Understanding the Shuttered Venue Operators Grant Program
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Understanding the Shuttered Venue Operators Grant Program

5 months ago · 12 min read

To help accounting firms assist clients that have received at least one SVOG, this guide reviews the program’s history, explains its most important rules and also addresses accounting and auditing issues and complexities that firms may encounter.

Congress created the Shuttered Venue Operators Grant (SVOG) program about a year into the COVID-19 pandemic to provide needed funding to theater operators, concert venues, and other businesses shut down by social distancing rules that banned large crowds.

Launched in April 2021 with $16.25 billion in funding, the SVOG program awarded more than 20,000 grants totaling $14.41 billion through April 25, 2022. Of that total, $14.31 billion had been disbursed, according to a report from the program’s administrator, the U.S. Small Business Administration (see all 2022 SVOG reports from the SBA).

The program stopped accepting initial applications in August 2021 but then invited the hardest-hit SVOG recipients to apply for supplemental awards. More than 9,500 supplemental grants, totaling $3.38 billion, were awarded through April 25, with $3.35 billion of that money disbursed.

The SVOG is no longer accepting new applications, but the program’s portal remains open for all active applicants and awardees.

Please note that the SBA maintains an SVOG webpage that features a program overview and provides numerous links to additional information, including Frequently Asked Questions (FAQs). Because the FAQs provide a very detailed overview of the program, this document is intended to be a high-level summary of key provisions. Please refer to the SBA FAQs and other information for more detailed answers to questions about the program.

How the SVOG worked

After months of development and weeks of delays (see the “How the SVOG started” section), the SVOG began accepting applications on April 26, 2021.

Grant amounts reflected either of the following instances:

  • For an eligible entity in operation on Jan. 1, 2019, grants would be for an amount equal to 45% of their 2019 gross earned revenue OR $10 million, whichever was less.

  • For an eligible entity that began operation after January 1, 2019, grants would be for the average monthly gross earned revenue for each full month you were in operation during 2019 multiplied by six OR $10 million, whichever was less.

Entities eligible to apply for an SVOG included:

  • Live venue operators or promoters

  • Theatrical producers

  • Live performing arts organization operators

  • Relevant museum operators, zoos and aquariums that meet specific criteria Motion picture theater operators (including owners)

  • Talent representatives

Additionally, the entity must have been in operation as of Feb. 29, 2020.

Entities owned by state or local governments (for example, museums or historic homes) were eligible to apply for an SVOG if the entity acted solely as a venue operator, museum, etc. and did not also include other types of entities. For example, a city parks and recreation department that operated a bandstand in a public square along with running various nature parks did not qualify as an eligible entity for an SVOG.

Each subsidiary business owned by an eligible entity that also met the eligibility requirements on its own qualified as an eligible entity.

Entities not eligible for the SVOG included those that:

  • Had no defined performance and audience space.

  • Did not have a place of business located in the United States, did not operate primarily within the U.S., and did not make a significant contribution to the U.S. economy through payment of taxes or use of American products, materials or labor.

  • Were not in operation as of February 29, 2020.

  • Were a publicly traded corporation, or majority owned or controlled by a publicly traded corporation.

  • Presented live performances or sells products or services of a prurient sexual nature.
    That had more than 10% of its 2019 gross revenue come from the federal government (not counting disaster assistance).

  • Owned or operated venues, theatres, museums or talent agencies in more than one country, or in more than 10 states, AND also had more than 500 employees as of Feb. 29, 2020.

Interaction with PPP loans and other grant programs

Initially, entities that had applied for a first- or second-draw Paycheck Protection Program (PPP) loan were not allowed to apply for an SVOG. After pushback from venue operators, the American Rescue Plan changed the rules so an entity that applied for a PPP loan (first or second draw) on or after December 27, 2020 could also apply for an SVOG.

  • If an entity received an SVOG, it could not receive a PPP loan after they received the SVOG.

  • If an entity received a PPP loan (first or second draw) in 2021 the PPP loan amount would be deducted from the SVOG amount.

    • For example, if a museum received a PPP loan for $50,000 on March 1, 2021, and then applied for a SVOG of $200,000, the value of an SVOG awarded to the museum would be $150,000 ($200,000 in SVOG asked for minus $50,000 in PPP funding received).

