During the course of performing a sponsored project, income from the project’s activities may be generated from internal or external sources. This type of income is generally called Program Income. The NIH Grants Policy Statement provides further guidance by stating that, “Program income is gross income earned by a grantee, a consortium participant, or a contractor under a grant that was directly generated by the grant-supported activity or earned as a result of the award.” Generally, the funding agencies allow the Principal Investigator to utilize the program income for additional project related expenses and/or they will apply it as an offset to future award amounts. Since the income is project related, Washington University in St. Louis is also required to separately monitor, account and report these dollars.
The Policies and Procedures noted below have been developed to provide the University’s research community with specific guidance about identifying and managing program income.
The University is required to treat program income generated via the performance of a sponsored project in a clear and consistent manner. The information noted below is based upon the applicable Federal guidelines, the University’s general ledger structure/system (FIS) and the current practices associated with this issue. The Principal Investigator (PI), his/her co-investigators and project staff, departmental administrative support staff and the central administrative offices should utilize this data to manage, collect, allocate, expend and report program income.
Per Uniform Guidance 2 CFR 200.80 and the NIH Grants Policy Statement, program income includes but is not limited to income resulting from fees for services performed, the sale of commodities or items produced as part of project activities, and income earned from the use or rental of property acquired under a grant. Program income revenue may be accounted for in one of four ways (2 CFR 200.307):
- Additive Alternative: Program income is added to the funds committed to the project/program and is used to further eligible project/program objectives.
- Deductive Alternative: Program income is deducted from total allowable project/program costs to determine the net allowable costs on which the Federal share of costs is based. This is similar to an applicable credit being applied to reduce the amount of the Federal award.
- Combination Alternative: The first $25,000 of program income is added to the funds committed to the project/program (additive alternative) and any amounts exceeding $25,000 are deducted from total allowable project/program costs to determine the net allowable costs on which the Federal share is based (deductive alternative).
- Cost Sharing or Matching Alternative: Program income is used to finance some or all of the non-Federal share of the project/program.
The sponsored agreement (grant, contract or cooperative agreement) should specify which program income alternative is applicable to the project. In the event that the agreement does not specify the alternative to apply, the following steps should be followed:
- NIH and Other Federal Awards: In the event that the Federal awarding agency does not specify a program income method, 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 (2 CFR 200.307 (e)).
- Non-Federal Awards: Contact the Sponsored Projects Accounting Department (SPA) and they will pursue the matter with the sponsoring agency.
Regardless of the alternative(s) applied, program income may be used only for eligible and allowable project/program costs, in accordance with the applicable sponsoring agency guidelines and conditions of the award. The per unit/item fee invoiced to the internal/external party should be based on the actual direct costs (salaries, fringe benefits and supplies) incurred, per the applicable sponsoring agency cost principles (i.e., Uniform Guidance Subpart E – Cost Principles). Program income is subject to the annual Uniform Guidance audit and/or other sponsoring agency audit requirements. During the audit, the use of program income will be reviewed for compliance with the terms and conditions of the award/agreement, including allowability for costs, financial management and reporting.
The Principal Investigator (PI) should identify in the grant application the source(s) and use of program income, as applicable. This information should include details such as: a description of the goods or services to be provided and how they relate to the project, a description of the internal/external parties purchasing the goods or services, the calculation methodology and components of the fee to be charged and the amount of program income generated in each grant year (year #1 = $2,000, year #2= $3,000, year #3 = $2,500…). Subsequent to the grant being funded, the PI, departmental administrator and/or their designee are responsible for the following issues associated with the generation of program income:
- Manage and allocate the resources required to provide services and/or items to the internal/external parties.
- Monitor, invoice and collect fees/payments from internal/external parties.
- Adjust and/or revise fees or billings to the internal/external parties as a result of material changes in volume and/or actual costs during the project period.
The revenue and expenditures related to program income will be managed out of two funds in the general ledger (FIS). An unrestricted 93### account/fund will be established for each grant that generates the program income (revenue). All program income payments/checks should be deposited into the appropriate 93### account/fund. A mandatory cost sharing account/fund (“#####X”) associated with the grant account/fund will also be established and it will utilize the above noted 93### account/fund as the cost sharing debit account/fund. All expenditures related to the program income should be charged directly to the “####X” account/fund. Revenue and expenditures related to other (non-program income) departmental activities should not be posted to these two accounts/funds. Please click here to review the detailed steps involved with this process.
If program income is generated for an award in which the Deductive Alternative is applicable, the cash receipt, ID and budget entries noted in D) should be processed in the same manner. In addition to those entries, OSRS will transfer budget dollars on the sponsored fund from the direct and indirect expenditure BUOB’s to BUOB 86 (Unavailable), in an amount equal to the program income generated. This additional budget entry reduces/restricts the awarded funds available for the project.
For projects in which the Combination Alternative is applicable, the income/receipts in excess of $25,000 will be budgeted by OSRS in the “Unavailable” budget object code (86) until the issue is resolved with the granting agency. OSRS will coordinate this issue with PI, department and the agency.
OSRS will forward copies of the PIIF’s and receipt vouchers to Sponsored Projects Accounting (SPA). The SPA staff will monitor this information and the expenditures on the “X” account/fund for compliance with the sponsoring agency’s program income guidelines. SPA will include the expenditure and revenue data contained in the “X” and 93### accounts/funds in the financial reports/invoices submitted, as applicable.
Costs incident to the generation of program income may be deducted from gross income to determine program income, provided these costs have not been charged to the award.
Unless the Federal awarding agency regulations or terms and conditions of the award provide otherwise, recipients shall have no obligation to the Federal Government with respect to program income earned from license fees and royalties for copyrighted material, patents, patent applications, trademarks, and inventions produced under the ward belongs to the recipients.
Proceeds from the sale of property (equipment) must be handled in accordance with the sponsoring agency’s property guidelines. In some cases, the proceeds from the sale of property must be credited back to original grant/funding sources. See the University’s Government Funded Property Policies and Procedures for additional information.
Program income earned after the project period belongs to the recipient. These amounts do not have to be reported or remitted to the sponsoring agency.
Under any of the program income alternatives, funds may be used only for eligible costs as specified in the governing statutes, regulations, cost principles and/or the award/agreement. However, under the additive alternative, the awarding office may allow a grantee to use program income for eligible costs that might not be expressly allowable under the terms and conditions of the award. This is a case-by-case determination based on a grantee’s documented request and a review by the awarding office. An approval will indicate if there are conditions associated with the level, timing, or reporting of expenditures.