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Be Right About Free Money: Potential Legal Risks of the Paycheck Protection Loan Program

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Paycheck Protection Loan ProgramOne of the most important provisions of the CARES Act for small businesses is called the Paycheck Protection Program (PPP). The PPP is a $349 billion program designed to assist small businesses (fewer than 500 employees) facing financial difficulties as a result of the COVID-19 pandemic through specifically structured loans.

The loan program offers funding to cover payroll for up to eight weeks, with the intent of stemming from unemployment. These loans can be forgiven and essentially become a grant if your business meets certain criteria with no need to repay the money.

As the old saying goes, there’s no such thing as a free lunch – or in this case, free government money. There are potential legal risks that could jeopardize the forgivability of the loan.

Conditional Grants

Another way to look at the PPP loans is as conditional grants. The U.S. Small Business Administration (SBA) notes that loans will be forgiven in full if the funds are used for appropriate costs. Covered costs include payroll, mortgage interest, rent and utilities. Further, the payroll costs must account for at least 75 percent of the loan proceeds used. The employer needs to maintain or quickly rehire employees and maintain wage and salary levels in order to receive 100 percent forgiveness.

The Devil’s in the Certification Details

The loan application process requires certain certifications. Businesses that are still operating need to certify that the current economic uncertainty makes the loan necessary to keep operations going.

If this seems vague, it’s because it is. There probably isn’t a small business out there that is not facing significant uncertainty in the current climate. The problem is that the certification standard the PPP lays out is extremely subjective. As a result, with the encouragement for businesses to apply, many may do so under the impression that they will have their loan fully forgiven to only run into trouble later if they don’t meet the certification standards.

Legal Risks

By not providing any definition about the nature or extent of the required impact to operations that would make the loan request “necessary to support ongoing operations,” the SBA is making both applicants and lenders apprehensive.

Some law firms are even warning clients via their newsletters about potential legal exposure under the False Claims Act (FCA). Legal counsels are cautioning that a misrepresentation included in an application could result in FCA liability. Businesses must navigate between being as aggressive as possible to bolster their application while staying within the rules of the program.

More Certification Guidance is Needed

The government agencies involved need to provide more clear and objective guidance on the conditions needed to meet the certification requirements of the loan application process. Without clear and definable guidance as to what constitutes facing economic uncertainty, small businesses could face problems in the future.

Objective criteria such as a percentage of revenue decline or order capacity would provide a rather bright-line test and give both guidance to businesses and confidence in the process. 

Understanding the High-Low Method

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Cost Accounting High-Low MethodWhen it comes to cost accounting, the high-low method is an approach that’s used to break mixed costs into either a variable or fixed cost. Although it’s straightforward, it’s important to do multiple analyses because outlier costs from the available data can sometimes misconstrue operating costs. This calculation occurs by looking at the periods with the most and least activity, as well as the total costs for both the high and low periods.

In order to get results for the high-low method, the variable cost and the fixed cost must be determined first. Once these are established, they are entered into the cost model formula.

Variable Cost is determined as follows:

VC = Highest Activity Cost – Lowest Activity Cost / Highest Activity Units – Lowest Activity Units

The next step is to calculate the Fixed Cost as follows:

FC = Highest Activity Cost – (VC x Highest Activity Units)

Now that the fixed and variable costs are known, the high-low cost can be determined:

High-Low Cost Model = Fixed Cost + (Variable Cost x Unit Activity)

Understanding it Through a Real-World Example

Looking at a furniture manufacturer, it’s good to focus on one product to see how the high-low method works:

The first step is to list production that includes each month, the product produced (let’s say it’s tables), and how much it cost to produce all tables each month. The list could be as follows:

Months Units Produced Total Cost ($)
January 153 6,650
February 106 5,653
March 120 6,185
April 126 6,120
May 100 4,888
June 133 6,650
July 113 5,852
August 93 4,988
September 153 6,783
October 166 7,382
November 146 6,783
December 160 7,581

The greatest output or activity for the furniture store happened in October when it produced the highest number of tables: 166 at a cost of $7,382. In August, the furniture store produced the fewest number of tables at 93, manufactured at a cost of $4,988.

