Approved by President
Effective Date: June 5, 2017
Responsible Division: Business and Finance
Responsible Office:  Business and Finance
Responsible Officer:  Associate Vice President, Business and Finance

I. Purpose and Scope

Middle Tennessee State University (MTSU or University) is mandated to establish consistent practices for defining and processing cost transfers from University accounts to sponsored projects, or between sponsored projects. Cost transfers present an audit risk to the University and the intent of this policy is to assure the integrity of the University’s accounting system and internal controls. Additionally, this policy is issued to ensure that all cost transfers are legitimate and conducted in accordance with awarding agency terms and conditions, regulations, and University policies. 

II. Definition

Cost transfer. A transfer of expenditure to a sponsored project after the expense was initially charged to another sponsored project or institutional account. Cost transfers include reassignments of salaries and benefits, as well as other direct expenses, and associated indirect costs.

III. Policy Statement

It is the responsibility of Principal Investigators and Project Directors (PI) to review financial activity on their awards regularly to ensure all expenses are directly related to the project and allowable, allocable, and reasonable under the terms of the sponsored agreement. Financial review should be conducted periodically and at intervals sufficiently frequent to ensure that any cost transfers can be processed within the ninety (90)-day deadline established by this policy. Potential errors must be communicated to the Office of Research Services (ORS), when the errors are discovered.

A.  All cost transfers must be prepared and submitted for review and approval to ORS. ORS Award Management can assist in preparing cost transfer requests. 

B.  Cost transfer requests and all required documentation must be received by Accounting Services Grant Accounting from ORS within ninety (90) days from the original transaction date, except when the sponsor’s (federal or non-federal) terms and conditions are stricter than MTSU’s policy. The deadline of ninety (90) days is the standard established in federal regulations and grant policies. 

C.  The ninety (90)-day cost transfer time period applies when transferring expenditures to a federally sponsored grant or contract. No time limit exists for removing expenditure(s) from a federally sponsored grant or contract. If inappropriate expenditures are discovered on federal projects, they must be removed without regard to time limits.

Transfers that are recurring, late, or inadequately explained, particularly on awards with overruns or unexpended balances, raise questions about the propriety of the transfers, and the reliability of the University’s accounting system and internal controls. See Section VI. of this policy. 

Additionally, a cost transfer will be approved only if the cost to be transferred is:

1.  Allowable pursuant to federal requirements, sponsor terms and conditions, state regulations, MTSU policy, and award-specific terms and conditions.

2.  Directly allocable to, and necessary for, the fulfillment of the purposes of the award.

3.  Reasonable in that any prudent person would pay the same in a similar circumstance.

4.  Treated consistently across the University as direct expense, versus an indirect cost.

Transfers of costs to any sponsored project account are allowable only where there is direct benefit to the project account being charged. An overdraft or any direct cost item incurred in the conduct of a sponsored project may not be transferred to another sponsored project account merely for the sake of resolving a deficit or an allowability issue.  Cost transfers should not be used as a means of managing awards.  

IV. Basic Procedures

Goods and services should be charged or allocated correctly among awards at the time of the original purchase to avoid unnecessary cost transfers. Under no circumstances should expenditures be placed on a sponsored account for reasons of convenience or funding availability with the intention that they will be removed to the proper account (account/sponsored project that benefited from the expense) at a later date. Such parking of costs violates sponsoring agency guidelines and is strictly prohibited. When appropriate, Advance Accounts should be utilized (i.e., pre-award costs).

The PI is expected to make personnel and corresponding payroll distribution determinations before any individual devotes effort to the project. The payroll distribution may be indicated by completion of a Personnel Event Form (PEF) or by notifying ORS at the establishment of the grant index. If the latter occurs, ORS will include the labor distribution on the Grant Notification Form (GNF).

A.  All cost transfers must include the following, or will be rejected and returned to the department:

1.  Cost Transfer Justification Form, completed and signed. Must be attached to a journal voucher for non-salary charges or attached to a Redistribution Request Form for salary charges. The justification must address the following questions:

a.  An explanation of the error and how it occurred;

b.  An explanation of why this expense should be transferred to the proposed receiving sponsored project (How does the project benefit?); and,

c.  Measures taken to prevent this situation from happening again.

2.  Documentation of original expense, to include:

a.  Indexes affected by the change, date, amount, copies of enterprise resource planning system reports with costs circled, and any other identifying information; and,

b.  A description of goods/services for the expense being transferred.

The explanation must be sufficient for an independent reviewer (i.e., a federal auditor) to understand the rationale for the transfer and conclude that it is appropriate. According to federal guidelines, an explanation which merely states that the transfer was made ‘to correct error’ or ‘to transfer to correct project’ is not sufficient. Thus, any cost transfer documentation containing such an explanation will be returned to the department.

