In this Open Comment: Section 16 - Program Income
The Federal Office of Management & Budget has issued new Federal policy CFR Title 2 Part 200 – Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (also called OMB Uniform Guidance). The Office of Business and Financial Services (OBFS) must update University business and financial polices and procedures to be consistent with new federal standards. The following are proposed updates relating to program income.
The University is required to identify, document, and report program income generated on sponsored projects in accordance with the Federal administrative requirements, awarding agency regulations and terms and conditions of the awards. All program income must meet the following core principles:
- The program income must be used for the purposes of the award
- The program income must be used only for allowable costs in accordance with the applicable cost principles and the terms and conditions of the award
- The program income must be used for current costs unless the awarding agency authorizes otherwise
- Expenses will be assessed Indirect Costs at the same F&A rate as the associated sponsored project. Units may request a waiver of Indirect Costs on program income expenses on a case-by-case basis through their campus OVCR
- The program income may be used to fulfill a cost sharing or matching requirement with prior approval of the awarding agency
When a reporting requirement exists, the University must track program income earned during the project period using one of the following methods, in accordance with the awarding agency regulations or the terms and conditions of the award:
- Addition - program income is added to funds committed to the program and used to further program objectives
- Deduction - program income is deducted from total allowable costs of the program to determine the net allowable costs
- Cost sharing or matching - with prior approval of the awarding agency, program income funds may be used to meet the cost sharing or matching requirement of the award
If the awarding agency does not specify in its regulations or the terms and conditions of the award how program income is to be used, the addition method must be applied.
Although these default treatments usually apply, the University may request prior approval from the awarding agency to treat program income using a specified alternative method.
Program income that the University did not anticipate at the time of the Federal award must be used to reduce the Federal award and University contributions rather than to increase the funds committed to the project unless the awarding agency grants prior written approval to do otherwise.
Income earned after the end of the period of performance is not considered program income and is generally treated as revenue generating activity (see OBFS Policies and Procedures Manual Section 22).
Reason for the Policy
This policy is designed to provide guidance for the treatment of program income generated by sponsored projects to ensure the University complies with the requirements of Office of Management and Budget (OMB) Circular A-110 Section_.24 for awards issued prior to December 26, 2014 and the Uniform Guidance 2 CFR Part 200.307 for awards issued thereafter, awarding agency regulations, and the terms and conditions of the underlying agreements.
Applicability of the Policy
To maintain consistency in the treatment of program income, this policy applies to all federally sponsored projects. For non-federal sponsors, if the awarding agency does not have an established program income policy, the income is not reportable, but instead treated as revenue generating activity and handled according to the OBFS Policies and Procedures Manual Section 22.
Program Income Procedures
Identify, Account, Treat, and Report Program Income
What is Program Income?
Program Income Responsibilities
Frequently Asked Questions
Identify, Account, Treat, and Report Program Income
The University is required to identify, document and report program income generated on sponsored projects in accordance with the Federal administrative requirements, awarding agency regulations and terms and conditions of the awards. When a reporting requirement exists, the University must track program income earned during the project period, in accordance with the awarding agency regulations or the terms and conditions of the award. Read more on the Program Income policy main page.
Before you Begin
Office of Management and Budget (OMB) Circular A-110 and the Uniform Guidance 2 CFR Part 200.307 set forth specific requirements for the identification, accounting, treatment, and reporting of income generated from a Federal sponsored project during the project period. The University has extended these requirements to income generated on all sponsored projects as noted under Applicability of the Policy, on the Program Income policy main page.
Follow these guidelines to Identify, Account, Treat, and Report program Income.
- Identify and Communicate Program Income at the Proposal Stage
The Principal Investigator (PI) or designee is responsible for identifying whether any program income will be generated during the project period, and completing the proposal based on funding agency guidelines. A PI needing further guidance should contact his/her campus pre-award office.
- Account for Program Income and Expenses
The University will account for program income in a secondary fund associated with the grant code established for the sponsored award. Both the program income revenue and related expenses must be recorded to the program income fund with the intent of utilizing the income by the end date of the award. If unexpended program income remains at the end of the award, disposition of the funds must follow awarding agency guidelines.
- Treat Program Income
Program income generated with funds from a sponsored project and earned during the project period will be used to support the sponsored project which produced the income.
Regardless of the method that is applied, program income may be used only for allowable costs in accordance with the applicable cost principles and the terms and conditions of the award. The chart below outlines the different methods for the treatment of program income.
(default method unless specified otherwise in the Federal awarding agency regulation or terms and conditions of the award)
Program income is added to funds committed to the program and used to further program objectives.
The initial project budget was $100,000. $10,000 of program income is generated. The total project costs may now be $110,000. ($100,000 expensed on the parent fund and $10,000 expensed on the program income sub-fund.)
Program income is deducted from total allowable costs of the program to determine the net allowable costs attributable to the Federal share.
The initial project budget was $100,000. $10,000 of program income is generated. The adjusted project budget amount from the awarding agency is reduced to $90,000 after gross program income is taken into account. Total project costs remain at $100,000. ($90,000 expensed on the parent fund and $10,000 expensed on the program income sub-fund.)
