Program Income

Overview

Program income is income that is directly generated by a supported activity or earned as a result of an award. The University requires principal investigators (PIs) and/or local grant administration to identify program income on both federal and non-federal sponsored projects. The nature of this income must be appropriately documented and the resulting revenue and expenses properly recorded and accounted for. This income must be administered through a program income account established in GMAS for the sponsored award by the Office for Sponsored Programs (OSP), HMS Sponsored Programs Administration, or SPH Sponsored Programs Administration. The guidelines and procedures that follow are intended to ensure compliance with federal regulations and sponsor terms and conditions. It is essential to remember that program income is the property of federal sponsors and is to be accounted for in accordance with the terms and conditions of each federal and non-federal award.

Definition

Federal regulations in 2 CFR 200.307 define program income as "gross income earned by a recipient that is directly generated by a sponsored activity or earned as a result of the award."

Examples of program income include the following when the source of funding is a sponsored award:

  • Fees earned from services performed under the project, such as laboratory tests
  • Funds generated from sales of commodities and research materials, such as tissue cultures, cell lines, and research animals
  • Conference fees
  • Income from registration fees, consulting, and sales of educational materials
  • Sale, rental, or usage fees, such as fees charged for the use of computing or laboratory equipment
  • Funds generated from the sale of software, tapes, or publications

Note: Royalties from patents, copyrights, etc. are generally not reportable as program income.

Accounting for Program Income

Program income revenue may be accounted for in one of four ways [2 CFR 200.307] depending on sponsor policies. Regardless of the accounting method used, program income may be used only for allowable costs in accordance with the applicable cost principles and the terms and conditions of the award.

Four Methods of Accounting for Program Income

Additive Method

Program income funds are added to the funds committed to the project by the sponsoring agency and used to further eligible project or program objectives.

Example: The initial project budget was $100,000. $10,000 of program income is generated. The total project costs are now $110,000 ($100,000 expensed on the original budget and $10,000 expensed on the program income part-of account.)

Deductive Method

Program income funds are deducted from the total project or program allowable costs to determine the net allowable costs on which the sponsor's share of costs is based.

Example: The initial project budget was $100,000. $10,000 of program income is earned. The adjusted project budget amount from the sponsor 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 budget and $10,000 on the program income part-of account.)

Matching Method

Program income funds are used to finance the non-sponsor share of the project or program (mandatory or committed cost sharing).

Example: 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.

Add/Deduct Method

A portion of program income is added to the funds committed to the project as specified by the awarding agency; any remaining program income funds are deducted from the total funds available for the project.

Example: The initial award was $100,000. $35,000 of program income is earned, and the sponsor allows the first $25,000 to 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).

Note: When an NIH Notice of Grant Award (NGA) utilizes the add/deduct method, their regulations specify that the first $25,000 be added and any excess over $25,000 be deducted from total project costs.

Accounting for Program Income Generated During the Award Period

The PI and/or local grant administrator is responsible for contacting their local submitting office to discuss the activity that will generate program income and its relationship to the grant or contract. Unless specified otherwise in the award, federal regulations (2 CFR 200.307) require the University to expend program income funds before spending sponsor funds. Funds remaining in the project or program income account after the project has terminated will be returned to the sponsor. If the PI wishes to use these funds to further project or program objectives, a no-cost extension should be requested.

Federal Awards

If the award is silent on the treatment of program income, the additive method is generally the default approach used for applying program income to research awards. Funds may be retained and used to further eligible project or program objectives during the term of the award.

Non-Federal Awards

Income generated through non-federal awards is handled according to specific sponsor rules as referenced in the award document. If the sponsor is silent on the issue of program income, the income is not reportable and therefore not considered program income.

Fixed Price Contracts

Program income generated through fixed price contracts is handled according to specific sponsor rules as referenced in the contract agreement or other sponsor terms and conditions. If the sponsor is silent on the issue, the income is not reportable and therefore not considered program income.

Accounting for Program Income Generated After the Award Period

Unless agency regulations or award terms and conditions specify otherwise, there is no obligation to the sponsor for program income earned after the end of the award period.

Note: Income earned within 60 days after the end of the award period must be considered program income and treated in accordance with the program income guidelines above.

Program Income Procedures

1. Establishing a Program Income Account

At Proposal Submission:

Identify if program income will be associated with the proposal.

