U.S. DEPARTMENT OF EDUCATION

OFFICE OF SPECIAL EDUCATION AND REHABILITATIVE SERVICES

REHABILITATION SERVICES ADMINISTRATION

WASHINGTON, D.C. 20202

TECHNICAL ASSISTANCE CIRCULAR

RSA-TAC-94-01

RSM-4001 ^1^

DATE: 12/16/93

TO: STATE VOCATIONAL REHABILITATION AGENCIES (GENERAL)

STATE VOCATIONAL REHABILITATION AGENCIES (BLIND)

RSA DISCRETIONARY GRANTEES

REGIONAL REHABILITATION CONTINUING EDUCATION

PROGRAMS (RRCEPS)

RSA SENIOR MANAGEMENT TEAM

SUBJECT: The Use and Reporting of Program Income By Rehabilitation
Services Administration\'s (RSA) Discretionary Program Grantees

CITATIONS IN

REGULATION: Education Department General Administrative Regulations 34
CFR 74.40 through 74.47, 34 CFR 74.61, 34 CFR 80.20, and 34 CFR 80.25.

DISCUSSION: The purpose of this Technical Assistance Circular is to
outline the procedures for the use and reporting of program income by
RSA\'s discretionary program grantees, not for the use by RSA\'s formula
program grantees. The four areas to be covered are: (1) definition of
program income, (2) authorized uses of program income, (3) accounting
for program income, and (4) reporting program income.

I. DEFINITION OF PROGRAM INCOME

Program income is defined in the Education Department\'s General
Administrative Regulations (EDGAR). The specific reference is dependent
on the type of organization that receives the grant. For institutions of
higher education, hospitals, and other non-profit organizations, the
regulatory citations are 34 CFR 74.40 through 34 CFR 74.46. For State
and local governments and Indian tribal organizations, the citation is
34 CFR 80.25. The referenced citations are similar and basically state
that program income is the gross income earned or received

^1^ Under Development

by a grantee or subgrantee as a result of activities supported in whole
or in part by the grant.

Program income does not include interest on grant funds. There are
separate requirements that apply to interest on grant funds. The
treatment of interest earned on advances of grant funds, as discussed at
34 CFR 74.47, requires that Federal funds must be maintained in
interest-bearing accounts. Under 34 CFR 74.47(a) and 34 CFR 80.21(i)
interest earned must be remitted to the Department of Education. Under
34 CFR 74.61(e) and 34 CFR 80.21(b), grantees must minimize the time
between advances/drawdowns and disbursements.

II\. AUTHORIZED USES OF PROGRAM INCOME

EDGAR requires that program income be used in at least one of three
ways. An explanation of the authorization for the use of each
methodology is provided below.

A. BASIC DEDUCTION ALTERNATIVE

Ordinarily program income is deducted from total allowable costs to
determine the net allowable costs. Unless written authorization to use
program income in any other manner has been approved by the authorized
official, grantees must use the deduction alternative in reporting the
use of any program income earned by the project. With the deduction
alternative, program income funds are used for allowable costs of the
project and are deducted from Total Outlays (lines 10(a) minus 10(c)),
on the Financial Status Report (SF-269), Attachment A, eventually
resulting in an unobligated balance of Federal funds (line 10p.). Under
the deduction alternative, program income shall be used for current
allowable costs of the project.

Regulations covering the deduction alternative are outlined at 34 CFR
74.42(c) for Institutions of Higher Education, Hospitals and Nonprofit
Organizations. For State and Local Governments and Tribal Organizations,
the regulations are found at 34 CFR 80.25(g)(1).

B. OPTIONAL ADDITIONAL COST ALTERNATIVE

The additional cost alternative allows State and local government
grantees to retain and utilize program income for allowable obligations
in line with the grant\'s authorized work plan (34 CFR 80.25(g)(2)).
Grantees other than State and local governments are not required to use
funds for only allowable costs (34 CFR 74.42(e)). For these grantees,
the program income can be used for costs which are in addition to the
allowable costs of the project and need not be for costs that would be
permissible as charges to Federal funds. Nevertheless, the funds must
further the broad objectives of the Federal statute under which the
grant was made.

By using the addition alternative, a grantee uses program income funds
in addition to any Federal and non-Federal funds to support the project.
These funds are used for such activities as expansion of the project.

In order to use the additional cost alternative, the grantee must
request and receive prior approval from the Department of Education
Grants Staff. If approved, the grant award will be amended with
Attachment F of the grant document.

For any grant in which program income is earned or is anticipated, RSA
recommends that the grantee request written permission, as soon as
possible, to use the additional cost alternative, if the proposed use of
those funds furthers the objectives of the project under which the
Federal grant was made. All such requests should be submitted to the
Education Grants Staff person with a copy of the request to the
Education Program Staff person. The names of both of these persons and
their phone numbers are indicated on the Grant Award Notification in Box
#3 (Attachment B).

The above request should outline the nature of the program income, the
anticipated amount to be earned, and the proposed uses for the program
income. Requests should clearly identify how those activities will
further the objectives of the project, not just substitute for
activities for which funds would have been used anyway.

