Basis for Policy
External sponsors expect 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.
The Federal government has established policies, concerning the assignment of costs to federally sponsored agreements, in 2 CFR 200, Section E and within specific agency policies on cost transfers.
To comply with cost allowability and allocability requirements of 2 CFR 200, Section E, it is necessary to explain and justify transfers of charges onto federal awards from other federal accounts, non federal accounts or University accounts. Timeliness and completeness of explanation of transfer are important factors in supporting allowability and allocability in accordance with the principles of the Circular.
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.
To comply with the policy of NIH, our largest source of federal research funding, and the requirements of other federal and non-federal sponsors, the following policy and accompanying guidance sets forth the procedures and approval necessary for the processing of cost transfers at The University of Iowa.
Each department is responsible for complying with and enforcing the following policies and procedures. Any penalties, disallowance, or losses of funding caused by non-compliance with this policy will be assessed against the department in violation of the policy.
It is expected that the Principal Investigator (PI) or their delegate will review the fiscal status of their sponsored project accounts regularly (monthly review is recommended) and promptly correct expense transactions that are incorrectly recorded. Departmental personnel are responsible for preparing and submitting the cost transfer with the knowledge and approval of the PI.
The University recognizes that transfers of costs from one sponsored project account to another are occasionally necessary to correct bookkeeping or clerical errors in the original charges. The University also recognizes that closely related work may be supported by more than one funding source and that in such cases a transfer of costs from one funding source to another may be proper. However, frequent, delayed, or unexplained cost transfers, particularly when they involve projects with cost overruns or unexpended fund balances, raise serious questions about the propriety of the transfers themselves as well as the overall reliability of the University’s accounting system and internal controls.
When the need for a cost transfer to a sponsored project account (fund 500 or 510) arises, the Cost Transfer Explanation and Justification Request form must be completed and certified by the PI or their delegate. The explanation for the cost transfer must be clearly stated and must be 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.”
Cost transfers should be accomplished within 90 days of the effective date of the original entry. The 90-day time limitation applies when transferring expenses on to a sponsored project account. If a particular sponsor policy on cost transfers is more restrictive than 90 days, the more restrictive policy will apply. No time limit exists for removing expenditures from a sponsored project account. If inappropriate expenditures are discovered on sponsored projects, they must be moved to a non-sponsored departmental account without regard to time limits.
Cost transfers that are made only for the intention of spending down sponsored project funds or as a matter of convenience are not allowed. Expenses transferred on to a sponsored project account are very prone to audit and must be clearly supportable. Transferring costs because of a deficit or other reasons of convenience is not appropriate. Any shared costs should be pro-rated among the applicable accounts at the time the costs are incurred to the maximum extent possible. Charging costs to one sponsored project with the intention of repaying that sponsored project when an award is received is also not appropriate.