Policy Library

60.3 Cost Transfers

Approval Authority: CONTROLLER

Response Executive: CONTROLLER

Responsible Office: OFFICE OF FINANCE

Originally Issued: March 27, 2006

Revisions/Updates:

1.     Policy Statement

This policy establishes the requirements of and includes the procedures for allowable transfer of costs from one activity/account to another in compliance with sound fiscal management practices as well as regulations applicable to externally funded projects.

2.     Reason/Purpose for Policy

The correct allocation of charges to the appropriate activity/account is important in the management of the Institute?s resources, including all categories of restricted funds, and is of special significance for federally supported programs. Federal regulations (OMB Circulars A-21, A-110 and A-133, and the Federal Acquisition Regulations) and the terms and conditions of other sponsors specify that expenditures are charged to the correct activity/account. This fiscal management practice is equally applicable to the use of Institute funds. Occasionally expenses are charged to an incorrect activity/account and, with adequate justification, it is allowable to transfer costs to the correct activity/account.

The purpose of this policy is to inform both principal investigators and administrators about the circumstances under which cost transfers are allowable and to describe how to submit a retroactive cost transfer request form (either for salary and wage cost transfers or non-salary and wage cost transfers), whereby appropriate costs may be transferred, with justification and documentation, between activities/accounts in compliance with the financial policies of the Institute and with existing regulations applicable to federal and private sponsored or other restricted funds.

Specifically this policy addresses:

  • The importance of timely transfers to correct errors or for other allowable reasons after the errors or need for the transfer of cost is discovered.
  • The determination of when cost transfers are allowable and when cost transfers are unallowable.
  • The circumstances under which a cost transfer may be allowable or unallowable.
  • The procedures required for late cost transfers.
  • A description of what documentation is required to support cost transfers.

3.     Policy Applies To:

This policy applies to all Institute personnel who have designated signatory authority to charge activities/accounts.

4.     Related Documents

  • Payroll Policy
  • Time and Effort Reporting Policy
  • Advance Account Establishment Policy [under construction]

5.     Contacts

a.  Controller

b.  Office of Finance

c.  Sponsored Research Accounting

d.  Office of Sponsored Research

6.     The Policy

A. Definitions:

Cost transfer: A cost transfer is an after-the-fact reallocation of the cost associated with a transaction from one activity/account to another. All costs are supposed to be charged to the correct activity/account when they are incurred. However, occasions arise when a cost transfer is a legitimate corrective method to assign appropriate costs to activities/accounts.

Late cost transfer: A late cost transfer is a correction made more than 90 days after the month in which the charge appears on the FRS report.

Allowable cost transfers: To be considered allowable, cost transfers must meet the following criteria:

1.  Must benefit the activity/project ? The expenses being transferred must have benefited the activity/project to which it is being moved.

2.  Be completed and submitted in a timely manner - Costs should be transferred as soon as the error or need for the cost transfer is discovered, but no later than 90 days after the month in which the charge appears on the FRS report.

3.  Be fully documented and have appropriate signatures ? Cost transfer requests must be accompanied by a statement that explains the reasons for the transfer. In rare instances there may be cost transfer requests beyond the 90-day period. In such cases, the request must also include the reasons for both the delay in processing the correction and the late submission of the transfer request. Explanations such as ?to correct error? or ?to transfer to correct project? are insufficient to justify the transfer of costs.

4.  Conform to Institute and sponsor allowability standards ? The cost to be transferred must be an allowable cost under the Institute?s financial policies and/or sponsor award terms.

 B. Implementation:

Timely Transfers: Transfers of cost between activities/accounts to correct errors or for other allowable reasons should be made promptly after the error or need for the transfer of cost is discovered. In the case of sponsored awards, they must be made prior to the submission of the final expenditure report to the sponsor. The appropriate paperwork to correct the error should be submitted as promptly as possible. Entries made long after the original charge raise serious questions concerning the propriety of the entries and are subject to cost disallowance.

Timeliness is especially important when an erroneous distribution affects an activity/account that is funded by the federal government. All corrections must be made on a timely basis (i.e., within 90 days). Late cost transfers are particularly vulnerable to audit and require extra supporting justification or may be deemed unallowable by sponsor and governmental regulations.

Late Cost Transfers: A correction made more than 90 days after the month in which the charge appears on the FRS report is considered a ?late cost transfer.? Because of audit issues, late cost transfer requests should be rare and be based on extraordinary circumstances. For a late cost transfer to be considered, the request must include a detailed justification for the lateness of the transfer. This justification also must explain the delay in processing the correction.