  • If an eligible entity received a PPP loan in 2020, it did not reduce the amount of any SVOGs awarded to the entity.

  • If an entity applied for a Restaurant Revitalization Grant, it could not also apply for an SVOG.

  • If more than 10% of an entity’s gross revenue came from federal sources, it would not be eligible for an SVOG.

Supplemental SVOG awards

The initial applicationperiod ran through Aug. 20, 2021.

In late August, the SBA allowed. The SBA then invited previous Eligible applicants could qualify for Shuttered Venue Operators (SVOG) Grants equal to 45% of their gross earned revenue, with the maximum amount available for a single grant award of $10 million. $2 billion was reserved for eligible applications with up to 50 full-time employees.

Background

Additionally, the AICPA Town Hall Series provides the latest news and updates on PPP, the Shuttered Venue Operators Program, Restaurant Revitalization Fund, and other business relief programs.

Notice of Funding and Eligibility for SVOG

The notice of funding has been posted in the Federal Register, which includes key definitions and detailed grant information.

Eligible entities include:

  • Live venue operators or promoters

  • Theatrical producers

  • Live performing arts organization operators

  • Relevant museum operators, zoos and aquariums who meet specific criteria

  • Motion picture theater operators

  • Talent representatives

Additionally, the entity must have been in operation as of February 29, 2020. Entities of these types owned by state or local governments (for example, museums or historic homes) are eligible to apply if the governmentally-owned entity also acts solely as a venue operator, museum, etc. and not also include other types of entities.

  • For example, a city parks and recreation department that operated a bandstand in a public square along with running various nature parks would not qualify as an eligible entity for an SVOG

Each subsidiary business owned by an eligible entity that also meets the eligibility requirements on its own rights will qualify as an eligible entity.

Entities that would not be eligible for the SVOG include:

  • A mobile or other venue that does not have defined performance and audience space.

  • It does not have a place of business located in the United States, does not operate primarily within the U.S., and does not make a significant contribution to the U.S. economy through payment of taxes or use of American products, materials or labor.

  • The business was not in operation as of February 29, 2020.

  • It is a publicly traded corporation, or is majority owned or controlled by a publicly traded corporation.

  • It presents live performances or sells products or services of a prurient sexual nature.

  • More than 10% of its 2019 gross revenue came from the federal government (not counting disaster assistance).

  • It owns or operates venues, theatres, museums or talent agencies in more than one country, owns or operates venues, theatres, museums or talent agencies in more than ten states, AND it had more than 500 employees as of Feb. 29, 2020.

  • Additional details on eligibility requirements by venue type can be found in the SBA’s

    FAQ document

    .

Interaction with PPP Loans and Other Grant Programs

The American Rescue Plan changed the rules so now an entity that applied for a PPP loan (first or second draw) on or after December 27, 2020 could also apply for an SVOG.

  • If an entity received an SVOG, they could not receive a PPP loan after they received the SVOG.

  • If an entity received a PPP loan (first or second draw) in 2021 the PPP loan amount would be deducted from the SVOG amount.

    • For example, if a museum received a PPP loan for $50,000 on March 1, 2021, and then applied for a SVOG of $200,000, the SVOG will be reduced by $50,000 and it will receive a $150,000 SVOG.

    • If the PPP loan was received in 2020, the SVOG was not reduced by the loan

  • If an entity applied for a Restaurant Revitalization Grant, they could not also apply for an SVOG.

  • As mentioned above, not more than 10% of the entity’s gross revenue can come from federal sources.

Revenue Defined

For purposes of the first and second priority periods, SBA uses the term “gross revenue”, while or the third priority period as well as for calculating the amount of award an entity is eligible to receive, they use the term “gross earned revenue”. It is important to understand this distinction between these two terms and the definitions as noted below.

Gross revenue is functionally equivalent to ‘receipts,’ which the SBA has defined under 13 C.F.R. § 121.104 as meaning “all revenue in whatever form received or accrued from whatever source.” This will include contributions, donations, and grants from any and all sources (excluding any disaster assistance funding).

