Accounting for HEERF II

Thoughtware Article Published: Apr 26, 2021
Campus Landscape


Throughout the COVID-19 pandemic, Congress has provided relief to higher education institutions through the Higher Education Emergency Relief Fund (HEERF). The Coronavirus Aid, Relief, and Economic Security Act, Coronavirus Response and Relief Supplemental Appropriations Act, and American Rescue Plan Act of 2021 are the three aid packages containing this specific financial relief for higher education institutions, known as HEERF I, HEERF II, and HEERF III, respectively. 

Accounting for HEERF I, II, & III

The HEERF allots funding to two groups under each of the three relief packages: students and institutions. As more fully examined in this May 2020 BKD Thoughtware® article, under HEERF I, higher education institutions that receive HEERF I funds can use no less than 50 percent of the funds received on emergency grants to students. The requirement to spend at least 50 percent on student grants generally is considered a barrier under FASB Accounting Standards Codification 958-605 by analogizing to the FASB Staff Q&A from June 2019, which discussed cost-sharing provisions in a grant agreement. In addition, the student spending requirement is considered to be an eligibility requirement under GASB 33, Accounting and Financial Reporting for Nonexchange Transactions. Under this approach, the institution would only recognize revenue from the institutional portion of the HEERF grant to the extent it has incurred and recognized revenue from the student portion of the HEERF grant (on a dollar-for-dollar basis) and met all other grant requirements. HEERF III essentially follows the same model as HEERF I, with the no less than 50 percent of the funds being designated for grants to students.  

HEERF II operates differently than HEERF I and III. Whereas HEERF I and III require no less than 50 percent be spent on the student portion, HEERF II requires higher education institutions to provide the same amount in grants to students they were required to provide under HEERF I. HEERF II is silent regarding a percent for students versus an institution and focuses on a pure dollar minimum to give to students. In general, the funding amount under HEERF II is greater than under HEERF I, making the institutional portion a larger part of the funding.

The U.S. Department of Education (ED) hasn’t provided guidance on the institutional portion amount it would require to be repaid if the required student portion isn’t awarded to students by the end of the period of performance. A very conservative approach to recognizing revenue an institution can take is to not recognize any revenue for the institutional portion under HEERF II until it has awarded the entire required student portion. However, since both HEERF I and III contain specific provisions that institutions must spend at least 50 percent of the funds on students, an institution may conclude it’s appropriate to apply a pro rata methodology to revenue recognition under HEERF II.

For example, under HEERF I, an institution received a $1 million grant for which no less than $500,000 is required to be given to students. This means for every dollar recognized as revenue for the student portion, the institution could recognize a dollar for the institutional portion, if other barriers under the grant are met. Under HEERF II, if the institution was awarded $1.2 million in total funds, a minimum of $500,000 is required to be given to students (same dollar amount as HEERF I) and the balance of $700,000 could be allocated to the institutional portion. A reasonable allocation approach is to recognize the same percentage of funding to the institution portion that was allocated to the student portion. For example, if the school awarded $300,000 of the student portion that represents 60 percent of the entire student portion, it therefore could recognize 60 percent of the institutional portion—or $420,000—assuming it had eligible costs/lost revenues and met other eligibility requirements. Other allocation approaches may be acceptable as well.

ED’s frequently asked questions document allows institutions to apply the funding to eligible expenses and lost revenues back to March 13, 2020—the day the national emergency was declared. Even though the funding allows for expenses from a previous year to be applied to it, the revenue wouldn’t be recognized until the year the grant was awarded to the institution.

In addition, as a result of the revenue recognition potentially not aligning with when the funds are used, it’s possible the revenue reported by the institution may not align with the expenditures reported under the Schedule of Expenditures of Federal Awards.

BKD created a COVID-19 Resource Center to help disseminate important tax and accounting information for our clients and friends as we evaluate ways to mitigate the inevitable financial effects. We’ve been working to keep you up to date with relevant news, tax and compliance changes, new regulations, and anything else we believe you need to know.

The views expressed above don’t constitute professional advice. You shouldn’t act on the information contained in this Thoughtware article without obtaining professional advice.

As with most topics related to COVID-19, changes are being made rapidly. Please note that this information is current as of the date of publication. To connect on this or other accounting matters affecting private schools, reach out to your BKD Trusted Advisor™ or submit the Contact Us form below.

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