C. Applicability:

Cost transfers are allowable under the following circumstances:

Error Correction: Errors may include clerical errors (such as typographical errors or transposition of activity/account digits). Other errors may be detected upon review of monthly FRS reports. It may be determined, for example, that a payroll distribution had not been updated, and an individual?s effort had been redirected, or a purchase had been charged to an activity/account different from that which ultimately benefited from the use of the items purchased. All errors should be corrected as soon as they are detected and within 30 days after the month in which the charge appears on the FRS report.

Transfers between account expenditure code categories or between subaccounts set up under a prime account: Examples of these kinds of transfers include transferring a charge (that was incorrectly posted) from one subaccount to another subaccount or to correctly categorize the nature of an expense (e.g., supplies vs. equipment).

Costs benefiting more than one activity: When two or more closely related activities are being undertaken simultaneously, it may be difficult to distribute charges correctly among the activity/account when the expenditure is initially made when the correct distribution will best be made based upon an actual usage analysis. In these cases, a cost transfer from the originally charged activity/account to another activity/account may be made provided that the cost transfer meets the following criteria:

1.  The initial charge could appropriately have been made to the other activity/account as the cost represents proper and allowable charges to that activity/account.

2.  The charge is contemplated in the approved budgets of both activities/accounts.

3.  The explanation makes it clear why a particular charge is appropriate to either activity/account. This should include documentation which contains a full explanation and justification for the entry and the certification of the propriety of the entry by the principal investigator or responsible administrator.

Pre-award costs (Sponsored Projects): When advance accounts are established for sponsored projects, they will be established in the appropriate FAS ledger; consequently cost transfers are not required for pre-award costs.

Non-competing continuation or incrementally funded award (Sponsored Projects): A non-competing continuation award or incrementally funded fails to materialize and charges have been incurred. Costs incurred subsequent to the anticipated effective date of the award will need to be transferred to other appropriate funds.

Cost transfers are unallowable under the following circumstances:

Unspent Balances: Costs generally may not be transferred to activities/ accounts with unspent funds unless the account benefited from the expense that was originally wrongly assigned to an activity/account. (Note: Even if this test is met, only in rare circumstances will such transfers be allowed between sponsored project accounts.)

Costs incurred after the end date of sponsored project: Costs incurred after the end date of a sponsored project are not allowable and may not be transferred to another sponsored activity/account. Unless made in error, these costs must be transferred to other appropriate accounts, such activities/accounts supported with Institute funds.

D. Procedure and Documentation:

When a cost transfer is needed, the appropriate retroactive cost transfer request form (Salary or Non-Salary) should be completed and submitted to the appropriate unit of the Finance Office or, in the case of a sponsored project to Research Accounting, to approve and make a correcting journal entry to effect the transfer.

Retroactive personnel cost transfers for correction of labor and benefit charges require particular attention. Revisions to the effort (and corresponding dollars) of personnel charged or credited to a sponsored award account, must be carefully justified for a cost transfer to be approved.

The retroactive cost transfer request form must contain a full explanation and justification for the transfer, along with relevant supporting documentation.

The documentation should address the following:

1.  That the expense directly benefits the receiving activity/account.

2.  That the expense is allowable.

3.  The reason the expense was charged incorrectly to the first activity/account.

Cost transfers must be made within 90 days after the month in which the charge appears on the FRS report. Cost transfers after 90 days will be allowed only if an appropriate justification for the lateness of the transfer is provided on the cost transfer form.

The principal investigator (on sponsored awards) or the responsible department head is required to authorize all cost transfers and sign the Retroactive Cost Transfer Request Form.

The signature of the principal investigator or responsible department head certifies to the following:

1.  The change indicated is correct.

2.  The costs are allowable.

3.  The receiving activity/account benefited from the costs being transferred.

When the activity/account to which the cost is being transferred to is not one for which the principal investigator or authorized administrator has signatory authority, then the principal investigator or authorized administrator for the activity/account now being charged must also sign the retroactive cost transfer request form.

NOTE: For sponsored projects, please remember that Research Accounting will review all cost transfer requests before transfers are approved. The cost transfer form will be returned for further documentation if sufficient justification and documentation to meet sponsor regulations and award terms and conditions are is not provided.

Federal regulations strictly prohibit the transfer of costs from one project to another in order to:

  • Cover cost overruns with funds in other projects.
  • Avoid restrictions incorporated in the award.
  • For other reasons of convenience.