Section 16.1.6 - Cost Transfers
Springfield Campus Supplement
Date: May 2006
Approved: Senior Associate Vice President for Business and Finance
Appropriate and diligent administration, including approval of cost transfers helps ensure the University's compliance with federal requirements as defined by the United States Office of Management and Budget (OMB) Circular A-21 and University policies.
Cost transfers to or from sponsored projects should be:
- Initiated promptly, after determination of incorrect posting to the project fund (C-FOAP);
- Supported by documentation justifying the transfer; and
- Approved by the Principal Investigator (PI) or designate for non-current transfers charged to sponsored projects.
Cost Transfer Definition
A cost transfer is a direct charge expenditure transferred from one University fund (C-FOAP) to another after the charge has been posted in Banner. Sponsored project cost transfers include payroll redistributions and journal vouchers.
Regular Monitoring of Expenditures
Sponsored project funds must be reconciled monthly to ensure that expenditures and revenues are within appropriate limits and guidelines. Reconciling sponsored projects funds monthly can prevent potential problems and minimize risks in future audits or for future funding. Detecting and correcting errors early is good business practice.
Regular monitoring of sponsored project funds helps to:
- Ascertain that revenues have been received;
- Confirm the availability of project funds as needed;
- Ensure that costs are consistent with the project schedule and incurred between the start and stop dates of the project;
- Discover errors in the sponsored project budget, encumbrances, or expenditures (for example, data entry error or system-related problem);
- Avoid overspending, which may cause a deficit and limit further spending;
- Provide a high degree of confidence that the project complies with the sponsor's spending terms and conditions;
- Verify that cost transfers and corrections are processed in a timely manner; and
- Maintain a clear audit trail.
Anticipation Grant and Fund Codes
If there is a legitimate need to expend funds for a project prior to the receipt of formal notification of an award from a sponsor, the use of an Anticipation Grant and Fund Code is recommended. An Anticipation Grant and Fund Code can minimize the volume of cost transfers for the project and it is another characteristic of good business practice.
When there is a high degree of certainty that an award will be made, units, at their own risk, may incur costs in anticipation of the award. In this situation, a fund code may be requested from the Office of Business and Financial Services (OBFS), Grants and Contracts Office (GCO) prior to the formal notification by completing a Request to Establish an Anticipation Grant/Fund Form, with the required approvals.
Most federal agencies allow pre-award costs for 90 days prior to the formal starting date of a grant, provided that incurring these costs is in the best interest of the project. Other agencies do not allow costs to be incurred before the project start date regardless of when the formal notification of award is received. Units are responsible for knowing whether pre-award costs are permitted by the sponsoring agency before requesting and/or using an anticipation fund.
Cost Transfer Guidelines
To be acceptable, cost transfers to a sponsored project fund must meet the following criteria:
- The cost must be reasonable, as determined by normal and acceptable University expenditure guidelines.
- Costs must be allocable as a direct charge to the sponsored project according to both sponsor and University policies, and the principles and methods described in OMB A-21.
- Costs must be given consistent treatment through application of Generally Accepted Accounting Principles (GAAP) appropriate to the circumstances as outlined in the Cost Accounting Standards (CAS). This includes the use of account codes for cost classification.
- Costs must adhere to any limitations or exclusions set forth in OMB Circular A-21, the sponsored agreement budget, or the sponsoring agency agreement provisions.
- Adequately describe the purpose of the cost transfer and the reason it is necessary.
- Cost transfer must be necessary to appropriately allocate expenses to a correct fund.
- Cost transfers must occur in a timely manner (for example, in the case of an erroneous charge, costs should be transferred as soon as the error is discovered, but not later than 90 days after the month end in which the expense was incurred).
Allowable Cost Transfers
Cost transfers may be allowable:
- To transfer pre-award costs from departmental holding fund if pre-award costs are approved by the sponsor (use of an anticipation fund may eliminate the need for many cost transfers).
- To correct clerical errors, such as transposition of numbers; however a specific explanation must be provided.
- To reallocate effort to reflect actual effort.
- To reallocate shared services that were previously charged elsewhere (for example, reallocation of charges such as telephone, printing/photocopying, etc.).
- In rare circumstances, to move charges from one sponsored project account to another. In such instances, cost transfers are only allowable with proper justification and approval by the PI.
- To transfer charges related to new, pre-award, or renewal awards.
- To remove sponsor project fund overdrafts to other departmental funds.
- To amend charges posted to wrong fund by service center providers.
- To correct transactions to invalid code combinations involving the fund and/or program.
