A cost transfer is a reassignment (transfer) of charges within or between cost centers (project accounts). They are created in departments, labs, or centers to bill inter-departmental costs, to adjust billing errors, or for other reasons associated with the department’s regular financial operations. When cost transfers to move expenses involve sponsored projects it is critical that the transfer meets the rules for allowability, allocability, reasonableness and consistency.
A journal is the document used to process a cost transfer. Although costs should always be charged to the correct account and subcode when they are incurred, cost transfers are sometimes necessary.
When are Cost Transfers Allowed?
Stevens allows cost transfers involving sponsored projects only in special circumstances, including:
- Error correction
- Transfers between related projects of the same sponsored project, i.e., parent to child account or child to parent account.
- Costs benefiting more than one sponsored project
- Transfers between subcodes
- Transfer of retroactive expenses (including pre-award costs) on a project necessitated by a delay in finalizing contract negotiations
Any time you initiate a transfer, you invite the assumption that the transaction was not handled properly initially. If expenses are being transferred to a sponsored project, there will be considerable scrutiny of the reasons for the transfer, and the justification for moving those charges will require a clear explanation and be understandable to an auditor or any other person reviewing the documentation at a later date.
Criteria for Cost Transfers
A good justification will allow anyone reviewing the cost transfer to understand how the expense benefits the receiving sponsored project. It should answer: who, what, where, when, and why. It should be easily understood by anyone reviewing the journal (ask yourself……..”…if I leave, will an auditor be able to understand this two years from now?”). At Stevens, all cost transfer must be accompanied by the “Transfer of Expense Checklist.”
Cost transfers must be:
- In conformance to Institute and sponsor policies (is it allowable, allocable, reasonable and consistent?
- Timely - Cost transfers should be prepared and submitted as soon as the need for a transfer is identified but no later than 90 days after the posting is made and/or within 30 days of the project end date, whichever comes first.
Cost transfers exceeding this time frame will carry a higher burden of justification as to why the transfer request was not made in a timely way. Cost transfers older than 90 days will need to be reviewed and approved by the Executive Director of OSR.
- Fully Documented – must contain a justification that clearly shows:
- Benefit to the receiving project
Allowability and allocability to the new sponsored project
- Reason for transfer
- System causes are corrected so they will not recur
- The reason for any delay in the timely processing of the transfer
Accompanied by recertification of effort if reallocation involves cost transfer of a salary expense (These are particularly problematic and will probably be questioned if not fully and realistically justified. Additionally, lots of salary reallocation, even if done within the 90 day time period indicates the department might not be using existing Institute practices or may be “parking” salaries on existing federal accounts in order to burn down through balances.)
- Reviewed and approved by the PI or PI’s designee
- Observant of good fiscal stewardship
Frequent, repeated and/or poorly documented cost transfers, even though they might be within the 90 day period, indicate a potential problem. Does preparer have adequate training? Does preparer have knowledge of relevant federal circulars and standards of fiscal management?
- Appropriately approved
The cost transfer must be signed by the account holder of the account from which the cost is transferred AND the account holder of the account to which the cost is transferred.
Cost Transfer Examples
Inadequate justification: “To reallocate salary because wrong account was charged.”
Q - If you were certain of the project on which effort was expended at the time the original certification was made, what has changed in the interim?
Q - What made you think the original account cited as the source of effort was correct in the beginning?
Q - How will you prevent this same situation from occurring again?
Q - If this is the result of pre-award costs, why didn’t you engage the process to “REQUEST [A] FOR PENDING ACCOUNT IN ADVANCE OF RECEIPT OF AWARD?”
Inadequate justification: “To reallocate/transfer costs older than 90 days because of backlog in reconciling accounts.”
FACT: OMB Circular A-21, C4b – “Any costs allocable to a particular sponsored agreement under the standard provided in this Circular may not be shifted to other sponsored agreements in order to meet deficiencies caused by overruns or other fund considerations, to avoid restrictions imposed by law or by terms of the sponsored agreement, or for other reasons of convenience.” (This is THE citation used to support the government’s (and subsequently auditors) position regarding cost transfers, both the averseness to seeing cost transfers to begin with and most specifically the ‘gotcha’ verbiage at the end…..”or for other reasons of convenience.” This makes it clear that the onus is on the recipient to figure out how to perform the stewardship required. Being busy or understaffed is not going to be an adequate justification.)
FACT: OMB Circular A-110, C21b(3) – “Effective control over and accountability for all funds property and other assets.
FACT: OMB Circular A-110, C21b(4) – “Comparison of outlays with budget amounts for each award.
Inadequate justification: “To reallocate/transfer partial costs from one federal award to another.”
Q - How long have you known that it was reasonable that these costs could be split among more than one account?
Q - What made you aware of the fact that costs were appropriate to more than one award?
Q - What analysis was employed to calculate the correct percentage of application to each federal award?
Q - Will all costs be split among these awards, or only certain costs?
Q - Will this be an ongoing circumstance, or “one time only?”
- Any time a transfer is initiated, you invite the assumption that the transaction was not handled properly at the outset.
- Frequent and poorly documented cost transfers may indicate problems in the management of research.
- Federal auditors scrutinize more closely the allowability, allocability, and reasonableness of cost transfers.
- Federal research sponsors are giving increased attention to the reason behind cost transfers from and to sponsored projects.
- There is significantly increased audit risk for cost transfers made beyond the approved guidelines, i.e., older than 90 days, frequent and poorly documented, etc.
When preparing a journal to initiate a cost transfer, always use the “Transfer of Expense Checklist” to ensure you’ve provided adequate and needed justification and documentation.
REFERENCED FORM: “Transfer of Expense Checklist"
See, also, Allowable Costs and Unallowable Costs.