Direct/Indirect Costs

What are cost transfers and why do we monitor them so closely? A Cost Transfer is the transfer of an expenditure, or cost, that initially posted to one project or account and is then transferred to another project or another account. The government expects that costs are charged appropriately at the time incurred and that significant adjustments should not be required if adequate financial management practices and policies exist. Frequent cost transfers and cost transfers made long after the original cost is incurred (even if valid) raise questions about the reliability of the university’s policies and its internal controls.

Audits of cost transfers grew primarily out of NIH not-for-cause compliance visits at major research universities. One 2006 audit found that Yale University illegally transferred money between accounts to avoid returning unspent funds and led to Yale’s payment of $7.6 million in restitution. More recently, a 2012 NSF/OIG audit determined that the University of California at Santa Barbara (UCSB) had to repay approximately $500,000 of inappropriate cost transfers.

The American Recovery & Reinvestment Act (ARRA) of 2009 is prompting additional scrutiny of award expenditures. ARRA requires quarterly status and final reports, which are closely scrutinized by the Federal government to ensure that ARRA funds are not subject to fraud, waste, and abuse. As a result, it is essential that expenditures, and any subsequent cost transfers, be timely and accurate.

Federal guidelines for cost transfers state that:

• The transfer must be:
  • Supported by documentation that fully explains how the error occurred; an explanation merely stating that the transfer was made "to correct error" or "to transfer to correct project" is not sufficient
  • Certified for correctness of the new charge by a responsible organizational official of the grantee (i.e. Principal Investigator)
• The transfer should be processed within 90 days of when the error was discovered
• Transfers of costs from one project to another ... solely to cover cost overruns are not allowable
• Grantees must maintain documentation of cost transfers for audit or other review
• 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

Federal auditors and investigators have learned to recognize the familiar signs of abusive cost transfers.

These signs include:

• Transfers that exactly clear deficits and round dollar amount transfers
• Transfers made near the end of the budget period
• Untimely transfers – especially over 90 days
• High volumes of transfers
• Post-effort report transfers
• Poorly documented transfers

Rochester Institute of Technology has developed cost transfer procedures to address the problems identified to date. Refer to the document “Practices and Procedures for Processing Cost Transfers” on the Controller’s Office web site for detailed information.

Additional information to assist you as you consider processing a cost transfer is listed below:

1. Sufficient justification and supporting documentation is required. The journal entry explanation/justification/documentation should clearly explain what is being transferred or corrected and why the account selected is the correct account. A Cost Transfer Cover Sheet must accompany other supporting documentation, which should include reference numbers such as dates of the original transaction, transaction type (e.g., Travel Expense Report, Invoice Payment Form, Purchase Order & Vendor name, etc.), and amount. The information should be clear so that an outside auditor, who doesn’t know our jargon, can understand it.
   • Auditors often question, or find unacceptable, incomplete explanations such as "to transfer to the correct/appropriate account." Auditors have questioned that explanation with “Why is the new account more appropriate?”
   • Auditors have also zeroed in on the explanation "to transfer overdraft." When these terms are used, auditors may conclude that we don’t take seriously what we charge to sponsored projects.
   • Another unacceptable explanation is "to close account". This comment immediately raises questions/concerns by auditors of the appropriateness of any transfer of expense to the account or between grant accounts.
2. All cost transfers must be processed within 90 days of the end of the accounting month that the original transaction posted in Oracle. Routine review of grant statements and other Oracle reports provide the opportunity to identify any potential errors that would submission of a cost transfer journal entry. When an award has 90 days or less remaining until the end-date, cost transfers must also meet the 90 day deadline for submission of final costs.
   • Transfers made after 90 days raise questions on the appropriateness of the transfer. When requesting a cost transfer that involves a transaction that is older than 90 days, further justification must be included explaining what caused the delay in requesting the transfer, why it should be allowed, and an explanation as to what steps will be taken to prevent delays in the future. Cost transfers beyond the 90 day period are subject to additional review and require approval of the Assistant Controller.
3. Cost transfers are processed via journal entries in the Oracle Financial application. RIT utilizes this application for its purchasing, accounts payable, general ledger, and fixed asset transactions.

Contact your Sponsored Programs Accounting representative if you have questions about the allowability or appropriateness of cost transfers on your sponsored project.

Typical Audit Questions Regarding Cost Transfers

• What is the total volume of cost transfers?
• Is there a standard form (electronic or paper) for initiating cost transfers?
• Are cost transfers supported by documentation which adequately explains and justifies why the transfers were made and how the error occurred?
• Are cost transfers caused by work which is supported by more than one funding source?
• Are there cost transfers between projects which are in an overrun condition to those with unexpended balances?
• Are cost transfers which represent corrections of clerical errors made promptly after discovery?
• Are cost transfers dated?
• Are late cost transfers reviewed and approved by post award leadership?
• Is there a defined process in place for approvals?
• Is there a process for initiating cost transfers after changes on an effort certification?
• Is there a process for reviewing late cost transfers?
• Is there training that addresses cost transfers?