Cost Sharing or Matching Method
With prior approval of the Federal awarding agency, program income may be used to meet the cost sharing or matching requirement of the Federal award.
The initial project budget was $100,000 with cost sharing committed at $20,000. $10,000 of program income is generated. The expenditure of the program income may be used to account for $10,000 of the committed cost sharing.
Regardless of the initial method used for program income, any program income in excess of the amount specified at the time of the Federal award must be administered using the Deduction Method. Thus, there may be a combination of methods used for program income generated on the same project.
The initial project budget was $100,000. While only $25,000 of program income was anticipated at the time of award, $35,000 of program income is generated on the project. If the project was initiated under the Additive Method, only the first $25,000 may be added to the award, bringing the award to $125,000. The amount in excess of $25,000 [$10,000] is deducted from the new award amount. Thus, the award amount is: $100,000 + $35,000 - $10,000 = $125,000 ($90,000 agency funds plus $35,000 program income).
- Report Program Income
When required to report program income, the University must do so in accordance with the terms and conditions of the award. The Office of Grants and Contracts will work with Principal Investigators and unit business managers to complete and submit reports in a timely manner.
What is Program Income?
Program income is gross income earned by the University that is directly generated by a supported activity or earned as a result of the award during the period of performance.
Following are a few examples of activities that constitute program income:
- Registration fees charged to participants or sponsorships to attend a conference or workshop offered under a sponsored award.
- Fees charged for the rental or usage of real or personal property, such as computer or laboratory equipment, purchased with sponsored funds.
- Fees earned for services performed, such as laboratory drug testing services incidental to a sponsored award.
- Third-party patient reimbursement for hospital or other medical services; e.g., payments received from insurance companies for standard care administered to patients enrolled in a Federally sponsored study on a sponsored award.
- Revenue generated from the sales of commodities and research materials, such as tissue cultures, cell lines, research animals, publications, books, or supplies produced with sponsored funds.
- Repayment of principal and interest on loans made with grant funds.
Following are a few examples of activities that are NOT considered program income:
- Income earned from license fees and royalties for copyrighted material, patents, patent applications, trademarks and inventions produced under an award, royalties or license fees for unpatented, but potentially patentable discoveries that are disclosed to the Office of Technology Management (unless it is addressed in the award terms).
- Rebates, credits, discounts, and interest earned on these items.
- Interest earned on advances of Federal funds.
- Income earned after the end of the project period.
- Proceeds from the sale of equipment or real property acquired in whole or in part under a sponsored award.
- Revenue generated through programs funded by sources other than sponsored projects, for example, performing arts programs that are funded by private gifts.
Program Income Responsibilities
The identification, tracking, and reporting of program income involve a collaborative effort as outlined below.
- Identify amount and sources of actual and potential program income at the proposal stage
- Complete required program income sections in the sponsor’s application forms as necessary
- Develop plan for using program income
- Discuss anticipated program income with the Office of Grants and Contracts and unit business manager
- Verify program income on reports
- Notify the Office of Grants and Contracts if unanticipated program income is identified and/or received during the project
- Address account balance issues at final project termination
Unit Business Manager
- Assist Principal Investigator in estimating program income
- Bill properly for products or services which produce program income; reconcile revenue invoiced or submitted against financial reports
- Send program income payment checks to Office of Grants and Contracts for deposit
- Verify program income receipt on financial reports
- Monitor program income account activity and any restrictions that may be imposed by the awarding agency
Office of Grants and Contracts
- Set up sub-fund for tracking and verify that program income is recorded correctly
- Determine whether program income is reportable or non-reportable
- Advise Principal Investigators and unit business managers on allowable expenditures charged against program income
- Report program income to awarding agency in accordance with award terms and conditions
- Advise Principal Investigators and unit business managers on the proper accounting and tracking of program income
Frequently Asked Questions – Program Income
- Are there limitations on what I can pay for with program income?
Program income must be used only for the purposes of the grant during the grant project period. You can use program income to cover allowable expenditures budgeted under the Federal and University shares of the grant.
- Is a grantee accountable for income earned after the end of the project period?
Income earned after the project period ends can be retained by the organization according to the grant provisions or terms and conditions. If the awarding agency is silent on income earned after the project end date, this income is subject to University revenue generating guidelines (see OBFS Policies and Procedures Manual Section 22).
- Is the use of program income subject to audit?
Yes. Auditors may sample your revenue sources to identify any funds that would be considered program income under the grant and review your general ledger documentation to ensure you have used the program income as required under your grant provisions or terms and conditions.
- Can program income be transferred from one program to another?
No. Program income cannot be transferred between organizations, grants or subawards. As with the costs incurred under a grant, program income is also only allocable to the grant or subaward funding the programs and activities earning the income.
- Do we have to amend our grant if we are earning excess program income?
It depends on the terms and conditions of the award. Some sponsors may require an amendment to the original award to address the excess amount and its use.
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