Even though the cost may not be the greatest for the peak and valley of production, the corresponding costs for those respective figures is what will be used.

Now that we’ve identified the relevant data, the first task is to determine the variable cost.

VC = Total Cost of High Activity – Total Cost of Low Activity / Highest Activity Unit – Lowest Activity Unit

VC = $7,382 – $4,988 / 166 – 93  

VC = $2,394 / 73 = $32.80 per table

Then fixed costs must be calculated:

Total Cost = (VC x Units Produced) + Total Fixed Cost

$7,382 = ($32.80 x 166) + TFC

$7,382 = $5,444.80 + TFC

TFC = $7,382 – $5,444.80 = $1,937.20

It’s important to remember that variable costs are per unit.

Now that we have the total fixed cost, we can then create the total cost equation:

Total Cost = Total Fixed Cost + (VC x Units Produced)

Total Cost = $1,937.20 + ($32.80 x 166) = $7,382

This demonstrates the comprehensive costs for the tables made by the furniture store.

Further Considerations

The high-low method is a quick way to analyze costs. Since it only necessitates the peak and lulls of production data and costs, it can be done more often, along with helping companies plan with limited data to estimate future unit costs.

It’s important to run multiple types of cost analysis because high and low measurements might not give a full picture of costs. Although these two data points may not be the best overall picture of costs a business experiences at those volume levels, it can be an effective measurement until more data becomes available.

How Will U.S. Employment Figures, Coronavirus Impact Job Markets?

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How Will U.S. Employment Figures, Coronavirus Impact Job Markets?With the CARES Act (Coronavirus Aid, Relief and Economic Security) signed into law by President Trump on March 27, this set into motion major initiatives by the U.S. government in response to the coronavirus’ economic impact. This Act provides $2 trillion in financial aid to the nation, in big part to soften the impact of the coronavirus’ hit to the country’s unemployment numbers.

For the week ending April 11, seasonally adjusted jobless claims came in at 5,245,000, a drop of 1,370,000 from the April 9 revised level of 6,615,000, according to an April 16 news release from the U.S. Department of Labor.

For the week ending April 18, seasonally adjusted initial claims were reported at 4,427,000, or 810,000 fewer than the prior week’s revised level, according to an April 23 news release from the U.S. Department of Labor. April 11’s adjusted level was lowered by 8,000 to 5,237,000, down from the original 5,245,000 figure.

Taking into account the cumulative unemployment claims over the past five weeks, there have been approximately 26 million workers in the United States put out of work due to the coronavirus and the resulting economic downturn. With the employment picture facing a grim reality, the CARES Act provides many relief programs.

One part of the law provides financial relief for individuals, families, and businesses. Highlights include direct payments of $1,200 for individuals making up to $75,000, $112,000 for heads of households, and $150,000 for joint filers. Enhanced unemployment benefits also are included in the law to help those who are laid off, including contract workers.

Another way the CARES Act helps stimulate the economy is through the Paycheck Protection Program. Funded at $349 billion, this SBA-backed loan is designed to offer financial help to struggling businesses impacted by the coronavirus. A key aspect of this program is to give businesses enough money to pay at least eight weeks of payroll and related expenses to increase their chances of staying in business.

Factors for eligibility to apply for PPP loans include companies that are able to demonstrate their business has been reduced by Covid-19 and have less than 500 workers on their PPP application. Examples of eligible businesses/individuals include independently-owned franchises, contractors/self-employed individuals, tribal businesses, hotels, and restaurants. Eligible companies are able to have their loans forgiven, up to $10 million if they are borrowed from an SBA-approved 7(a) lender.  

According to the U.S. Department of the Treasury, loans may be forgivable if the following criteria are met. No less than 75 percent of the loan is to be used for payroll costs, at which payroll costs on a 12-month basis are maxed out at $100k. Other allowable loan funds, up to 25 percent of the loan proceeds, can be used to pay for rent, utilities or mortgage interest. However, if full-time staffing is reduced or if the salary is reduced by more than 25 percent for full-time employees making less than $100k per 2019’s salary, PPP borrowers may owe money back. However, if any disqualifying changes that occurred between Feb. 15 and April 16 are made whole by June 30, the loans can become re-eligible to be forgiven.

