IV:04:21 Cost Transfer Guide for Sponsored Programs

I. SCOPE AND PURPOSE

The University is mandated to establish consistent practices for defining and processing cost transfers from institutional accounts to sponsored projects, or between sponsored projects. Cost transfers present an audit risk to the university and the intent of this policy is to assure the integrity of the University's accounting system and internal controls. Additionally, this policy is issued to ensure that all cost transfers are legitimate and conducted in accordance with sponsor terms and conditions, regulations, and University policies.

II. DEFINITION

A cost transfer is a transfer of expenditure to a sponsored project after the expense was initially charged to another sponsored project or institutional account. Cost transfers include reassignments of salaries and benefits, as well as other direct expenses, and associated indirect costs.

III. POLICY STATEMENT

It is the responsibility of the Principal Investigators (PI) to review expenditure activity on all awards regularly to ensure all expenses are directly related to the project and allowable, reasonable, and allocable under the terms of the sponsored agreement. Legitimate errors identified must be communicated to the Office of Research Services (ORS) promptly.

A. "Promptly" means all cost transfers must be prepared and submitted to the Office of Research Services (ORS) within 90 days from the end of the calendar month in which the transaction appears except in cases where the sponsor's (federal or non-federal) terms and conditions are stricter than MTSU's policy. The deadline of 90 days is a standard established in federal regulations and grant policies.

B. Once the award has ended, the 90 day rule does not apply. All charges, including salaries, must be processed within 60 days after the grant or contract end date. In all cases, transfers must be made 30 days prior to the due date of the final financial report to the sponsor. This prevents submission of financial reports that may include inappropriate charges. For clarification of financial report due dates, check with the Accounting Services Grants Office.

C. The 90 day cost transfer time period applies when transferring expenditures TO a federally sponsored grant or contract. No time limit exists for REMOVING expenditure(s) from a federally sponsored grant or contract. If inappropriate expenditures are discovered on federal projects, they must be removed without regard to time limits.

Transfers that are recurring, late, or inadequately explained, particularly on awards with overruns or unexpended balances, raise questions about the propriety of the transfers, and the reliability of the University's accounting system and internal controls. (Appendix A) In consideration of a cost transfer, the following three requirements must also be considered:

1. Is the cost allowable by federal regulations, sponsor terms and conditions, state regulations, MTSU policy, and contractual terms and conditions?

2. Is the transfer reasonable? Does it reflect whether or not the individual concerned acted with due prudence in the circumstances?

3. Is the cost allocable and treated consistently? Does the cost have a direct benefit to the sponsored program being charged, and are like costs in similar instances treated consistently throughout the University?

Transfers of costs to any sponsored project account are allowable only where there is direct benefit to the project account being charged. An overdraft or any direct cost item incurred in the conduct of one sponsored project may not be transferred to another sponsored project account merely for the sake of resolving a deficit or an allowability issue. Cost transfers should not be used as a means of managing awards. (Appendix A, A-21)

IV. BASIC PROCEDURES

Goods and services should be charged or allocated among awards at the time of the original purchase to avoid unnecessary cost transfers. Under NO circumstances should expenditures be placed on a sponsored account for reasons of convenience or funding availability with the intention that they will be removed to the proper account (account/sponsored project that benefited from the expense) at a later date. Such "parking" of costs violates sponsoring agency guidelines and is strictly prohibited. When appropriate, Advance Accounts should be utilized (e.g., pre-award costs).

The PI is expected to make personnel and corresponding payroll distribution determinations before any individual devotes effort to the project. The payroll distribution may be indicated by completion of a Personnel Event Form (PEF) or by notifying ORS at the establishment of the grant index. If the latter occurs, ORS will include the labor distribution on the Grant Notification Form (GNF).

A. All cost transfers must include the following or will be rejected and returned to the department:

1. Cost Transfer Justification Form, completed and signed. Must be attached to a journal voucher for non-salary charges or attached to a MTSU Payroll Redistribution Request Form for salary charges. Links to these forms are available on the ORS website. The justification must address the following questions:

a. An explanation of the error and how it occurred

b. An explanation of why this expense should be transferred to the proposed receiving sponsored project (How does the project benefit?)

c. Measures taken to prevent this situation from happening again

2. Documentation of Original Expense, to include:

a. Indexes affected by the change, date, amount, copies of Banner reports with costs circled, and any other identifying information

b. A description of goods/services for the expense being transferred

The explanation must be sufficient for an independent reviewer (i.e., a federal auditor) to understand the rationale for the transfer and conclude that it is appropriate. According to federal guidelines, "an explanation which merely states that the transfer was made 'to correct error' or 'to transfer to correct project' is not sufficient." (Appendix A, NIH Grants Policy Statement) Thus, any cost transfer documentation containing such an explanation will be returned to the department.

Cost transfers more than 90 days old will NOT be allowed unless there are extenuating circumstances. These cost transfers will be reviewed under scrutiny and require additional justification and approval. If the justification does not meet the extenuating circumstance criteria, the charges would be required to be transferred to an unrestricted or non-sponsored source.

B. Acceptable cost transfer practices include:

1. Correction of errors in a prompt manner and properly documented

2. Transfers between sub-awards of the same sponsored project

3. Disallowed costs not limited by a time period

4. Clearing deficits during the closeout process

V. AUDIT ISSUES

Consequences if a Cost Transfer does not meet Government Requirements:

As required by federal regulations, auditors conduct extensive reviews of federal grant and contract expenditures, which include detailed evaluations of cost transfers. In the event that a cost transfer does not meet the government requirements, the dollar amount of the transfer will be disallowed and the area responsible for the project will be required to reimburse the project for the amount of the disallowed cost transfer.

