Cost Transfers: Necessary but Risky

Written by Justo Torres, Director, Contracts and Grants.

A cost transfer is the moving of an expenditure from one department or project to another. They are a needed tool to make sure costs are booked to the correct source, and a part of doing business, but they come with the price of added audit attention.  

At their core, cost transfers are the admission of an error. Something should have posted to one place, but it posted somewhere else instead.  

Federal regulations discourage, and in certain instances disallow, the movement of such expenditures. Cost transfers must be sufficiently documented in accordance with the provisions of the Office of Management and Budget (“OMB”) as part of 2 CFR Part 200, Subpart E. These provisions require the university to relate financial data to performance data and to ensure such data is accurate, current and complete. These standards also require accounting records including cost accounting records, which are supported by source documentation. This documentation will assist in determining the reasonableness, allocability and allowability of the cost in accordance with the terms and conditions of the award.

Situations where cost transfers may be justified include:

  • Error correction:
    • Correction of clerical errors, such as typographical errors or transposition of account digits.
  • Closely related projects, which have the following criteria:
    • Projects must be managed by the same PI.
    • Projects must be scientifically and technically related.
    • Projects must contain no change in the scope of the grant.
    • The arrangement must not be detrimental to the effort approved under each award.
    • The relatedness must not be used to circumvent the terms and conditions of each individual award.
  • Cost overruns or disallowed costs:
    • While these costs must come off a ledger 5, they should typically not be charged to another grant.
    • Cost overruns and disallowed costs are likely to be questioned during an audit, specifically when moved to another grant, as the motive for the move would be seen as financial rather than technical. 

As with all grant costs, in cost transfers:

  • the cost must be reasonable (pass prudent person test).
  • the cost must be allocable (sponsored project benefits from the expenditure).
  • the expense is treated consistently.
  • the cost is allowable as defined by UG or per the terms and conditions of the sponsored project.

More information about cost transfers can be found on the Cost Transfers page.