Gross earned revenue, on the other hand, includes monies received from the sale of goods or services using the accrual basis of accounting. Gross earned revenue is the total of earned revenue from various sales of goods or services, such as admission tickets, merchandise, food and beverages, advertising sales and contracted presentation income. Gross earned revenues do NOT include other funds such as donations, sponsorships, government assistance, or returns on investments.

Entities who have received other forms of government assistance have questioned if those amounts should be included in one or both of the revenue calculations above. The FAQs from the SBA make clear that, if such assistance originated from funding provided under either the Stafford Act (41 USC 5121 et seq.) or the CARES Act (Pub. L. No. 116-136), it would be considered federal disaster assistance (even if it was delivered by a tribal, state or local government) and excluded from an eligible entity’s gross revenue. If the funding came from any other source, it would have to be included in gross revenue. In no event would assistance of this sort be considered earned revenue.

As a result, entities need to understand the source of all forms of government assistance received as disaster assistance funding provided by tribal, state and local governments that does not originate from federal disaster assistance block grants, as well as disaster assistance provided by private entities,. These types of funding would have to be included in gross revenue, and therefore may impact the priority period in which an entity may apply for funding.

Accounting Considerations

SVOG funds may be used for specific expenses, which include:

  • Payroll costs

  • Rent payments

  • Utility payments

  • Scheduled mortgage payments (not including prepayment of principal)

  • Scheduled debt payments (not including prepayment of principal on any indebtedness incurred in the ordinary course of business prior to February 15, 2020)

  • Worker protection expenditures

  • Payments to independent contractors (not to exceed $100,000 in annual compensation per contractor)

  • Other ordinary and necessary business expenses, including maintenance costs

  • Administrative costs (including fees and licensing)

  • State and local taxes and fees

  • Operating leases in effect as of February 15, 2020

  • Insurance payments

  • Depreciation

  • Advertising, production transportation, and capital expenditures related to producing a theatrical or live performing arts production. (May not be primary use of funds)

Applicants will be required to submit the following financial documents during the time of application:

  • 2019 and 2020 tax returns, if 2020 has been filed at the time of application.

  • Quarterly income statements for 2019 and 2020, signed by a primary officer of the organization.

  • Indirect cost rate report from cognizant agency if applicable.

  • Payroll statements covering February 29, 2020.

The accrual method of accounting is only required when determining whether an entity qualifies for one of the priority periods under the Economic Aid Act. For all other purposes, an entity may rely upon either the accrual or cash method of accounting.

The AICPA recently issued nonauthoritative guidance about how a recipient should account for a Shuttered Venue Operators Grant. This Technical Question and Answer (TQA) applies to not-for-profit entities and private business entities.

Potential Audit Implications and Considerations

Although an audited financial statement was not required to apply for an SVOG award, non-federal entities (i.e., not-for-profit organizations, institutions of higher education, state and local governments, or Indian tribes) and for-profit entities that received SVOG awards may have additional requirements. Those additional requirements differ for non-federal entities and for-profit entities.

Non-federal entities expending $750,000 or more in federal funds, including SVOG awards, will be required to have a single audit or a program-specific audit in accordance with Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). The Office of Management and Budget (OMB) in May published the 2022 , which contains a section on the SVOG program. Auditors working with non-federal entities should refer to that section (which starts on page 1004) for guidance.

For-profit entities are subject to much different requirements. The SBA released updated guidance and FAQs in July. The AICPA’s Governmental Audit Quality Center reviewed the latest guidance in its GAQC Alert #445, published on August 19, 2022.

The following is republished with permission from the GAQC.

SVOG Guidance and FAQs
On July 22, 2022, SBA updated the SVOG Post-Application Guidance and the Post-Award Frequently Asked Questions. These documents apply to both non-federal entity recipients and for-profit recipients. Among the updates of most interest to our members are updates to questions in both documents relating to the audit requirements.

For-Profit Entity Audit Requirements
Also on July 22, the long-awaited SVOG audit requirements for-profit entities were issued in a new guidance document titled, Shuttered Venue Operators Grant Audit and Attestation Requirements for For-Profit Recipients (referred to herein as guidance document). Among other things, the guidance document formalizes a previous SBA Webcast announcement (see GAQC Alert #444) regarding the options for audit, the audit submission deadlines, and provides additional details. Read on for more about the guidance document and watch for future related updates from the GAQC.

