COST TRANSFERS
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A cost transfer is a direct cost that is transferred from one account to another after the expense has posted to the general ledger. Cost transfers are allowable for salary and other direct costs charged to a grant as long as the transfer is compliant with both Federal law and AvaCon policy.
Program managers, grant or contract administrators, and accounting should use due care to ensure that all costs are accurately charged to the correct account in the first instance so that unnecessary cost transfers can be avoided. In the event that a cost transfer is needed, the following policy applies.
Reason for Policy
AvaCon must comply with Uniform Administrative Requirements for Grants and Agreements with Institutions of Higher Education, Hospitals, and Other Non-Profit Organizations, Circular A-110 (Revised 11/19/93, as further amended 9/30/99), with specific mention to 45 CFR 74.[1]
To comply with the cost allowability and allocability requirements of OMB Circular A-110, it is necessary to explain and justify transfers of charges onto federal awards from other federal accounts, non-federal accounts or AvaCon accounts. Timeliness and complete justification of transfers are important factors in meeting allowability and allocability principles of the Circular.
Any cost charged to an account must pass all of the factors indicated in A-110. The cost must be:
- Reasonable for the performance of the award, ie a reasonable and necessary cost
- Allocable to the award, ie the cost was incurred solely to support the project or award and not some other project
- Allowable, ie conforms to any limitations or exclusions set forth in the award
- Consistent with policies and procedures that apply uniformly to both federally financed and other activities of AvaCon
- Documented adequately with supporting documentation
- Follow generally accepted accounting practices (GAAP)
These tests apply regardless of whether the particular category of costs is one specified in the cost principles or one governed by other terms and conditions of an award. These tests also apply regardless of treatment as a direct cost or an indirect or F&A cost. The fact that a cost requested in a budget is awarded, as requested, does not ensure a determination of allowability.
Cost Transfer Policy
AvaCon allows the transfer of direct costs in order to correctly charge an expense to an account for which it was incurred. Cost transfers must comply with generally accepted accounting principles, and the charges must be appropriate to and for the direct benefit to the sponsored project for which the account is charged.
Cost transfers being made to correct a cost overrun or to utilize unspent funds are not acceptable. Cost transfers will be made within ninety (90) days of when the original charge is posted to the general ledger, with approval by the Director of Administration & Finance. On the rare occasion that a cost transfer is submitted more than 90 days after the expense was posted to the general ledger, it must be approved by the Executive Board. Late cost transfers will only be accepted under extenuating circumstances (see below).
Documentation of cost transfers will be adequately detailed and retained for audit purposes.
It is the responsibility of the grant or contract administrator and the PI to ensure stewardship over federally-funded projects in accordance with federal policies and regulations, including those relating to regular monitoring of expenditures and timely correction of errors and reallocation of expenses. Accounting will process cost transfers within 10 business days of receipt of complete and accurate requests.
Examples of Acceptable Cost Transfers
Typical situations where it may be necessary to transfer a previously recorded expense from one account to another include:
- Transfer pre-award costs from holding account
- Correct clerical error (i.e. transposed numbers)
- Reallocate effort to reflect actual effort performed
- To reflect legitimate and approved re-budgeting as a result of a change from the initial work plan
These types of cost transfers, though they should not be routine, do happen from time to time and should be fairly straightforward to process.
Unacceptable Cost Transfer Practices
Cost transfers cannot be used for the following purposes:
- To shift costs from one account to another to meet budget or funding deficiencies
- To shift costs from one sponsored project to another to avoid sponsor restrictions
- Assigning unnecessary costs at the end of a sponsored project to use up a remaining balance
- Increasing salary expenses on a project when it is not consistent with the actual effort expended
Accounting will review cost transfer requests specifically for these types of unacceptable practices and alert the Director of Administration & Finance of any suspected improprieties or unacceptable cost transfer requests.
Cost Transfer “Red Flags”
The following types of cost transfers may raise a “red flag” and result in increased audit risk to AvaCon:
- Transfers between different sponsored projects
- Transfers older than 90 days after the original transaction
- Transfers in the last month of an award or after an award has expired
- Multiple cost transfers on a single sponsored project
- Grants or contracts with a zero balance at the end of an award
- A cost transfer request of round or even numbers
- Salary cost transfers after a certified labor report has already been completed
- Transfers among “closely related” projects
- Transfers without a full explanation or that use boilerplate explanations
Accounting will review cost transfer requests specifically for these types of “red flag” practices and alert the Director of Administration & Finance of any suspected improprieties or unacceptable cost transfer requests.
Cost Transfer Justification
Requests for a cost transfer must follow the procedure outlined below, and include justification for the transfer that answers the following questions:
- What caused the error?
- How does the expense directly benefit the destination project/account?
- How will the requester correct the cause of the error to ensure that the same error or type of error will not occur again?
In addition, if the request for a cost transfer is received later than 90 days after the original cost was posted to the general ledger, the following additional question must be answered:
- What extraordinary circumstances warrant a cost transfer more than 90 days after the original cost was posted?
Example Language
The following examples demonstrate the format of acceptable justification responses:
- Clerical Error: This expenditure was originally charged to example fund number due to transposition or incorrect choice of fund number. This expenditure has specific benefit to the scope of the destination project name because of fill in specific reason.
- Grant Fund number wasn’t opened by start date: Although the project started on example date, the fund number was not established until new date because a fully executed agreement was received after the start date. This expenditure has specific benefit to the scope of the destination project name because fill in a specific reason.
- Internal Audit: An audit by the departmental accountant or PI revealed an accounting error in charging payroll expenses to the award. The accountant was not notified that this employee was assigned to this research project. Paperwork has been submitted to appoint this employee to the correct fund number.
- Change in Administrative Personnel: A change in the administrative personnel in the department caused a delay in changing payroll records to accurately reflect where the employee was working. Paperwork has been submitted to appoint this employee to the correct fund number.
- New Award Number for Continuation: The sponsor assigned a new award number for the new project period on this grant. This forced AvaCon to establish a new fund number for Year X of the project. This transfer moves the expenses from the old award number to the new award number. Paperwork has been submitted so that future expenditures post correctly to the new fund number.
Procedure
All cost transfers, including salary transfers, should be completed within 90 days of their original transaction date.
The Program Manager, Primary Investigator (PI), or other responsible party must complete a Cost Transfer Request Form and attach all necessary supporting documentation for submission to the Accounting department.
By signing the form, the requestor certifies that the cost to be transferred is an appropriate, allowable, and allocable expenditure for the sponsored project or grant being charged and that the expenditure complies with the terms and restrictions governing that sponsored grant or contract.
[1] Note that effective December 26, 2014, the new Supercircular “Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards” goes into effect.
