Project sponsors expect the grantee institution (Ohio University) to establish and maintain adequate financial management practices and policies so that costs are appropriately charged at the time incurred and significant adjustments are not generally required.
The federal government has established policies concerning the assignment of costs to federally sponsored agreements, including the general government policies outlined in the Uniform Guidance as well as federal and nonfederal agency-specific policy requirements.
To comply with the cost allowability and allocability requirements outlined in the Uniform Guidance (200.400 - Subpart E - Cost Principles) , the institution must be able to explain and justify all charges transferred onto federal awards, whether the costs are transferred from some other federal account, a non-federal account, or a University account. Any necessary cost transfers should be completed in a timely manner (which for Ohio University is sixty (60) days from the post date in the financial system) and with a complete explanation, as these are, per the principles outlined in the Uniform Guidance (200.400 - Subpart E - Cost Principles) (link is external) , critical factors in supporting allowability and allocability.
So, what does allowability and allocability mean as it relates to cost transfers? A cost may be charged to a sponsored agreement only if it meets the following criteria:
- Reasonable - Project costs may be considered reasonable if the nature and amount of the goods or services acquired or applied reflect a prudent person's decision under similar circumstances to incur such costs. (See 2 CFR 200.404)
- Allocable
- Costs must be specific to the project and the proportionate benefit of the cost can be allocated to the project relatively easily with a high degree of accuracy.
- Costs must advance, benefit, or be necessary for the sponsored agreement. Allocable costs are expenses which may be assigned or charged to one or more sponsored project cost objectives, in accordance with the relative benefits received or other equitable relationship. (See 2 CFR 200.405.)
In addition, Federal guidelines specifically require consistency to ensure that the same types of costs are not charged to grants as both direct (project specific) and F&A costs (general use items routinely purchased/provided by the University). This requirement ensures that the federal sponsor is not paying twice for the same costs in like circumstances. (See 2 CFR 200.403). For example, bulk supplies can’t be charged to a single award If being used on multiple awards. They must be prorated to each award where the actual supply is being used.
Things to keep in mind as it relates to cost transfers:
- The principal investigator and their department are responsible for completing cost transfers in a timely manner once an expenditure has been incurred. It is recommended that transactions charged to grant accounts be reviewed on a monthly basis so that incorrectly recorded expenses are promptly corrected.
- Grants Accounting 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.
- 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.
- When transferring expenses to a sponsored project account, cost transfers should be accomplished within 60 days of the GL Original Transaction Date or a Grants Expenditure Item Date in the financial system. If a particular sponsor's cost-transfers policy is more restrictive than 60 days, the more restrictive policy will apply. No time limit exists for removing expenditures from a sponsored project account. If unallowed expenditures are discovered on sponsored project accounts, they must be moved to a non-sponsored departmental account.
- 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 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.
- If a cost transfer exceeds the 60 day requirement, it may be denied by Grants Accounting.
Questions? Please contact Grants Accounting at finance.grants@ohio.edu