I.	PURPOSE

	The Financial Analysis Office has prepared these guidelines to 
assist the campus Internal Auditors in their efforts to strengthen the 
internal controls over cost transfers to Federal grants and contracts.  
The purpose of these guidelines are to provide questions to determine 
if the transfer is allowable.

	In prior cost transfer audits, the Department of Health and 
Human Services found some instances where the University did not 
comply with Federal regulations when transferring costs to Federal 
projects.  The auditors identified unacceptable transfers made:  
1.  to eliminate cost overruns,  2.  to use up unexpended funds,  
3.  charging projects based on unacceptable allocation methods,  
and  4.  containing unallowable costs.  This situation occurred 
because Federal and University guidelines were not consistently 
followed.  Documentation at the department level was not always 
adequate to ensure that the transfers were acceptable.


II.	BACKGROUND

	Recent Federal audit reports have cited instances where grantees 
have transferred costs from other projects or programs to Federal grants 
many months after the original charges had been recorded in the grantee's 
accounting records.  In many cases, the transfers were not supported by 
documentation which adequately explained why the transfers were made.  
The Federal government recognizes that transfers of costs from one 
project to another are occasionally necessary to correct bookkeeping or 
clerical errors in the original charges.  The Federal government also 
recognizes that closely related work may be supported by more than one 
funding source and that in such cases a transfer of costs from one 
funding source to another may be proper.  However, frequent, tardy, and 
unexplained (or inadequately explained) transfers, particularly where 
they involve projects with significant cost overruns or unexpended fund 
balances, raise serious question about the propriety of the transfers 
themselves as well as the overall reliability of the grantee's accounting 
system and internal controls.
	
                
                            
III.	REGULATIONS

	A.	Federal

		Federal regulations require that costs claimed on 
		specific contracts and grants be allocable to the 
		project being charged.  Section C.4. a.  of Office 
		of Management and Budget (OMB) Circular A-21 states:

			"A cost is allocable to a particular cost 
			objective (i.e., a specific function, project, 
			research agreement, department, or the like) 
			if the goods or services involved are chargeable 
			or assignable to such cost objective in 
			accordance with relative benefits received or 
			other equitable relationship..."

		
		Section C.4. b. further states that:

			"Any costs allocable to a particular sponsored 
			agreement under the standards provided in this 
			Circular may not be shifted to other sponsored 
			agreements in order to meet deficiencies caused 
			by overruns or other fund considerations, to 
			avoid restrictions imposed by law or by terms 
			of the sponsored agreement, or for other reasons 
			of convenience."

		The Public Health Services Grants Administration Manual 
		provides further guidance regarding the issue of cost 
		transfers.  Chapter 6 of the Manual states that:

			"...frequent, tardy, and unexplained (or 
			inadequately explained) transfers, particularly 
			where they involve projects with significant cost
			overruns or unexpended fund balances, raise 
			serious questions as to the propriety of the 
			transfers..."

			"The transfers must be supported by documentation 
			which contain a full explanation of how the 
			error occurred and a certification of the 
			correctness of the new charge.  An explanation 
			which merely states that the new transfer was 
			made "to correct error" or "to transfer to 
			correct project" is not sufficient..."


	B.	University

		The University guidelines regarding cost transfers are 
		found in Business and Finance Bulletin A-47 Section V.                      Page 7                        
                        
		These guidelines require that expenditure adjustments 
		must be fully explained and justified.  In addition, 
		the Bulletin requires that the campus accounting office 
		review transfers for compliance with applicable policies 
		and terms of funding.

IV.	COST TRANSFER GUIDELINES

	A.	General		


		1.	Are formal policies and related procedures 
			governing cost transfers incorporated in the 
			campus policies and procedures manual?

		2.	Have cost transfers been made to, from, or 
			between Federal awards?

		3.	Are cost transfers supported by documentation 
			which adequately explains and justifies why the 
			transfers were made?

		4.	Are cost transfers caused by work which is 
			supported by more than one funding source?

		5.	Are cost transfers promptly booked?

		6.	When direct salaries/wages are transferred, is 
			there a reconciliation between the salaries and 
			wages transferred and the applicable certified 
			PAR form?

		7.	Are interdepartmental cost transfers certified 
			by both the losing and acquiring department?

		8.	Are cost transfers dated?

		9.	Do cost transfers involving Federal grants/contracts 
			specify the contract and grant numbers, account 
			and fund numbers of the award?

		10.	Are cost transfers involving Federal awards 
			systematically reviewed by the Accounting Office 
			and/or the Contracts and Grants Office for 
			adequacy of justification, certification, and 
			timeliness?

	B.	Cost Transfer to Correct Errors


		1.	Are cost transfers to Federal awards which 
			represent correction of clerical or bookkeeping 
			errors made promptly after discovery?
                                                     
          	2.	Are cost transfers of this nature made prior to 
			submission of expenditure reports to the Federal 
			government?

		3.	Are cost transfers supported by documentation 
			which fully explains how the error was made?

		4.	Does an appropriate official certify to the 
			correctness of the new charge?


	C.	Cost Transfers Resulting from Closely Related Work

		
		When closely related work is supported by more than one 
		funding source and cost transfers from the originally 
		charged funding source are made to Federal awards, does 
		the transfer contain the following:

		1.	Costs that are allowable charges to the Federal 
			program?

		2.	Documentation which includes a full explanation 
			and justification of the transfer?

		3.	A certification by the principal investigator or 
			other responsible official?

		4.	Review and approval by a responsible financial 
			or administrative official or the Accounting 
			Officer?

		5.	Transfer is completed within 120 days of original 
			charges?

		6.	If transfer is not made within 120 days of the 
			original charge, is an explanation provided?


V.	EXAMPLES OF UNALLOWABLE COST TRANSFERS TO FEDERAL PROJECTS


	A.	TRANSFERS ELIMINATING COST OVERRUNS

		Transfers made to shift costs to other sponsored 
		agreements in order to meet deficiencies caused by 
		cost overruns are unallowable.

