The University has established the following policy regarding cost transfers to ensure compliance with the requirements of the Office of Management and Budget (OMB) Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (“Uniform Guidance”). This policy has also been issued to ensure compliance with general sponsor terms and conditions as well as University regulations and business procedures. The policy is applied consistently to all sponsored projects.
As an institution receiving federal funding, the University of Kentucky assumes responsibility for the financial management of sponsored projects. Under the provisions of Uniform Guidance, the University is required to ensure that financial data is accurate, current, and complete in relation to performance. As it relates to cost transfers, sufficient controls and supporting documentation are necessary to ensure that expenses are appropriate to the cost object charged, generally allowable, reasonable, necessary, allocable, sufficiently documented and directly applicable to the activity represented. If a cost transfer is necessary, it is important that it is performed in a timely manner. Frequent, late, or insufficiently justified cost transfers may raise serious questions regarding the propriety of the transfers as well as indicate a need for improvement in the department/unit/college or University’s internal controls.
Effective July 1, 1990, the federal government required universities to retain external auditors to conduct extensive reviews of federal grant and contract expenditures, which includes the review of cost transfers. Federal auditors will review documentation to establish that expenses are appropriate, allowable, reasonable, necessary, allocable, sufficiently documented and directly applicable to the project. If a cost transfer does not meet these requirements, the dollar amount of the transfer will be disallowed and the college or unit responsible for the award will be responsible for the disallowed cost transfer. If cost transfers do not meet government requirement or exhibit a lack of appropriate internal controls, the auditors may extrapolate the disallowance and recommend disallowing a percentage of ALL cost transfers for a particular department/unit/college or University-wide.
The federal government expects the official documentation for a cost transfer to include adequate explanation of the reason for the transfer. The Department of Health and Human Services HHS Grants Policy Statement states:
“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.”
Expected award costs
Under certain circumstances, it may be necessary for costs to be incurred before an award document has been received for a sponsored project. However, expenditures made pending the receipt of an award or contract may not be charged to another sponsored account in the interim. When necessary for research to begin prior to receipt of award, an expected award account should be requested and established through OSPA.
Sponsor requirements
A sponsor may have guidelines on cost transfers that are more restrictive than those set forth by the University and federal government. For further clarification regarding sponsor requirements, please refer to your award documentation and PADR. OSPA and RFS may be contacted for additional clarification.
Denial and disallowances
The department/unit with which the sponsored project is affiliated is responsible for appropriately funding any denied or disallowed charges associated with a cost transfer.
RFS may disallow any or all charges associated with a cost transfer based upon the determined risk or failure to adhere to the established cost accounting principles. Charges may also be denied due to the failure to meet the timing or documentation requirements previously stated in this procedure. Any disallowed charges will subsequently be moved to the indirect overrun account of the responsible department/unit.