Cost Transfers

1. Cost Transfers Research Administrator Meeting May 16, 2006

2. Definition An expense that is transferred from one account to another after the expense was initially recorded in the financial accounting system.

3. Federal Requirements The Federal government expects that costs are charged appropriately at the time incurred and that significant adjustments should not be required if adequate financial management practices and policies exist.

4. Federal Requirements The Federal government has established policies, concerning the assignment of costs to federally sponsored agreements, in OMB Circular A-21, OMB Circular A-110, and specific agency policies on cost transfers. These policies require that universities establish internal controls to ensure that costs associated with a particular sponsored agreement are allowable, allocable, and reasonable.

5. OMB Circular A-21 Allowable: Federal and/or University policies establish limitations or exclusions as to types or amounts of cost items. Additional terms may be included in individual sponsored agreements.

6. OMB Circular A-21 Allocable: A cost is considered allocable to a particular sponsored agreement if the goods or services are chargeable in accordance with the relative benefits received or other equitable relationship.

7. OMB Circular A-21 Reasonable: A cost may be considered reasonable if both the nature and the amount of the cost reflects the action that a prudent person would have taken under the circumstances prevailing at the time the decision to incur the cost was made.

8. OMB Circular A-21 �Any costs allocable to a particular sponsored agreement under the standards 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.�

9. NIH Grants Policy Statement �Cost transfers to NIH grants by grantees, should be accomplished within 90 days�Transfers must be supported by documentation that fully explains how the error occurred and a certification of the correctness of the new charge by a responsible organizational official of the grantee�An explanation merely stating that the transfer was made �to correct error� or �to transfer to correct project� is not sufficient. Transfers of cost from one project to another or from one competitive segment to the next solely to cover cost overruns are not allowable. Grantees must maintain documentation of cost transfers�and must make it available for audit or other review�Frequent errors in recording costs may indicate the need for accounting system improvements and/or enhanced internal controls�NIH also may require a grantee to take corrective action by imposing additional terms and conditions on an award(s).�

10. What does this mean? Principal Investigators or their delegate should review the fiscal status of their sponsored agreements each month and promptly correct expense transactions that are incorrectly recorded. Federal funds should not be used as an interim funding source when awards are late or other funding is not yet available.

11. What does this mean? Charges posted to a sponsored agreement must be for goods or services providing a direct benefit to that sponsored agreement. Cost should never be charged to one sponsored agreement until the funds are used up before charging the same type of ongoing shared costs to other concurrent sponsored agreements. Shared costs should be pro-rated among the applicable sponsored agreements at the time the costs are incurred to the maximum extent possible.

12. What does this mean? If cost transfers are regularly submitted several months after the expense initially recorded, this may be an indication that the university does not have good controls in place.

13. Examples of allowable cost transfers: To transfer an allowable pre-award cost To reassign personnel in accordance with their appropriate effort on a project To correct account number (MFK) transposition errors To allocate expenses incurred on departmental funds that are easily identified with project activities through maintenance of logs or other departmental records (i.e. telephone toll calls, photocopying, etc.) To transfer allowable costs between project years of the same sponsored agreement To allocate expenses incurred for common laboratory costs approved on two or more closely related projects of the principal investigator To move expenses to departmental accounts to make adjustments associated with deficits, unallowable costs and project close-out

14. Guidelines to consider: Do not clear deficits or surplus funds on federal awards by moving expenses to other federal awards. HR appointments and COS� should accurately reflect employee effort. If an individual�s HR appointment status is accurate to begin with, then there would be no need to make cost transfers at a later time. When it is discovered that an HR appointment is not accurate, correct it as soon as possible.

15. Guidelines to consider: Cost transfers should not be based on what funds are available A federal award cannot be used to pay for an individual�s salary if effort has not been applied to the project by that person. If an individual�s effort cannot be accurately applied to a project because that person supports department-wide initiatives, that individual should not be direct charged to the project.

16. UI Process for completing a cost transfer: The Human Resources Information System automatically requests justification when filing Change of Status forms that make personnel adjustments to sponsored agreements that are over 90 days. Once approved, the Web Payroll Voucher will then be completed centrally. Grant Accounting may request additional justification on cost transfers made by CV (Change Voucher) for specific changes made on a project.

17. UI Process for completing a cost transfer: In order for Grant Accounting to approve justifications for requests to move salary transactions that were incurred more than 90 days ago, the following would be considered: Does the justification include an explanation as to why the expenditure was not allocated to the correct account to begin with and why the error wasn�t discovered immediately? Does it appear that the PI/Department has considered how this particular cost directly benefits that research award? When the transfer is occurring between two research awards, particularly federally funded research awards, is the original research award currently in deficit status? If so, does it appear that the decision to move the cost is really because the cost benefits the new project or just to clear a deficit?

18. Next Steps How many cost transfers are occurring? Who is submitting cost transfers? Additional controls necessary?