Financial Guide 2006 - Part III - Chapter 4: Program Income
Highlights of Chapter
- Program Income
- Use of Program Income
- Accounting for Program Income
- Examples of Program Income
- Sale of Property
- Attorney's Fees and Costs
- Registration/Tuition Fees
- Asset Seizures and Forfeitures
- Interest Earned on LLEBG and JABG Funds
- Membership Fees
- Procedures for Recovery of Costs Incurred
All income generated as a direct result of an agency-funded project shall be deemed program income (e.g., if the purpose of the grant is to conduct conferences, any training fees that are generated would be considered program income).
Use of Program Income
Program income may be used to further program objective or may be refunded to the Federal Government. Program income may only be used for allowable program costs and must be expended prior to additional OJP drawdowns. (The drawdown restriction does not apply to JABG.)
Accounting for Program Income
Program income must be used for the purposes of and under the conditions applicable to the award. Unless specified by the awarding agency, program income should be used as earned and expended as soon as possible. If the cost is allowable under the Federal grant program, then the cost would be allowable using program income. If program income earned on a discretionary grant during the grant period remains at the end of the grant period, the recipient should request a no-cost extension of the grant period to provide the recipient with ample time to expend the program income for allowable project purposes. If there is no special condition on the award concerning the accounting for program income earned after the funding period, then such program income can be used at the discretion of the recipient. The Federal portion of program income must be accounted for up to the same ratio of Federal participation as funded in the project or program. For example:
- A discretionary project funded with 100 percent Federal funds must account for and report on 100 percent of the total program income earned. If the total program income earned was $20,000, the recipient must account for and report the $20,000 as program income on the Financial Status Report.
- If a recipient was funded by block/formula funds at 75 percent Federal funds and 25 percent non- Federal funds and the total program income earned by the grant was $100,000, $75,000 must be accounted for and reported, by the recipient, as program income on the Financial Status Report.
Examples of Program Income
- Sale of Property. In the case of real property purchased in part with Federal funds, the recipient and/or subrecipient may be permitted to retain title upon compensating the awarding agency for its fair share of the property. The Federal share of the property shall be computed by applying the percentage of the Federal participation in the total cost of the project for which the property was acquired to the current fair market value of the property.
- Royalties. Recipient shall retain all royalties received from copyrights or other works developed under projects or from patents and inventions, unless the terms and conditions of the project provide otherwise, or a specific agreement governing such royalties has been negotiated between the awarding agency and the recipient.
- Attorney's Fees and Costs. Income received pursuant to a court-ordered award of attorney's fees or costs, which is received subsequent to completion of the project, is program income to the extent that it represents a reimbursement for attorney's fees and costs originally paid under the award. Disposition of such program income is subject to the restrictions on the use of program income set forth in the award.
- Registration/Tuition Fees. These types of program income shall be treated in accordance with disposition instructions set forth in the project's terms and conditions.
- Asset Seizures and Forfeitures. Program income from asset seizures and forfeitures is considered earned when the property has been adjudicated to the benefit of the plaintiff (i.e., law enforcement entity). Income received from the sale of seized and forfeited assets (personal or real property) or from seized and forfeited money shall follow the "Addition Method" of handling program income unless an alternate method is designated in the recipient's award document. The following policies apply to program income from asset seizures and forfeitures:
- Subrecipient program income, with the approval of the recipient, may be retained by the entity earning the program income or used by the recipient for any purpose that furthers the objectives of the legislation under which the grant was made.
- States or local units of government MAY USE PROGRAM INCOME FUNDS FROM SEIZED AND FORFEITURE ASSETS AS MATCH when assets are adjudicated by a State Court, in accordance with the State law. In addition, State and local units of government MAY use cash received under the equitable sharing program for the non-Federal portion (match) of program costs, as provided for in the guidelines established by the DOJ Asset Forfeiture Office, when the assets are adjudicated by a Federal court.
- Interest Earned on LLEBG and JABG Funds. Interest earned on LLEBG and JABG funds is considered program income and should be expended only on allowable purpose areas under these programs. Recipients are required to use all funds within the fixed expenditure period. No extensions of the expenditure periods will be approved. LLEBG and JABG recipients are not required to expend program income before applying Federal funds.
- Membership Fees. When an organization receives membership fees and its only source of income is Federal grant funds, the membership fees will generally be considered program income. Where non-member income is received and used to provide services to members in addition to the federally funded services, membership income may be considered program income in proportion to the amount of Federal and non-Federal funds received. However, to the extent that membership fees were received by the organization prior to the receipt of Federal grant funds, or are used to provide services to members that are separate and distinct from grant-funded services, the membership fees need not be reported as program income.
Note: Fines as a result of law enforcement activities are not considered program income.
Procedures for Recovery of Costs Incurred
- Authorization of Reimbursement. When a State or local law enforcement agency provides information to the Internal Revenue Service (IRS) that substantially contributes to the recovery of Federal taxes imposed with respect to illegal drug-related activities (or money laundering in connection with such activities), the agency may be reimbursed by the IRS for costs incurred in the investigation (including but not limited to reasonable expenses, per diem, salary, and overtime) not to exceed 10 percent of the sum recovered.
- Records. The IRS shall maintain records of the receipt of information from a contributing agency and shall notify the agency when monies have been recovered as the result of such information. Following such notification, the agency shall submit a statement detailing the investigative costs it incurred. Where more than one State or local agency has given information, the IRS shall equitably allocate investigative costs among the agencies not to exceed an aggregate amount of 10 percent of the taxes recovered.
- No Duplicative Reimbursement. No State or local agency may receive reimbursement under Section 7624 if reimbursement has been received by the agency under a Federal or State forfeiture program or under State revenue laws.
- Awarding Agency Funds. If the information/investigation is performed with awarding agency funds, the reimbursement received from the IRS would be program income and subject to the guidelines discussed above.