Q&A #8 – Should my organization create a separate bank account for PPP funds?
Question: My nonprofit was recently approved to receive PPP funding. We have heard of other organizations opening separate bank accounts specifically for PPP funds. We want to document use of the funds as clearly as possible, but we usually don't open separate bank accounts for restricted funds. Is this something we should do in this case?
Answer: A very good question that a lot of nonprofit organizations are asking. The answer is that you do not need a separate bank account to hold PPP funds. Having a separate bank account for PPP funds is not required and not particularly helpful. Your main priorities should be proper and concise documentation of eligible transactions, which can be achieved just as well through good accounting practices and processes.
However, some nonprofit organizations have been using a separate bank account out of an abundance of caution (or because the lending bank prompted them to open the account and the organization decided to leave the funds there). That is fine. But you should not move PPP funds from your operating account to a separate bank account if you've already received them into your main operating bank account.
Generally, the feeling on the street is that “the more you can do the better,” related to documentation and proving that PPP funds were used only for eligible costs (with at least 75% of such funds used for eligible payroll costs and no more than 25% used for eligible non-payroll costs such as certain mortgage interest payments, rent or lease payments, and utility payments).
The theory put forth by some organizations has been that you will have better proof that PPP funds were used properly if the funds are held in a separate bank account from your operating bank account, and then transferred into your operating account after eligible costs are incurred.
However, having a separate bank account for PPP funds does not really impact documenting eligible payroll and other eligible business costs and payments. The key factor here is proper and concise documentation, following the guidelines set forth in the PPP loan forgiveness application recently issued by the SBA.
Planning Tip – Remember best practices around receiving restricted funds is to have a robust accounting system and internal accounting control systems. With regard to PPP funds or any restricted funds, what is most important is to keep confidence and trust that restricted funds are only used for their intended restricted purpose.
PPP loan funds are unusual, but all restricted funds can be unusual in their own way and have compliance issues of one kind or another. Yet, we do not normally use separate bank accounts to help meet the use compliance restrictions.
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