Introduction
A cost transfer is a reassignment (transfer) of charges within or between cost centers, internal orders, or WBS elements. Cost transfers are used to bill interdepartmental costs, to adjust billing errors, or for other reasons associated with the department’s regular financial operations. When cost transfers to move expenses involve sponsored projects, it is critical that the transfer meet the rules for allowability, allocability, reasonableness, and consistency.
A journal voucher is the SAP document used to process a cost transfer. Although costs should always be charged to the correct WBS cost object when they are incurred, cost transfers are sometimes necessary.
When Are Cost Transfers Allowed?
MIT allows cost transfers involving sponsored projects only in special circumstances, including: error correction, 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, or transfer of retroactive expenses (including pre-award costs) on a project necessitated by a delay in finalizing contract negotiation.
Any time you initiate a transfer, you invite the 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 and of the justification for moving those charges.
If a project has an overrun, there is a presumption that any proposed cost transfer is to alleviate the overrun, and it would not be allowed to another Sponsored Account - the barrier against this is very high. If you encounter this situation, please 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
- Fully Documented
Cost transfers must contain a justification that clearly shows:
- 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
A good justification will allow anyone reviewing the cost transfer to understand how the expense benefits the receiving sponsored project.
It should answer: who, what, where, when, and why? It should be easily understood by anyone reviewing the journal voucher (think: “If I leave, will an auditor be able to understand this two years from now?”). It may include documentation to support the justification. Some examples of documentation are:
- Allocation methodology
- An invoice or packing slip
- Notes on an expenditure statement, “per PI …”
- Supported by appropriate approvals
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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.
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Inadequate
Laboratory A purchased $600 in laboratory supplies in June 2014. They processed a journal voucher in October 2014 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?
In Summary
- Any time a transfer is initiated, the assumption is that the transaction was not handled properly initially. If expenses are being transferred to a sponsored project WBS element, there will be considerable scrutiny of the reasons for the transfer and of the justification for moving those charges.
- Frequent and poorly documented cost transfers may indicate problems in the management of research.
- Federal auditors more closely scrutinize the allowability, allocability, and reasonableness of cost transfers.
- Federal research sponsors are giving increased attention to the reason behind cost transfers from and to sponsored projects.
- There is a significantly increased audit risk for cost transfers made beyond the approved guideline.
- Any systemic problems that might cause this problem to be repeated have been addressed