas • Reduce carbon emissions for the climate• Possibly save money on parking• Traffic reduction

• Added time to their personal lives, by reducing commute, provides time for self-improvement: exercise, cooking and eating healthier, hobbies, socializing with family and friends

• Fewer distractions in your workspace can positively enhance work productivity – in some cases!

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Frequently Asked Question: What are some of the challenges remote employees face that I might not be considering?

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Challenges of Working Remote

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Challenges of Remote Work for Team Members• Structure. Learning how to organize the workday independently

can be a challenge for some, especially new and entry-level team members.

• Communication. In the absence of face-to-face communication, some signals can be lost. It’s important for team members to be intentional and clear in their discussions.

• Internet connection and increased IT management. Even with the best IT team available to support remotely, there will be an increased responsibility for procuring a fast and reliable internet connection and occasionally troubleshooting tech issues in a more hands-on way.

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Challenges of Remote Work for Team Members• Potential loneliness and isolation. Especially in our current

environment, it’s important for team members to be proactive about minding their emotional needs. Encourage team members to deliberately incorporate social time into their day.

• Get comfortable on camera. Video conferencing brings you directly into the homes of your subordinates, so remember that some may actually find that daunting or uncomfortable. Making it a normal part of your interactions will reduce that camera anxiety. Remember to mute your microphone when you are not talking.

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Frequently Asked Question: As a company leader, what changes do I need to make to foster a remote work environment that is supportive and productive?

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Consider Your Management/Leadership StyleMany leaders wish to have their employees close as it is easier to keep an eye on them. Remote work reduces oversight, giving more flexibility and autonomy to employees. How to better manage this? • Trust. Hire people, be on the same page with them and trust

them to do the work without seeing them as often.

• Adjust your expectations. Never expect or require someone to get back to you immediately unless it is a true emergency. The expectation of immediate response is toxic.

• Establish regular cadence with direct reports and team. Do 1:1 meetings! Have frank discussions around engagement, morale and professional/personal matters.

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Consider Your Management/Leadership Style• Establish clear intentions around meetings. Define and

explain the expectations beforehand.• Be clear in your communications. If you have to repeat

yourself you weren’t clear enough the first time, unless it is something brand new, which may require additional clarity and a repeat reminder.

• Communicate. Over-communicate. Remember that poor communication creates more work.

• Listen. • Consider meeting size. Five people in a room (virtual

room) for an hour is not a one-hour meeting, it is a five-hour meeting. But that is the case in person as well.

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Frequently Asked Question: What about cybersecurity? How do we minimize risks here?

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Consider Your Cybersecurity ApproachEducation. The need to better educate everyone on use of technology and enforcement of usage. The landscape is constantly changing and the need to communicate the importance of educating on safe and secure computing practices is continuous process. To name a few…

• Better password management• Usage of VPN• Physical security of their devices in addition to work devices• Storage of work files

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Frequently Asked Question: How can I encourage my team to adopt good work-from-home habits?

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Making It Work – Tips for Your Employees • Establish boundaries between work and home.• Define your ideal working environment.

• You may need to experiment a bit until you find a spot.• You may like moving around to different areas.• Consider a standing desk/stand.

• Be transparent and over-communicate.• Talk to more people.• Keep your calendar updated.

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Making It Work – Tips for Your Employees • Step away from the computer.

• Remember to take breaks and move.• Take lunch breaks without working.

• Don’t start working as soon as you wake up. • Get out of your house. Remember to get fresh air and sunlight.

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Tools• Cisco VOIP phone plus Jabber• Zoom for audio & video conferencing• Office 365 for email and calendar• Salesforce for Customer Relationship Management (CRM)• Slack for collaboration• Smartsheet for project planning, organizing and oversight • SharePoint for file sharing and retention internally • Egnyte for file sharing externally• FindTime for scheduling meetings, integrated with Outlook • DocuSign for electronic signature• Understand time zones of everyone involved in collaborating. I use

EveryTimeZone.• Scan documents on iPhone or Android• Password protection iPhone or others LastPass or KeePassXC• Certify expense management

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Additional Resources• State of Remote Work report by Buffer, which includes

lots of insights and data about working from home collected by surveying thousands of remote workers.

• The Year Without Pants by Scott Berkun on his experience working at Automattic, the company behind WordPress.com, and the way to structure and manage remote work teams. Automattic is fully remote, with more than 1,000 employees and no office. They’ve recently published a Crash Course in Remote Management video.

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FOCUSED.ON YOU.Questions?

• Contact your RKL advisor• Visit RKL’s Business Recovery Resource Center

for more updates and guidance

THANK YOU FOR PARTICIPATING

DISCLAIMER: The presenters and RKL LLP and its subsidiaries/affiliates are not held responsible for information that has changed or will change and makes no representation or warranty as to the ongoing accuracy of the information presented orally or in writing. Attendees should consult with legal, accounting and other advisors.53