Regulations covering the additional cost alternative are outlined in 34
Part 74.42(e) for Institutions of Higher Education, Hospitals, and
Nonprofit Organizations and at 34 CFR 80.25(g)(2) for State and Local
Governments and Indian Tribal Organizations.

C. OPTIONAL COST SHARING OR MATCHING ALTERNATIVE

Program income expenditures may be credited toward meeting the cost
sharing or matching required for the grant, when expressly authorized by
the Grants Staff. The procedure for approval of this alternative is the
same as for the additional cost alternative. If approval were to be
granted, the grant award would be amended with Attachment F. It should
be noted, however, that the grantee, having received approval for either
the additional cost alternative or cost sharing or match alternative,
can still use the deduction alternative at any time.

Regulations concerning the use of program income for matching or cost
sharing are addressed in 34 CFR 74.42(d) for Institutional of Higher
Education, Hospitals, and Nonprofit Organizations and at 34 CFR
80.25(g)(3) for State and Local Governments and Indian Tribal
Organizations.

III\. ACCOUNTING FOR PROGRAM INCOME

Program income must be reflected in the grantee\'s accounting system in
sufficient detail to identify source; trace obligation purpose and
objective; and track resulting outlays with appropriate supporting
documentation for each action. For guidance on accounting refer to 34
CFR 74.61 or 34 CFR 80.20, as appropriate.

All grantees should be prepared to deal with the receipt and disposition
of program income, whether or not its receipt is expected. The
allowability and applicability requirements for any obligation of
program income funds should be the same as for Federal funds. This is
regardless of which utilization methodology is approved for the grant.
EDGAR contains specific requirements for the use and disposition of
program income from royalties, and the proceeds from the sale of real
property and equipment. These requirements are addressed at 34 CFR 74.43
through 74.45 and 34 CFR 80.25(e) and (f). Disposition of general
program income earned after the end of the award period is addressed at
34 CFR 80.25(h) and 34 CFR 74.46. RSA grantees are governed by the
referenced citations, as applicable. Program income funds received after
the grant period are not subject to any disposition requirements, unless
the funds received are from the disposition or royalties, real property,
or equipment, or the terms of the grant specify otherwise, as provided
for in 34 CFR 74.46(b) and 34 CFR 80.25(h). If, however, the program
income funds are received during the grant period, those funds must be
obligated within the time period of the grant. Non-public agencies
acting according to 34 CFR 74.42(e)(2) are an exception. These grantees
may obligate program income to continue the project or program after
grant or subgrant support ends. In that case the program income funds
can be obligated after the end of the grant period. For any grantee that
has received approval for an extension to the grant period, that newly
revised grant period also applies to the period for obligation of
program income funds. Grantees can refer to the appropriate EDGAR part,
referenced OMB Circular, and program regulations for guidance on any
specific obligation.

IV\. REPORTING PROGRAM INCOME

Grantees must report program income on the SF-269 according to the
methodology used. The receipt and expenditure of program income under
any grant will require submittal of an SF-269 whether or not the form is
required for any other requirement per EDGAR. The grant award
notification attachment will specify the frequency, due date, the number
of copies, and the name and address of the individual to whom the
financial report must be sent. The instructions for the SF-269
(attached) describe the appropriate reporting of program income.

Program income used under the deduction alternative should be reported
on lines 10(c) and (q); program income used in accordance with the
matching or cost-sharing alternative should be reported on lines 10(g)
and (q); and program income used under the additional cost alternative
should be reported on line 10(r). All grantees must complete line 10(s),
Undisbursed Program Income, and line 10(t), Total Program Income
Realized.

It should be noted that before final closeout of a grant and submittal
of a final SF-269, all program income authorized for use under the
additional cost alternative must be expended and reflected as disbursed.
Non-public agencies acting in line with 34 CFR 74.42(e)(2) are an
exception. These grantees may obligate program income to continue the
project or program after grant or subgrant support ends. For grantees
using Part 80 (State and Local Governments), Line 10(s) of the SF-269
would be zero. All disbursed program income is reported on either lines
10(c), 10(g), 10(q), or 10(r) on the SF-269. If it is disbursed program
income using the deduction alternative, it is shown on line 10(c), or,
if it is the matching or cost sharing alternative, it is shown on line
10(g). These amounts are added on line 10(q), with disbursed program
income using the addition cost alternative reported on line 10(r). The
remaining program income (all undisbursed) is reported on line 10(s).
RSA defines disbursed program income as funds that have been obligated
and liquidated and undisbursed program income as funds either obligated
and unliquidated or unobligated.

This guidance has been written to specifically address program income in
RSA discretionary grants. Grantees of the Independent Living Services
for Individuals Who Are Blind Program are advised to follow this
guidance until such time as their programs become formula grants.
Grantees of the Protection and Advocacy of Individual Rights (PAIR)
Program should follow this guidance for grant funds awarded prior to FY
1994. In FY 1994, the PAIR Program became a formula grant program.

INQUIRIES: All requests for approval of one of the optional program
income methodologies (either the additional cost alternative or cost
sharing and matching alternative) and questions concerning the use and
reporting of program income by discretionary grantees should be
addressed to the Education Grants Staff identified in Block 3 of the
Grant Award Notification.

William L. Smith

Acting Commissioner, RSA