Examples of typical circumstances in which cost transfers are allowed:

• Correction of a clerical error
• Award notice received after project start date
• EAF not processed timely
• Charge not corrected timely in Paymentnet system
• Reallocation of expenses where multiple projects benefited
• Transfer of pre-award costs from divisional or discretionary project funds

Federal agencies that perform audits of sponsored programs at colleges and universities frequently focus attention on cost transfers. These transfers are to transfer an expenditure, or cost, that initially posted to one project or account to another project or another account. Funding agencies have questioned and/or disallowed transfers when: they occurred frequently on an award, they were not processed timely, occurring several months or more after the initial charge was recorded, and/or when there was an inadequate explanation or lack of accompanying documentation. Transfers of this type, particularly when they occur on projects with cost overruns or unexpended balances, may cause funding agencies to question their appropriateness. Also questioned may be the overall reliability of the recipient's accounting system and the recipient’s ability to properly administer sponsored programs. In addition to disallowing cost transfers, Single Audit findings have also occurred.

Refer to the “Background Information Regarding Cost Transfers” document on the SPA web page for additional information.

This memo describes RIT’s practices and procedures regarding the treatment and allowability of cost transfers on sponsored programs. These practices are designed to minimize regulatory, financial and reputational risk to the University in the administration of sponsored projects.

It is the Principal Investigator’s (PI) responsibility to monitor all transactions charged to his/her sponsored project. Occasionally, due to a clerical error, it is necessary to move a cost from one project or account to another. Per 2 CFR §200 all cost transfers must be reasonable, allocable, treated consistently throughout the University, and conform to any limitations or exclusions in the sponsored agreement. If a PI, or his/her project administrator, determine that a cost transfer is required on a sponsored project, and it meets the requirements above, he/she should then be familiar with the following expectations:

1. All cost transfers must be supported by a Cost Transfer Cover Sheet and other relevant documentation that contains a full explanation of how the error occurred and a justification of the appropriateness of the new charge. An explanation which merely states that the transfer was made "to correct an error" or "to transfer the charge to the correct project" is not sufficient. Note: frequent errors in the recording of costs may indicate the need for improvements in the academic unit's fiscal administration of sponsored projects and/or its internal control system. Departments may be asked or required to evaluate the need for improvements in these areas and to implement necessary changes.
2. Cost transfers representing corrections of clerical or bookkeeping errors (i.e., transactions inadvertently charged to the wrong project) must be made promptly and within 90 days of the end of the accounting month that the original transaction posted in Oracle. The journal entry must be accompanied by a Cost Transfer Cover Sheet signed by the PI and any other relevant supporting documents.
   1. Transfers made after 90 days raise questions on the appropriateness of the R•I•T Rochester Institute of Technology transfer. PIs requesting a cost transfer that involves a transaction that is older than 90 days must provide further justification explaining the following:
      • What caused the delay in requesting the transfer (signed by the PI)
      • Why it should be allowed
      • A certification of the allowability/appropriateness
      • An explanation as to why the monthly statement/detail/PDR review and certification process did not detect the issue
      • An explanation as to what steps will be taken to prevent delays in the future must be provided
      • A Cost Transfer Cover Sheet must also be submitted along with these materials.
   2. The 90-day period begins at the end of the accounting month that the original transaction is posted in Oracle. The “clock” runs until the transfer journal entry has been prepared and all departmental signatures have been obtained. All cost transfers beyond the 90 day period, are subject to the review and approval of the Assistant Controller. Departments should work with their SPA rep to obtain this approval.
   3. If the cost transfer affects an operating department, approval from a person in the College/Department with oversight over the operating budget must be obtained. This will most likely be the College Partner.
3. SPA approval of cost transfers is required on federal awards. State and private awards are processed as described, but SPA approval is not required and the department is required to maintain any supporting documentation.
4. Transfers that involve a change in previously certified effort require an additional statement indicating why the Effort Report (ER) was not corrected prior to its original certification. A statement signed by the PI that the revised distribution of pay accurately represents effort during the period indicated is also required.

Contact your Sponsored Programs Accounting representative if you have questions about the allowability or appropriateness of cost transfers on your sponsored project.

Why do we process journal entries?

• Minimize regulatory, financial, and reputational risk to the University
• Ensure the accuracy and integrity of the University's charges for salaries, goods, services, and other expenses on sponsored projects transfers to/from a sponsored project when the expense was originally charged to a different account number

Cost Transfers

A cost transfer is an after-the-fact reallocation of expenses. It is important to address the issues as soon as possible.

Examples of typical cost transfers:

• Corrections of a clerical error
• EAF not processed timely (SPA only)
• Charge not corrected timely in ActivePay system
• Reallocation of expenses where multiple projects benefited
• Transfer of pre-award costs from operating or discretionary project funds

College administrators prepare cost transfers affecting all Other Direct costs categories.

