Program income is earned in connection with a sponsored project during the period of the main award.
It must be used as follows:
- Expenditures charged to a program income account must be allowable, allocable, and treated consistently in relation to the activity supported by the sponsor in accordance with the cost principles in OMB Circular A-21 and in accordance with the specific terms and conditions of the award.
- Expenditures must be incurred during the project period of the associated award.
- Program income accounts typically operate on a cash basis where expenditures may not exceed the amount of revenue collected. However, because program income revenue is often earned after expenses (i.e, puting on a conference), UM allows such accounts to run a negative balance when income is anticipated.
- In all cases, PI's department is responsible for any expenses in excess of revenue collected.
- In general, any earned program income should be expended prior to sponsors’ funding.
- F&A costs should be collected on program income accounts at the same rate applied to the sponsored agreement which generates the income. F&A costs should be included when determining the rates for registration fees, sales of materials, etc.
- In the event the awarding sponsor authorizes the treatment of program income using either the additive or matching alternative method, and there is excess program income over a stipulated limit, the overage will be treated using the deductive method, unless the sponsor specifically approves in writing that the University may retain the remaining income. If the sponsor has not been fully paid, the amount of remaining program income will be deducted from the final amount billed to the sponsor. If the sponsor has fully paid, the amount of remaining program income will be refunded to them.
Examples include, but are not limited to:
- Fees earned from services performed under the award, such as those resulting from laboratory testing.
- Rental or usage fees, such as those earned from fees charged for use of computer or equipment purchased with grant funds.
- Funds generated by the sale of commodities and research materials, such as tissue cultures, cell lines, or research animals.
- Proceeds from the sale of software, tapes or publications.
- Admission fees.
- Registration fee charged to participants for a workshop or conference sponsored by a grant award.
The federal definition of program income also includes license fees and royalties on patents and copyrights. However, unless restricted otherwise by the award terms and conditions, the University has no obligation to the Federal Government with respect to income derived from license fees and royalties. License fees, royalties on patents and copyrights are dealt with separately so please contact UM's Director of Technology Transfer/ Office of Technology Transfer (x6670).
Program income does not include:
- Interest earned on advances of Federal funds,
- Receipt of principal on loans, rebates, credits, discounts, etc. or interest earned on them, unless otherwise specified in the award terms and conditions, or the sponsor regulations.
- Revenues collected after the termination of the project award.
OMB Circular A-110: “Uniform Administrative Requirements for Grants and Other Agreements with Institutions of Higher Education, Hospitals and Other Non-Profit Organizations”. The purpose of this circular is to set forth standards for obtaining consistency and uniformity among Federal agencies in the administration of grants to and agreements with institutions of higher education, hospitals, and other non-profit organizations.
Program Income: OMB Circular A-110 defines program income as “gross income earned by the recipient that is directly generated by a supported activity or earned as a result of the award.”
Personal Property: Personal property is defined as property of any kind except real property. It may be tangible, having physical existence, or intangible, having no physical existence, such as copyrights, patents, or securities.
Real Property: Real property is considered land, including land improvements, structures and appurtenances thereto, but excludes movable machinery and equipment.
Recipient: An organization receiving an award directly from awarding agencies to carry out a project or program is defined as a recipient.
Treatment of Program Income
Program income can be handled in one of four ways, depending on the sponsor’s policies or the terms and conditions of the award. The four methods are listed below and examples are provided in Exhibit I. Program income earned during the project period is retained by the recipient and can be used in the following ways:
- Additive Method: Income is added to the funds committed to the project by the sponsor (and the University if cost share is included) and used to further eligible project activities or objectives.
- Deductive Method: Income is deducted from the amount of the project costs to be to be reimbursed by the sponsor.
- Matching Method: Income is used to finance the non-federal share of the project (i.e. used to fulfill matching or cost sharing requirements.)
- Additive / Deductive Method: Income received up to a maximum amount specified by the sponsor is added to the funds committed by the sponsor and used to further eligible project activities or objectives. Any income exceeding the maximum amount is deducted from the amount of project costs to be reimbursed by the sponsor.
Normally, the first use or “additive method” applies to all research projects, unless the terms and conditions of the award state otherwise. Normally, the second use or “deductive method” applies to all other types of projects, unless the terms and conditions of the award state otherwise.
Federal and non-federal sponsors do differ in their treatment of program income. Examples of various federal agencies’ implementation of the program income requirements in OMB Circular A-110 are included in Exhibit II. Principal Investigators and sponsored program administrators must be aware of which use applies to a specific award. For assistance with determining program income usage, questions should be directed to ORSP.
Accounting for Program Income
Separate Program Income Accounting
The University accounts for program income in a separate grant Banner Index Number (BIN), and will establish a program income BIN for each project that will generate program income. The BIN is established at the initiation of the associated award, or if not known at that time, it will be established as soon as it is identified and approved by the sponsor.
- The Department is responsible for receiving/collecting the program income.
- When program income is received, the income must be deposited directly into the Program Income account in accordance with standard University procedures for deposits.
- Budgeted expenses that are to be paid from program income should be processed directly on the income BIN. Expenses that are not allowable on the related award number are not allowable on the program income account, unless specifically approved by the sponsor.
- F&A (indirect) costs will be charged on all expenses related to program income at the same rate as the main award number. Exception to this policy are made only with the approval of the Vice President for Research and Development.
