A. Definition of Cost Transfer
A cost transfer is an after-the-fact reallocation of costs associated with a transaction from one account to another account.
B. Cost Transfer Procedure
Costs should be correctly charged to the correct account when initially incurred. At times it may be necessary to transfer a cost subsequent to the initial recording of that cost. Such transfers require careful monitoring for compliance with this policy.
All cost transfers require thorough documentation to support the transaction and must be accompanied by a completed “Transfer of Expense Checklist.” The transfer must be timely, complete, and comply with the tenets of allowability, allocability, and reasonableness.
The University requires timely cost transfers in the following circumstances:
- Error correction
- Disallowed costs
1. Requirements Related to Cost Transfers
Timeliness – First, cost transfers are predicated upon identification of incorrectly sourced costs as a result of the availability of data and information as a result of the monthly close of business and final issuance of ledger and account detail. Typically, this is between the 5th and the 15th day of the month following the month of actual posting, i.e., January closes in February. Second, correction of errors should normally be completed within three months  of when the erroneous expense is posted to the account or when discovered during the Effort Certification process. Incorrect/misstated effort discovered during the Effort Certification process must also be corrected and completed no later than three months after the erroneous effort is posted to the account.
- Practical examples are as follows:
- The month of January closes on February 7th and the data for the completed month is in the data warehouse (eThority) and available on February 8th. A monthly review of the January activity for which the closed month’s data is available begins sometime subsequent to February 8 and shows an incorrect or unallowable cost that hit the account on January 28. The action to clear the incorrect cost and reallocate it to the correct account must be initiated and completed by April 28.
If incorrect charges are discovered after monthly account reconciliation they must always be transferred off regardless of posting date. Transfers to a sponsored project after three months are generally not allowed and must be transferred to a non-sponsored account. All cost transfer greater than 90 days must be reviewed and approved by the Executive Director of Sponsored Programs using the KFS “ad hoc” routing feature.
The time restriction for cost transfers does not apply to the following circumstances:
- allocation from Service Centers or general business functions such as telecommunication charges etc.,
- clearing accounts at the end of a sponsored project
- changes caused by account set-up errors
- situation where new funding comes through an unexpected mechanism or is late
- transfers between parent-child accounts of the same sponsored project
- transfers between one object code and another within the same account
NOTE: Currently, Effort Certification is run after each semester; thus it could be the case that cost transfers identified through effort certification might be partially denied if the erroneous posting involves a prior month that should already have been identified through the monthly reconciliation process. For example: effort for the spring semester which is issued to the campus on June 20 covers January – May. At a minimum, corrections for January – March should have already been identified and corrected by the time effort certification becomes available on June 20.
- Documentation - All cost transfers must be supported by documentation that fully explains the error as detailed below. An explanation merely stating that the transfer was made “to correct an error’ or “to transfer to correct project” is not sufficient.
For sponsored projects, cost transfer documentation must include a justification that clearly shows:
- The expense directly benefits the receiving account
- The expense is allowable on the receiving account
- The reason the expense was charged incorrectly to the incorrect account
- That any systematic reasons which might cause this problem to be repeated have been addressed
- The reason for delay in the time timely processing of the transfer
Large transfers, and transfers within the first or last 90 days of a project, receive additional central review. Detailed documentation on the “Transfer of Expense Checklist” will facilitate their timely review by the Office of Sponsored Programs when the accounts are in the KFS sub-fund “SPON” (generally an account beginning with “21”.)
- Sponsor Requirements - Various sponsors may have more restrictive guidelines on cost transfers and departments should consult the Office of Sponsored Programs when in doubt about the acceptability of a proposed cost transfer.
- Pre-Award Costs - For the effective and economical conduct of a sponsored project, it is sometimes necessary and permissible for costs to be incurred before the award document has been received. In such cases, department should request that the Office of Sponsored Programs set up an Advanced Funding Account. This is an interim account that is established with a minimum amount of money and a significantly restricted time period. The authorization and request form for Advanced Funding Account is available on the OSP webpage.
The Advanced Funding Account becomes a permanent account when the award is final and effective; no cost transfers are needed. Pre-award costs must be charged to a pre-award account and may not be placed on an unrelated sponsored project account and later transferred to the appropriate sponsored project. The restriction for costs does not apply to transactions necessitated by a sponsor changing the agency ID/award number.
Although costs may be charged to a non-sponsored project and then transferred at the time a permanent account is established, this is not advised. Charges that are moved from a non-sponsored account to a sponsored account must conform to the same time requirements and will be disapproved if they exceed those elements of timeliness.
- Costs Benefiting More than One Project – Costs may be apportioned to more than one account if the costs benefit more than one account/project. Federal regulations require that an expense be:
- Solely to advance the work under the sponsored agreement, or
- A benefit to both the project and other work in proportions that can be approximated through reasonable methods
A cost that benefits more than one project should be allocated at the time of the expenditure and a cost transfer may be appropriate in these situations. At no time should a sponsored project be used as a holding account for costs that will subsequently be transferred elsewhere, either because the other account is in overdraft, not set up or for any other reason.
- Overdrafts – an overdraft exists if award expenses exceed funding. Expenses removed as a result of an overdraft should have been incurred during the last six month of the project. If an error is discovered after the end of the award, a transfer of expense should be made by removing the expense prior to award closeout.
If after the end date of an award an expense is determined to be unallowable to the project but did benefit the project it cannot be used to meet a cost-share commitment. One (but not the only) example of such an expense is a sponsor specified ceiling on the amount approved for travel that is exceeded without seeking sponsor approval prior to the travel occurrence.
 Three (3) months for purposes of this Policy is understood to mean from date to date, i.e., January 28 to April 28 rather than 90 days.
 Completed for purposes of this discussion means through KFS with the last review signature in place and has gone to FINAL.