If there is program income that will be a source of funding a portion of the project, consult with OSP or SPA offices to determine if there needs to be cost sharing identified to cover any shortfall in program income.

At Award Set-up and during Award:

If the program income is identified in the proposal narrative or the proposal budget, when setting up the award in GMAS, the PI and local grant administrator should submit a request to the submitting offices (OSP and SPA) to establish a “part of account” in GMAS for tracking grant generated program income.

If the program income is not known at the acceptance of the award but identified once the project commences, a request for setting up a program income account should be submitted to OSP/SPA as soon as the actual or potential program income revenue is identified. The following information should be included in the request:

  • Description of the activity and relationship to the grant or contract
  • Approximate annual level of income for each budget period of an award
  • A proposed fee schedule for the services to be performed, or cost of commodities to be sold, together with a breakdown of the major fee or cost components
  • Assurance that the service or commodity is not being provided to non-HU customers at a price that is less than outside vendors charge for the same goods or services
  • Propose a budget for utilizing the program income
  • Proposed beginning and end dates of the program income account

Upon approval of this request, a program income account will be established in GMAS as a part-of account under the award, and follow the account set up instruction below:

  • Enter “program income” in the part of account description field

  • Enter a zero obligated amount in the account’s Funds allocated field

  • Enter a zero % overhead rate for the part of account

The budget period for the program income account should coincide with the budget period of the award. Typically when task logic account is utilized in setting up an award in GMAS, a single program income account will be used over the entire period of the award. When year logic account is utilized for a multi-budget year award, a program income account is required for individual account groups to coincide with individual budget reporting periods (e.g., Account Group One is for year-1 budget period: 0101 is main account, 0102 for program income; Account Group Two for year-02 budget period: 0201 is year-2 main account, 0202 is year-2 program income).

2. Tracking Program Income

Income

The school and local grant administrator are responsible for posting grant generated revenue to the program income account established in GMAS, using the income object 5770 ( or other appropriate income object codes in the ranges of 5000-5770) in the General Ledger (e.g., checks or wire payments from registration fees for a workshop or conference). It is not appropriate to post the program income revenue to other award accounts or to offset any expense object code.

Expenses

In general, program income funds should be expended prior to sponsor funds.

PIs and departments should carefully review sponsor terms and conditions to determine the allowability of these costs and determine which approved method (additive, deductive or matching) is required to utilize the program income. Any expenses that utilize the program income revenue must meet the same requirements of allowability as expenses charged to the award.

Federal regulations define program income as gross income. (2 CFR 200.307) The NIH, NASA, the US Department of Education, and some other federal agency general terms and conditions allow costs associated with the generation of the gross amount of program income that are not charged to the grant to be deducted from the gross income earned.Such costs may include supplies, materials, services and labor related to the production, marketing, and distribution of the goods or services being sold. In these circumstances report the net program income to the sponsor.

Any expense associated with the generation of the gross amount of program income should be posted to the program income account using appropriate expenses object codes, to offset the gross income amount.

3. Reporting Program Income

When required by the terms and condition of the award, the program income is reported to the sponsor annually or at the end of the award via a standard financial report (federal financial report) or a separate program income report (e.g.; an annual consolidated program income report is required for NSF awards).

Prior to the financial reporting due date, OSP Research Finance Team will coordinate with the local grant administrator to verify and confirm the program income amount to be reported, according to sponsor approved program income method (additive/deductive or matching).

4. Reconcile Program Income for Closeout

Additive and/or deductive method:

After the sponsored account is reconciled and ready to be closed, OSP will process a journal (using object code 9300) to debit the program income account and credit the main account or other accounts: utilizing the program income to cover project expenses.

For a multi-year award with year logic accounts, if the award has automatic carryover authority, the unspent program income balance at the end of the budget year should be moved to next budget year program income account; Sponsor prior approval is not required.

Matching method:

OSP will process a journal (using income object code 5910) to transfer the total net program income balance from the program income account to the cost sharing companion account to off-set the recipient share of project expenses and to meet any cost sharing/matching commitment.

5. Other Considerations

  • Program income is revenue earned as a direct result of activities funded under a sponsored award. If the income is the result of a grant funded activity plus some other activities not funded by the grant, it is necessary to prorate the program income to identify the proportion attributed to the grant.
  • For non-federal awards, the requirement for utilizing program income varies by sponsor; you must follow the terms and conditions of the award.