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Cost Transfer Policy

Policy Number: CO.RAS.01.02
Effective Date: April 1, 2016
Responsible Officer: Executive Vice President, Treasurer and Chief Operating Officer

  1. PURPOSE
  2. The University has a stewardship responsibility for all externally sponsored funds. Proper management of sponsored project expenditures is essential to meet this obligation. Therefore, the following policy and procedures will be consistently applied to all sponsored project agreements.

    The University recognizes that cost transfers are sometimes necessary to correct bookkeeping or clerical errors in the original charges and to allocate closely related work that may support more than one project. Frequent, late, and inadequately explained transfers, especially those involving projects with cost overruns or unexpended balances, raise serious questions about the propriety of the transfers and call internal fiduciary controls into question. This may result in audit disallowances and monetary paybacks including penalties and fines.

    Auditors and sponsors will flag as suspicious cost transfers with the following characteristics:

    1. Non-salary costs transferred long after the original charges were recorded.
    2. Salary costs transferred long after the effort report associated with the salary was released.
    3. Transfers supported by inadequate documentation or justification.
    4. Transfers made at the end of a project that relieve cost overruns or spend out a project.
  3. APPLICABILITY
  4. This policy applies to all Drexel University Faculty, Professional Staff Members, including those affiliated with a collective bargaining unit that manage expenditures on externally sponsored projects.

  5. IMPLEMENTATION
  6. The implementation of this policy is the responsibility of the Office of the Comptroller.

  7. ADMINISTRATIVE OVERSIGHT
  8. The Executive Vice President, Treasurer and COO is the Drexel University official responsible for the administration of this policy.

  9. DEFINITIONS
  10. Original Charge: The first posting of an expense to the general ledger, initiated by payroll charges, payment of invoices against purchase orders, check requests, P-card purchases, travel and business expense reimbursement or any other mechanism of payment that can be charged to sponsored project related fund.

    Non-Salary Cost Transfer: A transfer of the original, non-salary expense to another fund (sponsored project or non-sponsored project related). Non-Salary cost transfers will automatically generate corresponding entries to remove any indirect costs associated with the original transaction, where applicable.

    Salary Cost Transfer: A transfer of the original salary expense to another fund (sponsored project or non-sponsored project related). Salary cost transfers automatically generate corresponding entries to reclassify fringe benefits and indirect costs, where applicable.

  11. POLICY STATEMENT
  12. Original charges, salary and non-salary, should be charged to the appropriate benefiting sponsored project. If it is necessary to request a cost transfer that involves a sponsored project, requests should be made promptly and contain sufficient documentation and justification to support the cost transfer that would stand the test of a formal audit.

    Under no circumstances may expenses that benefit one sponsored project be charged temporarily to another sponsored project. Sponsored project expenses that may not be charged to the appropriate project for any reason: 1) may be charged to an advance account, or 2) may be charged to a non-sponsored cost center and transferred to the appropriate sponsored project at the earliest opportunity. Failure to adhere to this policy will result in improper financial reporting and inappropriate reimbursement from the sponsor.

  13. PROCEDURE
  14. The Principal Investigator (PI) and/or Department Administrator should review expenditure activity regularly for allowability under the terms of a sponsored agreement. Allowable costs are defined in the Federal Uniform Guidance, in the sponsor's published guidelines, and in the sponsored agreement itself.

    If it is determined that a transaction has been charged to a sponsored project in error, the PI or Department Administrator should submit a journal entry/cost transfer to Research Accounting Services (RAS) for review for non-salary expenditures using the journal entry workflow and/or submit an electronic labor redistribution for salary expenditures. All transfer requests must contain sufficient documentation and explain why the error was made and why this expenditure is appropriate for the project. It is unacceptable to transfer expenses solely based on budget availability.

    The allowability of cost transfers is dependent upon the following factors:

    Timeliness

    Non-salary cost transfers must be processed within 90 days of the date of the original transaction. Requests to transfer expenditures to a sponsored project after this time will be subject to additional verification and documentation. The journal entry workflow is the preferred method of submission of all journal entries to Research Accounting Services.

    Salary cost transfers must be processed by the either (1) 90 days from the end of the quarterly effort reporting period or (2) within 60 days following the end of the award, whichever allows for the earliest resolution of the transfer. Principal Investigators must monitor salaries to be sure the effort is allowable and reasonable and falls within the sponsored project period. The PI should establish salary charges proactively. (See Effort Reporting Policy for details on effort certification.)

