The role of the auditor under the NOW
On 31 March 2020, the Temporary Emergency Bridging Measure for Sustained Employment (NOW) was published. Two weeks after the announcement, the NOW was a reality. In the explanatory notes to the NOW it was acknowledged that the (necessarily) simple nature of the scheme in combination with the settlement afterwards and the speed with which it was set up was not without risk of abuse. The required audit as part of the NOW appears to be an important trump card of the government to limit the risk of abuse as much as possible. This news report looks at the role of the auditor and the latest state of affairs.
The level of support
The NOW provides for an allowance to employers for labor costs in the event of an instant drop in turnover of at least 20% due to exceptional circumstances that do not form part of the normal business risk (such as COVID-19). In this way, the NOW should make it possible for employers to retain their employees as much as possible.
The level of support will be related to the percentage of the fall in turnover. As a maximum, 90% of the total wage bill will be paid out in the event of a 100% drop in turnover. If the fall in turnover is lower, the allowance will be determined proportionally lower on the basis of the amount of the fall in turnover. For example, the allowance amounts to 45% of the wage bill for a 50% drop in turnover and 18% of the wage bill for a 20% drop in turnover.
The minimum condition for access to the NOW is a fall in turnover of at least 20% in a connected period of three months from 1 March to 1 July 2020 inclusive (Article 4 NOW). Within this period, employers may opt to apply for the continuous period of three months (the measurement period) from 1 March, 1 April or 1 May 2020.
Determination of the decrease in turnover
For the definition of turnover accounting law is applied. Pursuant to Article 2:377(6) of the Dutch Civil Code and the Dutch Accounting Standards for annual reporting, the definition of turnover is based on net turnover. This concerns the income from the supply of goods and services from the legal entity's business, deducted by discounts and the like from tax levied on the turnover. All income arising from the performance of normal activities of an organization is also deemed to fall under the concept of turnover for the purpose of the NOW. The explanatory notes to the NOW indicate as examples payments, subsidies obtained and other contributions from a government institution, but also other income such as gifts or claims from health insurers. The turnover based on the measurement period is compared with the turnover from January to December 2019 divided by four (reference period), i.e. 25% of the annual turnover in 2019.
If the employer is eligible for an allowance, the Employee Insurance Agency (UWV) will initially determine the amount of the allowance on the basis of the expected drop in turnover and the wage bill for January 2020 stated by the employer. The employer then receives an advance of 80% of the provisional allowance amount, as determined by the UWV.
The employer must submit a definitive statement of the decrease in turnover within 24 weeks of the end of the period for which the allowance was granted. The UWV determines the definitive allowance on the basis of the actual fall in turnover and the wage bill for the three month period from March to May 2020 inclusive. The Minister will determine the allowance within 52 weeks of receiving the application to determine the allowance. If the employer does not adopt the application, the entire allowance paid in advance will be reclaimed.
The role of the auditor
It is clear that the correct determination of the decrease in turnover is a key aspect when awarding an allowance under the NOW. The room for interpretation that the definition of turnover could offer from employer to employer entails a significant risk of incorrect allocation of the allowance.
In order to counterbalance the scheme's susceptibility to fraud to a certain extent, the employer must submit an auditor's report at the time of final adoption (Article 13 NOW). It is expected that smaller companies will be allowed to provide evidence in a different manner. At present, it is not yet clear above what limit an auditor's report (payable by the employer) is required and, if an auditor's report is required, what kind of auditor's report that should entail. For example, the Minister has indicated that it is possible not to require an auditor's report for small amounts of subsidy, or for companies with a very small wage bill, if the loss of turnover is sufficiently plausible or the audit has been carried out in some other way. The aim when the NOW was published was to provide clarity within four weeks. In a letter dated 1 May 2020, the Minister indicated that this process had not yet been completed and that the regulation on this point would be amended as soon as possible.
It is clear however that the Royal Netherlands Institute of Chartered Accountants (NBA) has intensive consultations with the Ministry of Social Affairs and Employment (SZW). As part of its consultations with the Ministry of SZW, the NBA has indicated that it should be considered to develop appropriate standards for audit opinions for the NOW scheme. This will have also been prompted by the potential liability risks identified by the auditors because of their monitoring role on the basis of an extremely rapidly introduced general scheme. Standards also provide more guidance in this context. In the meantime, both the NBA and the Ministry of SZW have confirmed that work is being done on standards for auditors. The objective is to have a product in place that prevents a multitude of different auditor statements that can seriously affect the efficiency of the UWV's final settlements. In particular, the UWV should be able to determine in a simple and consistent manner whether the accounts drawn up by the company are suitable to be used as a basis for the settlements, i.e. determining the allowance.
The NBA was also actively involved in the extension of the application of the NOW to groups of companies announced by the Minister on 22 April 2020 and introduced on 1 May 2020. The NOW scheme stipulated that if a group as a whole has a loss of turnover of less than 20%, none of the legal entities belonging to that group is entitled to an allowance (even if that individual legal entity itself meets the criteria for eligibility for the NOW). The NOW has been amended on this point: if an individual operating company of a group has a loss of turnover of at least 20%, but the group as a whole has a loss of turnover of less than 20%, that operating company can apply for an allowance on the basis of the loss of turnover of the operating company (instead of the group level). The auditor's report will have to show that there is less than 20% decline in turnover at group level and that there is at least 20% decline in turnover at operating company level. For the application by the relevant individual operating company, additional conditions and audit safeguards apply that must be examined by the auditor, such as, for example, that the application does not relate to a personnel BV, that no dividend or bonuses (limited to bonuses of the board of directors and management of the group head and the operating company in question) will be paid over 2020, that no work will be transferred to other operating companies and that the transfer pricing system has not been adjusted. With regard to the conditions set, the NBA has indicated the manner in which auditors will be able to make a contribution by means of research to mitigate risks as much as possible (see appendix to the letter from the House of Representatives dated 22 April 2020).
For the time being, it is not completely clear what the content of the auditor's report should look like and from what limit the auditor's report will be required. However, in view of the intensive consultations that are taking place with the Ministry of SZW, it is clear that the auditor embraced its role under the NOW and is actively taking the initiative to arrive at a consistent working method for the audit and settlement of the allowance. In view of the many applications under the NOW (now over 100,000) and the speed with which the scheme was introduced, this is a good thing.