Economic Injury Disaster Loan

Another significant relief program the CARES Act provides in the way of economic relief is through the Economic Injury Disaster Loans program (EIDL). The EIDL program is generally for businesses with 500 or fewer employees, whereby the company can apply to borrow as much as $200k. Loans up to $25,000 require no collateral, and requests above $25,000 require only business assets to serve as collateral.

One significant provision of the EIDL is what’s referred to as the Economic Injury Disaster Loan Emergency Advance. This enables applicants of the EIDL to receive as much as $10,000 in relief that’s not required to be paid back, creating a de facto grant, per the U.S. Small Business Administration. Businesses can receive as much as $1,000 per employee, up to $10,000, based on the number of workers a business employs. Depending on how extensive a business has suffered economically, a maximum of $2 million can be borrowed by a business through EIDLs and/or physical disaster loans, according to the U.S. Small Business Administration.

With these and other domestic government stimulus programs, coupled with other countries implementing their own stimulus programs, it’s worth noting different potential outcomes depending on the pandemic’s severity and health mitigation factors. According to the Organization for Economic Cooperation and Development, the following are some forecasts on how Covid-19 is likely to impact the global economy:

  • While the coronavirus data from China has been questioned, the OECD says that assuming the infections from the coronavirus peak during Q1 in China, the world’s economy is expected to grow less than projected for 2020, dropping to 2.4 percent from 2.9 percent. And while China’s economy is expected to drop below 5 percent in 2020, the country is expected to exceed 6 percent growth in 2021.
  • The OECD also noted that with a pandemic lingering longer and with greater intensity throughout the Asia-Pacific region, North America and Europe, it projects worldwide growth to drop to 1.5 percent in 2020.

Only time will determine how much of an impact the coronavirus will have on global markets. Governments around the world will continue to do their part to mitigate negative impacts.

Prospects for Investing in the 2020s

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Investing in the 2020The third decade of the 21st century started out with a vigorous economy, record low unemployment levels, and benign inflation. But late in the first quarter over the span of two weeks, investors faced the fastest stock market correction in history.

With an unpredictable assailant like a global virus, short-term actions by Congress and the Federal Reserve will need time to see if they are effective. Ultimately, the fate of the U.S. and global economies, which in turn will impact the investment markets, is dependent on how long the COVID-19 outbreak continues and if there is a second wave. Clearly, both supply and demand have been dramatically reduced, with a ripple effect on companies, workers, consumers, and investors. Once the crisis has passed, we will learn which sectors, industries, and individual companies remain financially viable with a business model built to sustain this unprecedented economic fallout.

Amid this backdrop, wealth managers must read the tea leaves to anticipate what the investment markets will look like post-coronavirus. The challenge is how to best position assets to take advantage of future gains without giving up ground now and turning paper losses into permanent shortfalls.

For individual investors, it comes down to what you want to accomplish in the next decade – or what your money can accomplish for you. Are you nearing retirement? Will you remain in the accumulation phase, wherein you can afford to take on market risk? Are you just starting out, and are you risk-averse due to the two major economic declines experienced in your relatively short life, or are you prepared to invest in future prospects – wherever they may lie?

Anyone already in or nearing retirement would do well to invest for a steady stream of income. While the DJIA initially took a beating, many blue-chip stalwarts continue to grow and payout dividends as they have long term, through thick and thin. However, pay attention here, as there are some long-standing dividend-paying companies that are starting to suspend or substantially cut dividend payments.

Growth-oriented investors would do well to look at companies that were well-positioned to survive the pandemic, because they may well represent commerce of the future. This includes the well-established FAANG stocks (Facebook, Apple, Amazon, Netflix, and Google), which have become masters of fast and reliable delivery of online content and physical delivery of essential and discretionary products. Unfortunately, the stock prices of these companies have soared in recent years, so it’s time to consider what the “next big thing” in this arena will look like and who are the frontrunners.