Cost transfers more than ninety (90) days old will not be allowed, unless there are extenuating circumstances. These cost transfers will be reviewed under scrutiny and require additional justification and approval. If the justification does not meet the extenuating circumstance criteria, the charges would be required to be transferred to an unrestricted or non-sponsored source.

B.  Acceptable cost transfer practices include:

1.  Correction of errors in a prompt manner and properly documented;

2.  Transfers between sub-awards of the same sponsored project;

3.  Disallowed costs not limited by a time period; or,

4.  Transferring erroneous charges discovered during the closeout process.

V. Audit Issues

Consequences if a cost transfer does not meet government requirements: As required by federal regulations, auditors conduct extensive reviews of federal grant and contract expenditures which include detailed evaluations of cost transfers. In the event that a cost transfer does not meet the government requirements, the dollar amount of the transfer will be disallowed and the area responsible for the project will be required to reimburse the project for the amount of the disallowed cost transfer.

Some types of cost transfer practices are unacceptable and particularly suspect in an audit:

A.  Transferring to a federal project nearing its termination to use up or spend down unspent funds, thereby giving the appearance of utilizing funds inappropriately;

B.  Payroll transfers that are recorded in the accounting system but not corrected on the effort certification;

C.  Transfers between federal projects that clear an overrun on one of the projects;

D.  Transferring charges to projects without establishing that the charges accurately reflect the relative benefit to that project during the specified time period (inadequate documentation); or,

E.  For other reasons of convenience.

All cost transfers must be signed by the PI, who certifies to the following: “By signing above I certify that the cost transferred is an appropriate expenditure for the sponsored grant/contract being charged and the expenditure complies with the terms and restrictions governing that sponsored grant or contract.”

Either the Office of Research Services (ORS) or Accounting Services Grant Accounting reserves the right to reject any cost transfer for lack of documentation and/or proper authorization.

VI. Federal Regulations and Compliance Standards

The above guidance has been established to meet federal regulations and compliance standards set forth in 2 CFR, 200.405 3.c., Allocable Costs of the Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Award: "(c) Any cost allocable to a particular Federal award under the principles provided for in this part may not be charged to other Federal awards to overcome fund deficiencies, to avoid restrictions imposed by Federal statutes, regulations, or terms and conditions of the Federal awards, or for other reasons.  However, this prohibition would not preclude the non-Federal entity from shifting costs that are allowable under two or more Federal awards in accordance with existing Federal statutes, regulations, or the terms and conditions of the Federal awards."

NIH Grants Policy Statement

NIH Grants Policy Statement (10/11) Part II, Subpart A:  Terms and Conditions of NIH Grant Awards – Cost Considerations – Cost Transfers, Overruns, and Accelerated and Delayed Expenditures.

"Cost transfers to NIH grants by grantees, consortium participants, or contractors under grants that represent corrections of clerical or bookkeeping errors should be accomplished within 90 days of when the error was discovered. The transfers must be supported by documentation that fully explains how the error occurred and a certification of the correctness of the new charge by a responsible organizational official of the grantee, consortium participant, or contractor. An explanation merely stating that the transfer was made to correct error or to transfer to correct project is not sufficient. Transfers of costs from one project to another or from one competitive segment to the next solely to cover cost overruns are not allowable.

Grantees must maintain documentation of cost transfers, pursuant to 45 CFR part 74.53 or 92.42, and must make it available for audit or other review (see Administrative Requirements—Monitoring—Record Retention and Access). The grantee should have systems in place to detect such errors within a reasonable time frame; untimely discovery of errors could be an indication of poor internal controls. Frequent errors in recording costs may indicate the need for accounting system improvements, enhanced internal controls, or both. If such errors occur, grantees are encouraged to evaluate the need for improvements and to make whatever improvements are deemed necessary to prevent reoccurrence. NIH also may require a grantee to take corrective action by imposing additional terms and conditions on an award(s)."

Title 48 in the Code of Federal Regulations (48 CFR), Chapter 99, part 9905, Cost Accounting Standards (CAS) for Educational Institutions:

CAS 501 Consistency in estimating, accumulating, and reporting costs by educational institutions;

CAS 502 Consistency in allocating costs incurred for the same purpose by educational institutions;

CAS 505 Accounting for unallowable costs – educational institutions; and,

CAS 506 Cost accounting period – educational institutions.

Forms: 

Cost Transfer Justification Form

Redistribution Request Form

Revisions: none.

Last Reviewed: March 2022.

References: 2 CFR, 200.405 3.c., Allocable Costs of the Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards; NIH Grants Policy Statement; Code of Federal Regulations (48 CFR), Chapter 99, part 9905.