Cost Transfers

cost transfer is a transfer of charges within or between cost centers, internal orders, or WBS elements. Although costs should always be charged to the correct WBS cost object when they are incurred, cost transfers are sometimes needed (for example, to bill interdepartmental costs or adjust billing errors). 

When cost transfers involve sponsored projects, the transfer must meet the rules for allowability, allocability, reasonableness, and consistency as required by federal regulation and will fall under increased scrutiny. 

Processing a Cost Transfer

To process a cost transfer, use a journal voucher. Review VPF guidance on journal vouchers that include a WBS sponsored cost object for guidelines and specific procedures.

When Are Cost Transfers Allowed?

A retroactive transfer invites an assumption that the initial transaction was not handled properly. If expenses are being transferred to a sponsored project, there will be considerable scrutiny of the reasons for the transfer.

MIT allows cost transfers involving sponsored projects only in special circumstances, including:

  • Error correction (any systemic problems contributing to the initial error must be addressed)
  • Transfers between cost objects of the same sponsored project (e.g., child to child, parent to child, child to parent)
  • Costs benefiting more than one sponsored project
  • Transfer of retroactive expenses (including pre-award costs) on a project necessitated by a delay in finalizing contract negotiation

Project Overrun

Avoid cost transfers from projects with overrun, since there is a presumption any proposed cost transfer is to alleviate the overrun. If you encounter overruns, contact your RAS representative for guidance. To bring the project into balance, a funding entry must be made, using the “record project overrun” GL account, 420314.

Criteria for Cost Transfers

Cost transfers must be: 

  • In conformance with Institute and sponsor policies: Allowable, allocable, reasonable, and consistent.
  • Timely
    • Cost transfers should be prepared and submitted as soon as the need for a transfer is identified, but no later than 90 days after the posting is made and/or within 30 days of the project end date, whichever comes first
    • Cost transfers exceeding this time frame will require additional documentation as to why the transfer request was not made on a timely basis
  • Supported by appropriate approvals
  • Fully documented:
    • Shows how the expense benefits the receiving sponsored project
    • Answers who, what, where, when and why
    • Is easily understood by any reviewer (think: “If I leave, will an auditor be able to understand this two years from now?”)
    • May include supporting documentation, such as: 
      • Benefit to the receiving project
      • Allowability and allocability to the new sponsored project
      • Reason for transfer
      • Systemic causes are corrected so they will not recur
      • The reason for any delay in the timely processing of the transfer if the transfer date exceeds the definition of timely, above.
      • It was reviewed by a knowledgeable person such as the PI
      • Allocation methodology
      • An invoice or packing slip
      • Notes on an expenditure statement, “per PI …”
  • Inadequate

    “To allocate chemicals from department cost object to the appropriate WBS.”

    Adequate

    “Department X used a department general cost object to collect all department chemical charges. All charges to sponsored projects were proposed and approved consistent with MIT and sponsor policy and included in the proposal budget . Documentation, including allocation methodology, is in departmental files.”

    Reason:

    The inadequate justification does not address the questions of whether or not the chemical charges are allowable and allocable to the WBS to which they are being charged through the cost transfer. The adequate justification states that the department is aware of the documentation requirements for these charges, attests that all requirements have been met, and states where the documentation records may be found. The length of a justification is irrelevant. A justification must include the pertinent facts, be succinct, and be easily understood by anyone who may read it now and in the future.

  • Inadequate

    Laboratory A purchased $600 in laboratory supplies in June 2023. They processed a journal voucher in October 2023 for the supplies, stating in the remarks, “per a conversation with the PI, it was determined that these expenses were charged to an old cost object in error. This journal entry is to transfer that expense to an appropriate WBS for a different project.”

    This journal entry would not be accepted as adequate documentation for this transfer for the following reason:

    Based on the information provided, it is unclear how to evaluate the appropriateness of the transaction. The types of questions raised by auditors include:

    • How did the PI know that those supplies benefited the other project?
    • Did he or she review an expenditure statement or a project budget?
    • Why was this error not identified in a timely manner?

Updated May 5, 2024