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Business and Policy Areas
Business and Policy Areas

Public Institutions Should Categorize Pell Grants As Non-operating in IPEDS

February 26, 2009

The proper classification of Pell grants by public institutions in the "Statement of Revenue, Expenses, and Changes in Net Assets" (SRECNA) continues to be controversial. In early 2008, the GASB clarified in its Comprehensive Implementation Guide that Pell grants are non-exchange and non-operating. As a result, the current Integrated Postsecondary Education Data System (IPEDS) Finance Survey contains an edit check to ensure that public institutions report Pell as a federal non-operating grant.

The IPEDS finance survey is administered by the National Center for Education Statistics (NCES), which is part of the U.S. Department of Education. Since 2001, when the survey format changed to agree with GASB’s new reporting model, Part B instructions (Revenues and Other Additions) have stated that Pell grants should be included with federal non-operating grants on line 13. According to NCES staff, public institutions tend to report Pell grants somewhere other than non-operating federal grants. For example, in FY 2006, of 1,807 public institutions, 1,447 reported non-operating federal revenues that were less than the Pell grants that were awarded. In fact, 1,193 of these institutions reported non-operating federal grants as $0.

Although many public institutions have Pell grant amounts that may not significantly affect either the operating or non-operating categories in the SRECNA, the IPEDS Finance Survey edit check will force Pell grants to be classified as non-operating in order to complete and submit the survey. The edit check requires that the amount entered as federal non-operating grants revenue (Part B, Revenues and Other Additions - line 13, federal non-operating grants) must be equal to or greater than the amount entered in Part E, "Scholarships and Fellowships," line 1, "Pell Grants." Institutions that enter an amount for Pell grants that exceeds the amount reported for nonoperating federal grants will receive an edit notice that states, "Pell grants to students need to be reported as federal non-operating grants." The error severity is fatal--meaning that it must be corrected for the survey to be submitted.


The accounting and reporting issue raised by Pell grants has three related parts. First is whether the grant is considered an agency or revenue transaction; the second concerns whether such grants are exchange or non-exchange transactions, and the third concerns the classification of Pell grants as operating or non-operating. For years, NACUBO, higher education institutions, accounting firms, and GASB have been debating whether non-exchange transactions are always considered non-operating transactions. Recording Pell grants as non-operating creates a mismatch with the related tuition discount which is reported as operating. Further, there does not appear to be an authoritative rule in the accounting literature that non-exchange always equals non-operating. A footnote in GASB 24 acknowledges that operating income is not defined in authoritative governmental accounting literature. Paragraph 102 of GASB Statement 34 says "Governments should establish a policy that defines operating revenues and expenses that is appropriate to the nature of the activity being reported, disclose it in the summary of significant accounting policies, and use it consistently from period to period".

Currently, the most authoritative guidance is provided in an answer to a question in the June 30, 2007 edition of GASB’s Comprehensive Implementation Guide. Question 7.72.10 asked if public colleges and universities report Pell grants as agency transactions. GASB’s answer clarifies all three related pieces of the issue as follows:

Because of public institutions’ administrative involvement with Pell grant requirements and because Pell grants are non-exchange transactions, public institutions should record Pell grant receipts as nonoperating revenues in their financial statements and any amounts applied to student receivable accounts should be recorded as scholarship discounts or allowances.

The Comprehensive Implementation Guide is issued annually and is considered level D in the Generally Accepted Accounting Principles (GAAP) Hierarchy. The objective of the guide is to clarify the application of higher level guidance such as accounting standards, pronouncements, technical bulletins, and relevant AICPA literature. Because GASB’s Implementation Guide spelled out that Pell grants are non-exchange, non-operating revenue transactions, Section 331 of NACUBO’s Financial Accounting and Reporting Manual (FARM) was updated and states that Pell grants are non-operating. FARM is industry guidance and is also level D in the GAAP hierarchy. Although NACUBO continues to discuss this matter with GASB, public institutions need to be aware of explicit statements in both FARM and GASB’s Comprehensive Implementation Guide.