- To transfer costs for closely related work that is supported by more than one funding source, provided it is a proper charge and the transfer is supported by an explanation.
The documentation for cost transfers must be retained for the period stipulated in the record retention schedule and be made available for verification during the course of an audit or other review.
Unallowable Cost Transfers
Cost transfers are unallowable:
- For the sole purpose of eliminating the overdraft.
- To utilize the entire project budget, even if the actual project expenses were less than the actual budget (in contrast to an amount based on actual usage), unless the project allows a fixed price or other type of approved reimbursement method that does not require tracking of actual charges to the project.
- To assign charges to an award before the cost is incurred.
- To charge an expense exclusively to a single award when the expense clearly has supported other activities or projects.
- To transfer expenses to a project having an unexpended balance for the purpose of reducing overdrafts on other grants or institutional funds, without sponsor approval
- To avoid restrictions imposed by law or by the terms of the agreement.
- For the purpose of utilizing unexpended balances.
- If the expenses are of no or insignificant direct benefit to the grant.
- For reasons of convenience.
Types of Cost Transfers
There are two categories of Cost Transfers: Personnel Expenses and Non-Personnel Expenses. Non-personnel expenses are transferred via Journal Vouchers (JVs). Personnel expenses are transferred via Labor Redistributions (PZAREDS). In each category, there are two types of cost transfers: Current and Non-current transfers.
All cost transfers must meet the minimum requirements stated under each category to be approved. Cost transfers submitted without the minimum required information will be returned to the originator with a request to supply the missing information.
Current Cost Transfers
Definition - Transfer of expenditures recorded in Banner during the current month or the preceding two months.
Non-Personnel transfers - Use Banner Journal Voucher (JV) Form FGAJVCD
Minimum Requirements - Following are the minimum requirements to ensure approval of non-personnel cost transfers.
- Complete the Description field in Journal Voucher (JV) form.
- JV Text Form (FOATEXT) must include:
- Explanation of transaction and reason for initial posting to incorrect C-FOAP and benefit to project;
- Original date of service or transaction;
- Original transaction document number; and
- Preparer's name and telephone number.
Personnel Transfers - Use Banner Form PZAREDS
Minimum Requirements - Although labor redistributions are not routed through an approval queue prior to Banner posting, the following are the minimum requirements to ensure compliance and post-review approval of this type of cost transfer.
- Documentation justifying the transaction must be on file in the department. Labor redistributions will be periodically reviewed by selecting samples and conducting post reviews.
- A documented explanation of the transaction and benefit to project must be included.
- The document date when service was provided or incurred must be included, along with the individual's UIN and Pay Period Code.
- The preparer's name and telephone number must be included.
For both JVs and labor redistributions, if previously confirmed, resubmit an updated semi-annual confirmation to GCO Post-Award.
Non-Current Cost Transfers
Definition - Personnel and non-personnel expenditures or services incurred but not corrected before the cut-off date for current transactions (90 days after the date of the original transaction).
Non-Personnel Cost Transfers
- Minimum requirements for non-current cost transfers are the same as for current transfers.
- FOATEXT must include an explanation for the delay in correcting the transaction within a reasonable amount of time (90 days from initial transaction).
- Cost Transfer Justification form must be signed by the PI and maintained in the department.
- FOATEXT must indicate the completion of the Cost Transfer Justification form.
- Minimum requirements are the same as for current labor redistributions.
- Cost Transfer Justification form must be signed by the PI and maintained in the department.
- If the redistribution is not made within 90 days, additional justification for the cost transfer is required. A justification form explaining why the transfers were not made in a timely manner must be included.
- Documentation justifying the transaction must be maintained in the department. Labor redistributions are periodically reviewed by selecting samples and conducting post-reviews.
Post-Audit of Expenditures
The Grants and Contracts Office periodically post-audits certain categories of expenditures on federal projects for allowability under OMB Circular A-21. At least annually, GCO reviews transactions that charge any cost designated as unallowable or restricted under federal cost principles to a federal project (including projects from other entities that "pass through" federal funds). Unjustifiable transactions are transferred to appropriate departmental funds.
GC81 Cost Transfer Justification for Sponsored Projects Form
Form GC81 - Cost Transfer Justification should be completed for all cost transfers. See the form for instructions or contact the GCO for additional information on the use of the form.
For Additional Information
Questions about cost transfers may be directed to the GCO Post-Award Office at 217-206-7849, or via e-mail to Rebecca Jones.
Please send questions regarding this policy manual to OBFSPolicies@uillinois.edu.
Last Updated: February 21, 2012