		1.	Was the cost transferred from a project which 
			was in an overrun condition?

		2.	Was the project terminated at the time of the 
			transfer?

               	3.	Was the project terminated within 120 days of 
			the transfer?

		4.	Was the transfer caused by work which was 
			supported by more than one funding source?

		5.	Was the work performed under the project charged 
			closely related to the work performed under the 
			project originally charged?

		6.	Were the costs charged to the projects in 
			proportion to the benefits received by the 
			project?

		7.	Was the transfer supported by adequate source 
			documentation (i.e., timesheets, vouchers, 
			acceptable allocation procedures, etc.)?


	C.	TRANSFERS CHARGING PROJECTS BASED ON UNALLOWABLE 
		ALLOCATION METHODS

		Transfers based on an unacceptable allocation basis are 
		unallowable.  The allocation of costs between projects 
		must be reasonable and in realistic proportion to the 
		benefit provided or equitable relationship.

		1.	Was the allocation method used equitable, (i.e., 
			did it result in overcharges to the project)?

		2.	Were the costs charged to the project in 
			proportion to the benefits received by the 
			project?


	D.	TRANSFERS CONTAINING UNALLOWABLE COSTS

		Transfers that contain unallowable costs are unallowable.

		1.	Were the costs transferred allowable charges to 
			Federal programs under OMB Circular A-21?

		2.	Were the costs transferred in accordance with 
			the budget provision of the award?

		3.	Were the costs transferred allowable under the 
			award with prior approval?


                              
PHS GRANTS POLICY STATEMENT MANUAL 7-18	                    



COST TRANSFERS



	Transfers of cost to, or from grant-supported projects or 
programs may sometimes be necessary to correct bookkeeping or clerical 
errors in original charges.


	Transfers of costs to PHS grants by grantees, subgrantees and 
contractors under grants that represent corrections of clerical or 
bookkeeping errors must be made promptly after the error is discovered.  
The transfers must be supported by documentation that contains a full 
explanation of how the error occurred and a certification of the 
correctness of the new charge by a responsible financial or 
administrative official of the recipient organization.  An explanation 
which merely states that the transfer was made "to correct error" or 
"to transfer to correct project" is not sufficient.  It should be noted 
that frequent errors in the recording of costs may indicate the need for 
improvements in the grantee's accounting system and/or internal controls.  
Therefore, where such errors occur, grantees are encouraged and may be 
required to evaluate the need for improvements in these areas and to 
make what improvements are deemed necessary.


	Health professions capitation grants are not subject to the 
policy stated above because of the general support nature of these 
awards and the latitude and flexibility allowed recipients in the use 
of these funds.


	Documentation of cost transfers by grantees must be maintained 
and be made available for audit review pursuant to 45 CFR 74, Subpart 
D (see "Postaward Administration-Record Retention and Access").


CLOSELY-RELATED WORK




	When closely-related work is supported by more than one funding 
source, the grantee may transfer costs from the originally charged 
funding source to a PHS grant, or between PHS grants, with written prior 
approval from the PHS awarding office Grants Management Officer, 
provided all of the following conditions are met:




	1.	The projects are scientifically and technically related;


	2.	The projects are under the direction of the same 
		principal investigator;


	3.	The projects have been funded by the same PHS awarding 
		office;


	4.	There is no change in the scope of the individual grants 
		involved;


	5.	The relating of costs will not be detrimental to the 
		conduct of work approved under each individual award; and


	6.	The relatedness will not be used to circumvent the 
		terms and conditions of an individual award.



                            
PHS GRANTS POLICY STATEMENT MANUAL 7-19                     



APPLICABLE CREDITS




	The term "applicable credits" refers to those receipt or negative
expenditure types of transactions that operate to offset or reduce 
expensive items that are allocable to grant-supported projects and 
activities as direct or indirect costs.  Typical examples are purchase 
discounts, rebates, allowances, recoveries or indemnities on losses and 
adjustments or overpayments or erroneous charges.



	Applicable credits to direct charges made to PHS grants must be 
treated as an adjustment on the grantee's Financial Status Report, 
whether those credits accrue during or after the period of grant support.  
The PHS awarding office will notify the grantee of any additional 
actions that may be necessary (see "Postaward Administration Reporting-
Expenditure Report").




COST TRANSFERS MUST MEET THE FOLLOWING CRITERIA:



	1.	COSTS MUST BE A PROPER AND ALLOWABLE CHARGE OF THE 
		PROJECT TO WHICH IT IS TRANSFERRED.


	2.	THE TRANSFER MUST BE SUPPORTED BY DOCUMENTATION WHICH 
		CONTAINS A FULL EXPLANATION AND JUSTIFICATION FOR THE 
		TRANSFER.


	3.	THE TRANSFER MUST BE CERTIFIED BY A RESPONSIBLE PROGRAM 
		OFFICIAL AS TO IT'S PROPRIETY.


	4.	THE TRANSFER MUST BE APPROVED BY AN ADMINISTRATIVE 
		OFFICIAL OF THE UNIVERSITY (ACCOUNTING OFFICE).


	5.	THE TRANSFER SHOULD BE MADE WITHIN 120 DAYS OF THE 
		ORIGINAL CHARGE.  IF THE TRANSFER IS DONE AFTER THIS 
		PERIOD OF TIME, IT MUST INCLUDE AN ADDITIONAL EXPLANATION 
		AS TO WHY THE TRANSFER WAS LATE.