Some types of cost transfer practices are unacceptable and particularly suspect in an audit:

A. Transferring to a federal project nearing its termination to "use up" or "spend down" unspent funds, thereby giving the appearance of utilizing funds inappropriately;

B. Payroll transfers that are recorded in the accounting system but not corrected on the effort certification;

C. Transfers between federal projects that clear an overrun on one of the projects;

D. Transferring charges to projects without establishing that the charges accurately reflect the relative benefit to that project during the specified time period (inadequate documentation); or

E. For other reasons of convenience.

All cost transfers must be signed by the PI, who certifies to the following:

"By signing above I certify that the cost transferred is an appropriate expenditure for the sponsored grant/contract being charged and the expenditure complies with the terms and restrictions governing that sponsored grant or contract."

The Office of Research Services (ORS) reserves the right to reject any cost transfer for lack of documentation and/or proper authorization.

VI. SAMPLE DOCUMENTATION

Below are several examples of cost transfer documentation which do not meet the requirements described above, a description of the improvements needed in the documentation, and a suggestion as to how the description could be improved to meet the requirements. Any cost transfer should be so detailed that a person completely removed from the situation (such as an auditor) will be able to look at the request five years from now and know why the entry was made.

A. Questionable explanation: Transfer of supplies that were charged to the department in error.

Issue: This explanation does not adequately explain why the wrong index was charged and why/how the charge is appropriate to the project being debited, nor does it describe how the error occurred. The explanation should be expanded to better describe the reason why the project being charged is appropriate and how the amount being transferred was determined.

Acceptable explanation: The supplies being transferred were purchased via P-Card. The administrative assistant did not review the P-Card transactions by the deadline, which caused the transactions to post to the default P-Card index, which is our departmental account. Going forward, the administrative assistant will review all P-Card purchases and assign the correct index number, if applicable, to be charged before the deadline.

B. Questionable explanation: Transfer overage to related project.

Issue: The transfer of overages from one project to another is not permitted. If expenses are being moved between two interrelated projects, the cost transfer description should clearly identify which costs are to be shared, the proportions in which the projects will share the costs, and a clear indication of how the amount to be shared was determined.

Acceptable explanation: The supplies to be transferred are used on related projects. Supplies should be shared equally on both projects, thus 50% of the cost of the highlighted items is being transferred.

C. Questionable explanation: To correct index incorrectly charged due to clerical error.

Issue: Insufficient explanation of why and how the clerical error occurred, and why the error was not caught earlier. In general, this explanation is only adequate if a transposition error occurred, and such circumstances should be included in the description.

Acceptable explanation: The research assistant in the lab who ordered the supplies used an index number of a project which was terminated. He has been instructed to use the new index number. In the future, all supply orders will be reviewed and approved by myself or other administrator prior to submission of the order so that such errors can be prevented.

D. Questionable explanation: To charge a portion of a lab technician's salary to the project.

Issue: The reason for the transfer is missing, and there is no indication of why the PEF or timesheet was incorrectly submitted at the time the charge was generated. The description should be expanded to include a description of the individuals' role on the project, the portion of his/her salary being moved, and how the portion of salary being moved was determined.

Acceptable explanation: Transfer 50% of the lab technician's salary to Dr. Smith's project. This individual performed experiments with mice and split his time equally between Dr. Smith's NIH project and NSF project. When the timesheet was completed, neither the lab technician nor the approver of the timesheet was aware that the experiments being conducted related to the additional project. We have talked with the lab technician and Dr. Smith to ensure that more information about the experiments is shared to better ensure that such errors do not occur in the future.

E. Questionable explanation: PEF was not processed in time.

Issue: The explanation does not adequately address why the PEF was not processed in time. The description should be expanded to better explain the circumstances of the delay in processing the PEF and the specific plan to avoid such occurrences in the future.

Acceptable explanation: The administrator was informed of a faculty member's effort distribution change after HR deadline for PEFs for January payroll. The faculty member has been requested to communicate changes in effort in a timelier manner in the future in order to avoid such circumstances.

F. Questionable explanation: Move charge from department.

Issue: The reason for the transfer is not stated. The description should be expanded to explain how the charge benefits the grant being charged and why the charge was not originally posted to the grant.

Acceptable explanation: The start date of the grant is December 1. However, the grant index was not established in the accounting system until January 15. The PI needed to purchase some materials to begin work on the project in December, thus they were charged to the department until the grant index was established.

G. Questionable explanation: To charge 10.58% of Dr. Wilson's salary to the research grant and close grant project.

Issue: Actual effort is to be estimated as closely as is reasonably possible. The use of very precise estimations is only allowable to the extent that the individual's effort can be confirmed with such precision. The effort distribution should reflect the actual amount of effort spent on the grant, even if it causes the grant to be overspent (for which the overspent amount would then be cost shared) or causes the grant to be under spent (in which case the unspent funds would be handled as required by the award).

Acceptable explanation: Dr. Wilson worked 15% of his time in January on this grant project, which ended January 31. The grant is currently in deficit due to a salary increase in October. Please cost share 50% of January's salary and fringe benefits and use the department budget to fund the cost share portion.

APPENDIX A 

Revisions: May 24, 2013 (original).