Chapter 3: Cost Transfers

A cost transfer is defined as a reallocation of a payroll or non-payroll expense, or cost, from one account distribution to another after the expense has been recorded in the operating ledger, for the purpose of correcting an error, redistributing an expense, or changing the original fund source.  There are a number of different policies, procedures, and cost principles that address cost transfers.  Uniform Guidance does not provide extensive guidance on cost transfers relating to federal awards, however there are some cost principles that address cost transfers in general.  For example, section 200.405(c) states "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."

The most specific guidance from the federal government on cost transfers appears in the NIH Grants Policy Manual under section 7.5 (Cost Transfers, Overruns, and Accelerated and Delayed Expenditures), which states:

Cost transfers to NIH grants by recipients, 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 recipient, 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. [emphasis added]

Recipients must maintain documentation of cost transfers, pursuant to 45 CFR 75.364, and must make it available for audit or other review (see Administrative Requirements-Monitoring-Record Retention and Access). The recipient 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, recipients are encouraged to evaluate the need for improvements and to make whatever improvements are deemed necessary to prevent reoccurrence.

In addition to the above, University of California policy BFB A-47: Direct Costing Procedures, section 3 (Expenditure Adjustments) sets forth limitation and criteria for making expenditure adjustments.  Section 3.B.4 of this policy states that cost transfers:

must be fully explained, justified, and approved by the unit administrator(s) involved in the transaction. (an explanation which merely states that the adjustment being made is "to correct an error," "to transfer to correct project," or "expenditure inadvertently charged to incorrect account/fund" is not sufficient). In the case of adjustments which involve Federal grants and contracts, the certification and approval signatures must include that of the principal investigator, department head, or other academic official. For transfers processed electronically or using on-line systems, the certification and approval of the department head, principal investigator or other academic official must be maintained by the department in accordance with local campus requirements.

With consideration of the above federal guidelines, a best practice for any institution that receives federal funds is to implement a process to ensure that cost transfers involving federal funds are supported by documentation that fully explains the purpose of the transfers. 

• All cost transfers should involve at least two employees to ensure proper segregation of duties and internal controls.  At a minimum, cost transfers should involve a transaction preparer and a separate approver.  The secondary approver could be a Fund Manager or Principal Investigator (PI) or other employees with knowledge of the transactions. 
• In order to comply with UC policy requirements for cost transfers involving federal funds, any cost transfer that is not electronically approved by the PI should be supported by other documentary evidence that the transfer was certified and approved by the PI, department head (Chair), or other academic delegates with knowledge of the transactions.  For this purpose, documentary evidence could include any offline documentation demonstrating that the PI was aware and approved of the transactions, which could include emails from the PI approving of the transfer or hardcopy forms with the PI’s wet signature.   
• The requester should be required to provide proper and adequate justification for the transfer. 
• For cost transfers involving federal funds, the PI should be notified of the transfer since they are ultimately responsible for those funds.
• For cost transfers involving federal funds, the process should include central independent oversight and monitoring to ensure that cost transfers processed by departments are reasonable and timely, and that the justification is sufficient (including any necessary attachments). The legacy ENPET system accomplished this objective by using a decision tree to identify transactions that were High-risk and routed those transactions to SPF for review and approval before posting them to the ledger. 
• Cost Corrections are defined as corrections to key entry errors, not necessarily a change in accounting. For example, an invoice charged to the correct string, but missing POETAF. By correcting the POETAF, that is a correction, not a transfer.

3.3.1: Process

Cost Transfers are supported in Oracle. Departments can initiate cost transfers directly through Manage Project Costs (Projects>Costs>Task menu>Manage Project Costs). Central offices utilize the same functionality, but depending on their role, have no or different workflow from departments. Cost Transfers should always be initiated in the source system. However, Oracle functionality allows for cost transfers between project to project within PPM. Payroll cost transfers should be processed through UCPath (Direct Retro).

• User initiates in Oracle
• Routes to receiving project workflow group.
  • Workflow groups are defined as users assigned to a security role.
  • Security roles are created for each level 4 FinU group.
• Exception requests should be submitted through S&S for review through the Projects Workgroup
• Payroll costs went through additional central office approval until Spring of 2021
• Reports to be used for post audit review.

Training can be found here: https://support.ucsd.edu/services?id=kb_article_view&sys_kb_id=beccd5be1b056890df40ed7dee4bcbc7&table=kb_knowledge

Slide deck: https://ucsdcloud-my.sharepoint.com/:p:/g/personal/lsvirgil_ucsd_edu/ESxn9FR2s9ZAo_JK5qpVh8MBCSy6joDCifXMnaBGAw0Scg

3.3.1.1: Central Office tools for Transfers

As Central Offices have the ability to process cost transfers within PPM and between PPM and the GL.

To correct between PPM and GL, there are a few different methods:

1. AP: Mixed Invoice/Net Zero invoice
2. PPM Cost + Journal. The journal should ensure that it clears the raw cost clearing of the PPM Cost as determined by the SLAs.
3. PPM FBDI Import: Specific FBDI file with accounting that will create the PPM Cost entry and post to the chart string populated in the file. This is the same as step b except that it does both steps in 1, ensuring additional controls.
4. Manual Costs: Creating Costs through a batch: Unprocessed, ADF File or FBDI

3.3.2 - Types of Cost Transfers

See the Cost Transfer Guide to find out the type of cost transfers.

3.3.3 - Cost Transfer Reporting

Reporting on Cost transfer details can be found on reports.ucsd.edu under the Project Cost Transfer Panorama.

3.3.4 - Cost Transfer vs Cost Recovery vs Resource Transfer

When to do a cost transfer or cost recovery vs resource transfer in the GL:

• See KB0032512: Cost Transfers, Recharges and Fund Balance Transfer