With that in mind, take a look at 2020 demographics. Millennials recently surpassed Baby Boomers as the largest generation in the United States, but they aren’t expected to hold this mantle for long. Generation Z/Centennials are on track to enter the workforce in higher numbers during the next decade. This is a generation that has never known life without cell phones and the internet, so expect the technology sector to ramp up not just with consumer innovations, but with ways to help other industries enhance data management, blockchain supply chains, and artificial intelligence – which might become as omnipresent as retail strip malls.

In a post-pandemic world, employers seeking to strengthen their business models might come to embrace the idea of foregoing healthcare and other expensive benefits offered to employees. A subsequent world of higher pay and more public options could spur the growth of entrepreneurship and new small businesses. By taking advantage of remote employees, low overhead expenses, and emerging technologies, smaller companies or conglomerates might be able to compete with the likes of Amazon in both domestic and global markets.

As a short-term precaution, consider how you might defend your portfolio against the possibility of inflation as we stumble out of the pandemic economy. The federal government’s generous stimulus packages combined with a continued easing of monetary policy by the Federal Reserve could lead the United States to higher inflation. This could be exacerbated by the recent shutdown of production in many industries; the initial low supply of products also might contribute to price escalation. During this interim, investors may want to consider investing in commodities and Treasury Inflation-Protected Securities for inflation protection.

As always, it’s best to seek the advice of a professional in this ever-changing environment.

Six Industries Hiring During the Shutdown

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Six Industries Hiring During CoronaVirusDuring the government shutdown as a result of COVID-19, sadly, millions have lost their jobs. However, there is a silver lining: there are some industries that, because of the shutdown, are actually hiring. Here are a few leads to help those who might have been affected.

Shipping and Delivery

This industry is hiring at what seems like warp speed. It’s reported that Amazon has created 100,000 jobs, specifically for fulfillment and delivery. UPS is hiring, as are courier services. Search “courier services hiring near me” to find opportunities. You might be surprised by what you find.

National Retailers

In addition to Amazon, there are other giants that are hiring, including CVS, Kroger, and Walmart. See the entire list here. The National Retail Federation also has a good list, which includes GE Healthcare, The Home Depot, and Instacart (the latter is a big one, as many don’t want to darken the doors of grocery stores). Access everything here.

Online Learning Companies

Now that scores of kids are at home, teachers are in demand to assist with online learning. Outschool is hiring thousands of teachers. GetEducated is also a great resource for finding a list of companies that are looking for online teachers. And if you’ve always wanted to be a teacher, now’s a good time as any because you can earn online credentials. The world always needs great educators!

Remote Meeting and Communication Companies

Since many companies must conduct business remotely, outfits such as Zoom, Slack, and Microsoft Teams are hiring. Furthermore, since aspects of COVID-19 are still unfolding and may require a longer stint of working at home, these companies could be hiring for a good while, meaning this burst of openings might not be just a flash in the pan.

Childcare

Now that many parents are working from home, they still need childcare. Though our situation changes daily, the California governor announced that schools likely won’t open before fall. Think about opening up your home with affordable, flexible options. It could become a whole new business for you.

Healthcare

While this might not be the first choice for some, it is a sector that’s hiring, not surprisingly. According to an article on LinkedIn, healthcare job postings spiked 35 percent compared to just a few months before the shutdown. Demand is intense in New York and New Jersey. However, California, Florida, Texas, and Arizona are growth markets as well. Check out your local hospitals or freestanding care clinics.

Think Outside the Box

Right now during a pandemic, there’s no shame in taking a job for which you might not be a perfect fit, or even overqualified. Money is money. However, if you feel you need to learn skills for a particular job or if you want to learn something new just because, now is the time to do so. Want to learn to code? Try your hand at the GRE? Pick up an online credential? There’s no time like the present. Go for it!