Establishment of Rates
If program income will be generated from the sales of goods or services, a cost analysis may be needed to determine the rate to use for sales. If rates need to be established, the Principal Investigator and/or Departmental Administrator are advised to contact Business Services for assistance.
Income Continuation After Sponsored Project Termination
Once the sponsored project terminates, any future income would not be considered program income. If the generation of income is expected to continue after the termination of the sponsored project, the Principal Investigator and/or the Departmental Administrator are advised to contact the Office of Planning, Budgeting, and Analysis (OPBA) to determine how future income will be handled.
- Identify potential program income at proposal stage and indicate program income on checklist, or notify ORSP if unanticipated program income is identified during the life of the project.
- If assistance is needed in establishing rates, contact Business Service. If income is anticipated to last beyond the life of the sponsored project, contact OPBA.
- Develop a plan for the use of the program income, and work with ORSP staff to ensure that the program income is included in proposal budget as appropriate.
- Verify that program income revenue is received and deposited correctly.
- Follow regulatory requirements and the specific terms and condition of the award to ensure that program income is expensed in an allowable manner.
- Work with ORSP to obtain sponsor approval, when needed, if program income exceeds or falls short of originally budgeted amounts.
- Review financial status of program income BIN to ensure that program income is spent first, before sponsor’s funding, and that program income expenditures do not exceed revenue.
- Verify the correct expenditure of program income on any reports for closeout with the associated award account.
- Provide administrative assistance to the Principal Investigator in collecting program income, monitoring the expenditure of program income, and reconciling the financial position of the account.
Department Chairs, Unit Directors, and Deans
- Ensure that any activity that could generate program income is identified on the Checklist with the proposal, or if arising during the life of the project, is disclosed to ORSP as soon as possible.
- Review and approve Principal Investigator’s planned use of program income.
- Monitor the fiscal position of program income accounts in the department to ensure that appropriate procedures are followed.
Office of Research and Sponsored Programs
- Review proposal checklist and work with Principal Investigator to identify any potential program income. Advise Principal Investigator on the proper use and budgeting of program income.
- Upon project award, establish program income BIN number, along with the main award BIN number. Review and approve planned use of program income.
- Assist the PI and department in monitoring the program income BIN to ensure expenditures are appropriate, allowable, and do not exceed revenues received.
- At closeout, include program income in financial reports to the sponsor, as required, and address any balance remaining according to the applicable regulations and terms of the project award.
Office of Business Services and Office of Planning, Budget, and Analysis
- Assist and advise faculty and staff with rate development in relation to the generation of program income.
- Assist and advise faculty and staff how to manage any future revenues that may be anticipated beyond the life of the sponsored project.
Examples of Program Income use Methods
|Estimated Program Income||15,000|
|Total Available for Project Expenses||$165,000|
|Estimated Program Income||15,000|
|Total Available for Project Expenses||$150,000|
|Required cost Sharing (University)||15,000|
|Estimated Program Income||15,000|
|Total Available for Project Expenses||$165,000|
|Estimated Program Income||35,000|
|Agency Limit of Program Income (Additive) (In budget)||25,000|
|Deductive Amount of Program Income||10,000|
|Total Available for Project Expenses||$175,000|
Below is a table of some of the more common federal agencies and their standard methods for the treatment of program income. Keep in mind, however, that there are variations and that regulations are revised from time to time, as are website locations. Principal Investigators and sponsored program administrators should consult the current guidelines and specific award terms and conditions.
|Sponsor||How Program Income is treated|
|National Institutes of Health (NIH)||
Expanded Authorities - may use the additional costs alternative for the use of general program income unless regulations or the NGA specify another alternative or a combination of alternatives.
Non-Expanded Authorities under Research Grants - The first $25,000 of program income is to be used in accordance with the Additional Costs Alternative and shall be reported on lines 10r and 10s of the FSR (Long Form). Amounts in excess of $25,000 are to be used in accordance with the Deduction Alternative, unless another alternative is specified on the NGA, and shall be reported on lines 10c and 10q of the FSR (Long Form). Check the website for more detail.
|National Science Foundation (NSF)||Standard treatment-unless otherwise specified in the grant, program income received or accruing to the grantee during the period of the grant is to be retained by the grantee, added to the funds committed to the project by NSF, and thus used to further project objectives. See section 750 of the website for more detail.|
|NASA||Treatment of program income not specified but circular A-110 is included in the grants terms and conditions.|
|Office of Naval Research (ONR)||
Treatment of program income not specified but circular A-110 is included in the grants terms and conditions.
|Air Force||Unless the agency-specific requirements of the award specify otherwise, the additive method shall be used for disposal of program income. See general terms and conditions on website for detail.|
|Defense Advanced Research Projects Agency (DARPA)||Program income earned during the project period shall be retained by the Grantee and shall be deducted from the total project or program allowable cost in determining the net allowable cost on which the Government's share of costs is based. See DoDGAR 32.24 for more detail.|
|Department of Energy (DoE)||None specified; however, circular A-110 is included in the terms and conditions.|
|Department of Education (grants)||In keeping with the current government wide policy of reducing unnecessary regulatory and administrative burdens on grantees, all grantees may automatically exercise any combination of the various options for using program income detailed under EDGAR 74.24.