Audit Submission Requirements. For-profit entities have the later of nine months from the release of the SVOG for-profit guidance, which was dated July 22, 2022, or nine months after the end of an entity's fiscal year to submit their audit packages to the SBA. For example, an audit of a for-profit entity's December 31, 2021, year-end would be due by April 22, 2023 (i.e., nine months after the SVOG for-profit guidance was issued because it is later than nine months after the for-profit entity's year-end). The SBA will utilize an Audit Reporting Action Item to collect audit report packages from for-profit entities regardless of which audit option is selected.

Revenue Audit Threshold Trigger for All Audit Options. Due to the nuances of the SVOG program, which allow for pre-award costs, the audit threshold trigger for a for-profit entity (for all audit options) is based on SVOG award revenue recognized during the entity's fiscal year rather than expenditures as is usual. In determining the audit threshold trigger, SVOG for-profit recipients can utilize the accrual or cash basis of accounting, but the guidance indicates the basis the entity uses is dependent on its ordinary business practices. We have already received questions from members about how this trigger is applied for both accrual and cash basis entities and have strongly encouraged SBA to post common scenario examples as a follow-up to the guidance document to ensure consistency in understanding. The guidance states that recipients should contact their Grants Management Specialist for additional clarification on how this guidance applies to their SVOG award and accounting practices. We encourage auditors to reach out to SBA at svogrant@sba.gov with any questions about the audit threshold trigger for individual client situations and to include in the audit documentation any response provided by SBA.

SVOG For-Profit Audit Options. For-profit entities, that received SVOG awards and meet the audit threshold requirements, can select one of four options described below to meet the SBA audit requirements. If an entity normally arranges for an audit of their financial statements, that is likely the easiest way to meet the audit requirement. Otherwise, for the reasons cited below, we believe the compliance examination engagement alternative will be utilized most frequently.

  • Financial Statement Audit. A financial statement audit performed under generally accepted auditing standards (GAAS) is one option. Government Auditing Standards and the Uniform Guidance do not apply.

  • Single Audit/Program-Specific Audit. These are two separate options identified in the guidance document and would follow the normal Uniform Guidance rules except that, as noted above, the audit threshold determination is based on revenues instead of expenditures.

  • Compliance Examination Engagement. The last option that may be the most efficient option for a SVOG for-profit recipient is the compliance examination engagement option. For this reason, the SVOG guidance document spends the most time discussing it. The engagement is required to be performed in accordance with the AICPA Statements on Standards for Attestation Engagements (i.e., AT-C section 315, Compliance Attestation) and

    Government Auditing Standards. The engagement, which results in an opinion on compliance, focuses on three compliance requirements related to Activities Allowed and Unallowed, Allowable Cost/Cost Principles, and Period of Performance. Those compliance requirements are described in detail in the Appendix to the guidance document. The benefit of this option to for-profit entities is that there is no requirement for a financial statement audit and no required schedule of revenues of federal awards. Further, other more onerous provisions of the Uniform Guidance would not apply. For example, there would be no requirement to test internal control over compliance for operating effectiveness like in a single audit or program-specific audit.

Tax ability of Funds Received and Deductibility of Expenses

The CAA made clear that amounts received under the SVOG “shall not be included in the gross income of the person that receives such grant.” (Sec. 278(d)(1)DivN). Expenses paid with funds from SVOGs are deductible, notwithstanding the general prohibition on deducting expenses that are reimbursed to the taxpayer as” no deduction shall be denied, no tax attribute shall be reduced, and no basis increase shall be denied” as a result of the SVOG being excluded from gross income.

Should Paycheck Protection Program (PPP) loan forgiveness for S corporations be reported in the accumulated adjustments account (AAA) or other adjustments account (OAA)?

The IRS has provided information to this commonly asked question in the 2021 Form 1120-S instructions. Per the instructions, PPP loan forgiveness and expenses paid with PPP loans creates tax-exempt income, which in turns affects a shareholder’s basis in the S corporation and this should be reported in the OAA column on Schedule M-2. The instructions also clarified that the forgiveness of PPP loans should be disregarded for Form 1120-S: Schedule B, Question 12.

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