The need for a cost transfer to a sponsored project account (fund 500 or 510) arises, the Cost Transfer Explanation and Justification Request form, either the Payroll and Fringe form or the Non-Personnel form must be completed.  The explanation for the cost transfer must be clearly stated and sufficient for an independent reviewer (i.e. an auditor) to understand the transfer and conclude that it is appropriate.  According to Federal regulations, “An explanation which merely states that the transfer was made ‘to correct an error’ or ‘to transfer to correct project’ is not sufficient.” 

The following are the questions included on the Cost Transfer Explanation and Justification Request form along with a brief description of what should be included in the response to the question.

Note: Question 1 & 2 are always required.  Question 3 & 4 are required when the cost transfer is not completed within 90 days of the original transaction. 

Question 1: Why was this expense originally charged to the account from which it is now being transferred (in other words, explain the error or circumstance for originally charging the incorrect account)?

The response should explain why the cost was originally charged to the wrong account.  For example, this may have been the result of a keying error or misinterpretation of instruction. 

Question 2: Why should this charge be transferred to the proposed sponsored research project account (in other words, provide an explanation as to how this expense benefits the project)?

The response should describe why the particular cost is necessary for the sponsored project.  For example, explain what item, service or faculty/staff time is specifically necessary for the project.

Question 3: Why is this cost transfer being requested more than 90 days after the original transaction?

The response should indicate why it took more than 90 days to determine that a cost transfer was necessary. 

Question 4: How will you prevent this type of error from happening in the future?

The response should describe how processes and procedures will be modified in the department to prevent a similar cost transfer in the future.

Listed below are some examples of cost transfer responses that do not meet the requirements described in the University’s Cost Transfer Policy & Guidelines, a description of the improvements needed in the documentation, and a suggestion as to how the response might be improved to meet the requirements:

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

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

Acceptable explanation: The supplies being transferred were purchased using a procurement card (p-card).  The administrative assistant did not review the p-card transactions by the deadline, causing the transactions to be expensed to the department account.  Going forward, the administrative assistant will review all p-card purchases and assign the correct account number, if applicable, to be charged prior to the deadline.

Questionable explanation: Transfer of overage to related project.

Issue: This explanation seems to indicate that a deficit is being moved from one grant to another, which is prohibited.  Costs should be allocated according to the benefit to the project.   Costs that are incurred on related projects should be pro-rated at the time the costs are incurred.  Charging costs to one sponsored project with the intention of repaying another sponsored project is not appropriate. 

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 these items is being transferred.

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

Issue: Insufficient explanation of why and how the clerical error occurred and why the error was not corrected 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 account number of a project that was terminated.  He has been instructed to use the new account number.  In the future, all supply orders will be reviewed and approved by an appropriate department administrator prior to submission of the order so that errors can be prevented.

Questionable explanation: Change of Status form was not processed in time.

Issue: The explanation does not adequately address why the Change of Status form was not processed in time.  The description should be expanded to better explain the circumstances of the delay in processing the appointment 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 the deadline for payroll appointments for the January payroll.  The faculty member has been requested to communicate changed in effort in a timelier manner in the future in order to avoid such circumstances.

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

Issue: The reason for the transfer is missing and there is no indication of why the payroll appointment was incorrectly made at the time the charge was generated.  The description should be expanded to include a description of the individual’s role on the project, the portion of salary being moved, and how the portion of the salary was determined.

Acceptable explanation: Transfer 50% of the lab technician’s salary to Dr. X’s project.  This individual performed experiments with mice and split his time equally between Dr. X’s NIH project and his NSF project.  We have talked with the lab technician and Dr. X to ensure that more information about the projects is shared in the future, which will better ensure that no such errors will occur in the future.

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 was December 1.  However, the account number 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 the costs for materials were charged to the department until the account was established.  In the future, we will request an advance account for such charges.

Questionable explanation: To charge 10.58% of Dr. Z’s salary to the research grant and close the account.

Issue: Actual effort is to be estimated as closed 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.  Increasing payroll for the sole purpose of expending project funds is not an appropriate or allowable use of sponsored project funds.

Acceptable explanation:  Dr. Z worked 10% of her time in January on the grant project.  The payroll transfer is being made to transfer this effort.

See the Cost Transfer Policy & Guidelines or Cost Transfer FAQs for more information.

Last Updated: 11/29/10