    Retroactive salary transfer requests must be thoroughly documented. Salary charges must be removed from a sponsored project as soon as the error is discovered. However, a salary charge that is older than 90 days will not be moved to a sponsored project without sufficient explanation and documentation to address the late change and the reason for the change. Proposed salary changes that are older than 90 days are reviewed and approved by the Associate Vice President and Comptroller. Salary reallocations must be completed using the Banner Self-Service Labor Redistribution module.

    Appropriate Circumstances

    Federal Uniform Guidance and the University's Costing Policy Spending Guidance for Sponsored Projects, specify that "direct costs are those costs that can be identified specifically with a particular sponsored project…or that can be directly assigned to such (a project) with a high degree of accuracy." Typically, cost transfers are appropriate when the purpose is to correct posting or bookkeeping errors in the original charges, or to reallocate shared costs among cost centers.

    Justification and Documentation Requirements

    All cost transfer requests must be supported by a written justification and signed by the PI or an individual who has been given expenditure approval authority on the award by the PI. The reason for each cost transfer must be clearly explained with supporting documentation. RAS has primary responsibility for approving cost transfers and maintaining the related records. RAS may request copies of additional supporting documentation if questions arise during review.

    Cost Transfer Request Documentation Requirements and Examples

    All non-salary cost transfers involving a sponsored project are subject to the following documentation requirements. The cost transfer/journal entry that is submitted to RAS must contain:

    • An explanation of the reason the original charge was not made to the appropriate cost center.
    • A justification for why this charge is appropriate for the project.
    • An explanation for the lateness of the request, if the request is made more than 90 days after the original charge posted.
    • The signature of the PI or an individual who has been given expenditure approval authority on the award by the PI.

    One journal entry/cost transfer may be submitted to document several transfers and if the circumstances surrounding them are identical.

    All salary transfer requests will use the Banner Labor Redistribution system. Salary cost transfers should contain an appropriate justification in the comment of the labor redistribution. Please also note that, unlike non-salary cost transfers, salary cost transfers must be processed by the earlier of 90 days of the release of the effort report associated with the salary or within 60 days following the end of the award. Principal Investigators are required to approve all salary transactions for employees with labor allocated to their projects. The Banner ePAFs system should be utilized for prospective labor changes.

    If an expense benefits two or more projects or activities in proportions that cannot be easily determined because of the interrelationship of the work involved, the cost may be allocated to projects on any reasonable basis, provided that the allocation procedure (1) meets the standards of the sponsor and Federal Uniform Guidance, (2) is fully and clearly documented, and (3) is auditable by means of supporting documentation substantiating the allocation (e.g. usage log for an equipment maintenance contract).

    Expenses must be reallocated for reasons other than covering an over-expenditure or under-expenditure and must fall within the 90-day rule. The costs must be allowable and should be allocated to the projects based on the proportional benefit of the cost to the project (See Costing Policy Spending Guidance for Sponsored Projects).

    Examples of Acceptable and Unacceptable Cost Transfers

    Usually acceptable transfers requiring little justification include:

    • Transfers with written approval from the sponsor
    • Transfers between linked funds
    • Typing error in entering the fund number

    Unacceptable stand-alone explanations include:

    • To correct coding
    • To transfer expense
    • Should be charged to grant
    • To correct an error
    • To correct charge to wrong fund
    • To correct salary distribution
    • Administrative error or oversight
    • Change made on operating budget
    • Charged to another fund to expedite order
    • Late because principal investigator was out of town

    Questionable transfers that will raise an audit flag:

    • Transferring expenses from an overspent sponsored project
    • Transfers to spend out a project
    • Transfer of an expense that was previously transferred

    Unallowable transfers:

    • Moving money from one project to another
    • Transfer to a project of expenses incurred after the project end date
    • Transfers which do not explain why the error occurred and how the expense is appropriate to the project to which it is being moved

    Examples of transfers that do not need detailed explanations:

    • Transfers to correct a data entry or transposition error. The explanation should identify the transposition error and the correcting entry.
    • Transfers of expenditures from a prior year cost center to the continuation center. (Continuation is defined as the same project that has the same agency award number.)
    • Transfers from a departmental core cost center used as a "master" account for certain purchases. (i.e. a single cost center set up with an outside vendor to allow for direct billing through Accounts Payable or a University-approved recharge center). A log that fully substantiates the transfer must accompany the journal. Transfers not meeting the above criteria will be rejected and returned to the department with the reason for the rejection, even if such costs were expected as part of the project closeout.
  15. POLICY IMPLEMENTATION
  16. The Executive Vice President, COO and Treasurer administers this policy, ensuring it remains consistent with federal regulations.

  17. EFFECTIVE DATE
  18. This policy on Cost Transfer is retroactive to April 1, 2016.