Handling Program Income During the Project Period

Identify potential program income and whether it is reportable to the sponsor.

Any revenue that is associated with or generated by a sponsored project and does not come from the sponsor is potentially program income. The principal investigator is responsible for contacting Sponsored Projects Administration (SPA) in order to discuss potential and actual income-generating opportunities and how the revenue will be used.

SPA will also determine whether the program income will be reportable to the sponsor. Non-reportable program income is handled according to Administrative Policy: Selling to External Customers [see "exclusions" in policy].

Contact External Sales for advice on proper pricing of program income, sales tax compliance, and contract terms.

When the opportunity to generate program income is identified, the principal investigator or department administrator should contact the External Sales department before any program income is invoiced. Because program income becomes an external sale after the grant/contract is closed, pricing, tax, and contract terms must be addressed at the beginning of the sales process.

Plan for using program income.

Once the principal investigator has set a price for the product or service that will generate the program income, he or she must contact SPA to discuss the appropriate method of handling the revenue.

SPA reviews sponsor policies to determine their requirements. It is important for principal investigators to know how program income will be used because additional award funds could result in workscope changes.

How program income can be used:

Reportable program income revenue can be handled in one of four ways, depending on the sponsor's policies:

1. Matching - income is used to finance the nonsponsor or nonfederal share of the project.
2. Addition - income is added to the amount allowable for project costs.
3. Deduction - income is deducted from the amount reimbursed by the sponsor.
4. Add/Deduct - the addition method is used up to an agency dollar limit. After that point, the deduction method is used.

Example: A sponsor awards $100,000 for a project. The project generates an income of $30,000.

5. Matching: if the University were required to supply matching funds, e.g., $50,000, the University would now have to provide $20,000.
6. Addition: the total project cost could be $130,000.
7. Deduction: the sponsor will now only fund $70,000 of the project's costs.
8. Add/deduct: if the sponsor limit is $25,000, then $25,000 will be added to the total project cost, but $5,000 will be deducted from the sponsor's payment to reduce it to $95,000. The total amount available is $125,000.

Note: in all cases, program income is spent before the sponsor's award is used.

Which handling method is used for a particular project?

All sponsors:

The sponsor may address anticipated program income revenue as part of the award. For example, conference fee revenue might be included as part of the awarded budget. Even if the sponsor does not label this revenue "program income," it is program income according to University and federal definitions of the term.

Where program income is generated by multiple sponsored awards, the income and expenses will be prorated among the accounts based on the awards. When non-sponsored funds are used in connection with sponsored funds, program income will be distributed following the same method to prorate it.

Federal sponsors:

Individual agency policies determine how the income will be handled. However, most federal agencies specify that:

• Research awards: the addition method will be used.
• Non-research awards: the deduction method will be used.

Nonfederal sponsors:

In many cases, the sponsor does not have an established program income policy. If the sponsor is silent on this issue, the income is not reportable and handled according to the Administrative Policy: Selling to External Customers.

Discuss anticipated program income with the department administrator.

The principal investigator must ensure that the department administrator knows that program income is expected on the project and the nature of that revenue. The principal investigator also informs the department administrator regarding how program income is to be handled in the project budget.

Generate the program income.

Invoice for the product or service.

When the program income is generated, the department administrator documents the activity that generated the activity (e.g., excess material is sold) and instructs the buyer where to send the revenue. The preferred method is to use the invoice template in (Appendix). As an alternative, sequentially numbered receipts can be used, but they must include the same information. For conference fee revenue, the registration receipt serves as documentation.

Receive and deposit program income

Deposit the program income into the Sponsored Unapplied Program Income Account in accordance with University financial procedure 3.12.1.3C, Accepting Cash and Check Revenue for Sponsored Projects.

Move the program income to the appropriate account:

SFR accountants monitor the Sponsored Unapplied Program Income Account via oversight reports. When the program income appears on the report, they review the award's terms and conditions to determine whether the program income is reportable or not.

• Reportable: the accountant moves the income to the project account (add or deduct alternative) or to a non-sponsored account (match alternative).
• Nonreportable: the accountant moves the income to a nonsponsored account.

Notify the department:

After moving the funds, the SFR accountant emails a notification to the department.

For nonreportable program income, the external sales department is copied on the email.

For reportable program income, a notice will also go to the PI with instructions for reviewing program income terms and conditions.

Verify program income on reports

The department administrator and principal investigator monitor receipt of program income. If they believe that program income has been generated but is not appearing in the financial system, they must determine why.

Monitor program income levels

SPA monitors program income to evaluate whether a significant level of income has been reached. A significant level is considered to be 25% or more of the total cumulative award amount. If this level has been reached, SPA consults with the PI and appropriate institutional officials to determine disposition of the new program income.

SPA also determines whether the program income is to be used according to the "additional" method and whether any limit set by the sponsor has been or is close to being reached. If so, SPA contacts the PI to discuss handling options.

Principal Investigators:

Principal investigators monitor the level of program income as part of the financial oversight of the project.

Deans and department heads:

Deans and department heads review monthly financial data to monitor program income received on projects in their areas and take action if excessive program income is earned. Excessive revenues could indicate workscope changes.

Report program income, if required

SPA determines whether the program income must be reported to the sponsor. If required, SFR prepares and sends these reports or includes the necessary information in the sponsor financial reports.