Sources

https://www.themuse.com/advice/industries-hiring-during-coronavirus-outbreak

https://www.fastcompany.com/90478987/who-is-hiring-during-the-coronavirus-try-these-industries-if-you-need-a-job-now

https://wccoradio.radio.com/articles/radiocom/list-of-companies-hiring-during-the-covid-19-outbreak

https://www.forbes.com/sites/advisor/2020/03/31/websites-to-find-work-from-home-jobs-hiring-during-the-covid-19-crisis/#26d899d23c43

https://www.cnbc.com/2020/04/03/these-companies-are-hiring-right-now-even-amid-the-coronavirus-pandemic.html

Heightened Hacking as Corona Pandemic Worsens; How to Avoid Being a Victim

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Hacking as Corona Pandemic Worsens, Avoid Being a Victim ScamSince the escalation of COVID-19 cases, malicious activity from cybercriminals is also on the rise.

Hackers are taking advantage of the coronavirus fear to carry out attacks. This is done by creating websites that claim to have cures for the virus or by spreading emails that contain links to malware.

Consider this research by Check Point, where they found an increase in coronavirus domain name registration. Most of these scam websites allege to be selling vaccines against the virus.

At the beginning of this year, one of the reported cases was the Emotet malware that was used in a coronavirus-themed campaign in Japan. Phishing victims received an email purporting to report locations where the infection was spreading. Because the email appeared to be an official communication from the government, victims were likely to open it to find out more about the information. However, an attempt to open a .docx document will download the Emotet malware to the victim’s computer.

Apart from a .docx, the attachment could be a .pdf or an .mp4 claiming to have instructions on how to protect against the virus or other related updates.

The case in Japan is among the first attacks on the public domain that came with the rise of the COVID-19. Since then as the coronavirus continued to spread, more data breach cases have been reported. According to Malwarebytes Labs director Jerome Segura, there is an increase in campaigns that use the coronavirus situation to trick victims. Segura reports that in March alone, there was a 26 percent increase in online credit card skimming as people did online shopping from the safety of their homes.

Even the World Health Organization has not been spared, as they recently reported a fivefold increase in cyberattacks. The attacks have increased such that there was a joint alert sent out by the United States Department of Homeland Security, the Cybersecurity and Infrastructure Security Agency, and the United Kingdom’s National Cyber Security Centre.

Unfortunately, the fact is it won’t get any better as more cybersecurity firms report an increase in attacks relating to the coronavirus outbreak. This is because attacks that are based on important events or occurrences such as the COVID-19 pandemic become effective as they leverage on the public’s need to know.

In matters of life and death, people tend to be less careful; and in an attempt to stay informed, they end up becoming victims of cybercriminals.

Apart from malware, there are fears that work-at-home directives also have led to an increase in data breaches. If you have a business, you probably have policies to help guard against cyberattacks. However, since the work-at-home situation was largely unplanned and employees are having to work from home, data can be easily leaked from the devices they use to connect to the office network.

It’s important to keep in mind that hackers love to take advantage of current events to trick their victims. Because of this, it’s expected that these attacks will increase in frequency – and this calls for users to be vigilant.

Although security systems might already be in place, none of them have the ability to deal with ever-increasing threats that have grown in sophistication. Email security remains one of the hardest challenges for employers. However, taking precautionary measures will help reduce the possibility of successful attacks.

Here are 10 ways to keep safe:

  1. Avoid clicking on promotional links in emails.
  2. Be careful when you receive emails with subject lines that include coronavirus or COVID-19 and have a call to action.
  3. Be careful when clicking on pages with special offers, especially pages claiming to sell or know about the cure for the coronavirus.
  4. Check domain names to verify their validity.
  5. Be careful about clicking on links found on SMS that claim to come from institutions such as your credit company or bank; such links could activate the malware.
  6. Make sure to use a virtual private network (VPN) – especially when working with sensitive data.
  7. If you have a business and your employees are using corporate devices, enable remote wipe in case devices to get compromised or lost.
  8. Limit the number of times you enter your credit card details online and confirm that the domain where you enter personal information is legitimate.
  9. Hackers will continue to adjust their tactics; therefore, use trusted resources such as the Centers for Disease Control and Prevention for information on the coronavirus.
  10. Use strong passwords.
 

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