Cost transfers must be made promptly within 90 days of the end of the accounting month that the original transaction posted in Oracle.

For example an expense that hit in error on Oct. 12th would be identified in November (after the October statements are published and reviewed) and we would have until the end of January month end close to correct the error and remain within the 90 day window.

Use of the Cost Transfer Coversheet (CTCS)

The CTCS form provides overview information of the cost transfer, and is used as a guide to ensure appropriate documentation and approvals have been obtained. The most important section is the explanation as to "Why" the transfer is required. The justification should be clear and transparent to anyone that may review this transfer in the future in case of questions, audit, etc.

If a cost transfer falls outside the 90-day window, the additional fields (5.a. 1/2/3) are required. This information should be provided by the PI in their approval request for the cost transfer.

Journal Entry Support Checklists

Choose the appropriate Journal Entry Preparation Checklist based on your journal entry responsibility

Please note that each of these checkslists are helpful with preparing journal entries, but are not required back-up. 

Additional Questions?

For entries on Sponsored Projects contact your SPA Rep.

For entries on operating or non-SPA accounts, contact RIT Accounting.

INSTRUCTIONS

The Participant Agreement and Payment Request Form is used to communicate general information and specific eligibility requirements to participants receiving a stipend/subsistence allowance payment and any other type of financial support through an experiential program. The form communicates and documents the participant's understanding and agreement with the program requirements and all other terms and conditions applicable to their participation. The form is also used to process participant stipend/subsistence allowance payments and housing, meal or other miscellaneous credits.

One form is completed for each participant per semester by the principal investigator or department administrator. The participant and the principal investigator each sign the form. Once signed, forms citing a sponsored project are forwarded to the SPA representative for processing. Please note: Direct Deposit forms should be submitted for all new participants.

If you require any assistance with the Participant Agreement and Payment Request Form, please contact your SPA representative. For SPA Rep departmental assignments, please refer to the Sponsored Programs Accounting website.

Printable Version of the Participant Agreement and Payment Request Form

Below are the instructions for processing participant payments:

1. Demographic Information - Complete all demographic information including:
   • Participant Name and Email Address
   • Student UID; Attach a completed W-9 Form to request payments for non-RIT students
   • Citizenship: Federally-funded Research Experience for Undergraduates (REU) and other like experiential programs require the participant to be a citizen or permanent resident of the United States or one of its possessions. The person responsible for completing the form (the principal investigator or department administrator) checks this box after verifying the participant meets this program requirement.
   • If the participant also has direct deposit from a job on campus, they can select the box to give AP permission to access this information. Otherwise, an AP Direct Deposit form must be attached.
2. Program specific requirements - List the programmatic requirements the participant must meet to receive support payments. The participant should carefully review the program requirements listed and check all the boxes to confirm his/her understanding and agreement, for example: punctual attendance at scheduled laboratories and active participation in laboratory activities.
   • Participant attendance at planned activities is required to be documented to provide sufficient information about the event, such as the date and time of the event, the event agenda, the number of participants in the attendance, and any other relevant information.
   • Principal Investigators (PIs) or other RIT personnel can prepare and use sign-in sheets at trainings/seminars, meetings, etc., for which participants will be paid from PSC funds. These sign-in sheets will be kept with the PI’s grant records as backup for charges related to the event. The sign-in sheet should show the date of the event, the typed name of each participant, and the purpose of the event. Each participant should sign or initial next to his or her typed name. The event organizer could also place a check mark next to the name of each attendee.
   • In lieu of an attendance sheet, a group photograph of event attendees with a list of each person’s name can be substituted.
   • Use a second form if additional requirements need to be listed.
3. Additional Terms and Conditions - The form contains important information about the support payments that is imperative for the participants to understand. You may add additional information or program participation requirements, as needed. The participant should carefully review the additional terms and conditions listed on the form and check all the boxes required to confirm his/her understanding and agreement.
4. Current RIT Student Requirements – If the participant is a current student at RIT he/she should carefully review this section on the form and check all the boxes to confirm his/her understanding and agreement.
5. Payment Details - Indicate the appropriate participant support payment type. This is a summary of all the support the participant will receive. Note: if a different Oracle Account # is to be used for any of these items, please write in the full account number under the payment type.
   • The following payments will be processed using the form:
     • Stipend: Indicate the stipend allowance amount payable to the participant for the semester.
     • Subsistence allowance (include off campus housing): If the participant is receiving an off-campus housing and /or off-campus meal allowance, include amounts with the stipend/subsistence allowance amount in the Amount box. Stipend/subsistence allowance payments will be paid in equal installments during the semester as indicated next to the Per Period Amount. If RIT Housing and RIT Meal Plan credits are supported by this award, you must contact Dining Services or Housing.
       NOTE: Stipend, housing, and meal allowances must adhere to any sponsor limitations.
     • Oracle General Ledger Account(s)/Distribution %: If the payment should be allocated among multiple accounts, include the account number along with the distribution % (in decimal form).
6. • Other participant support payments are processed this way:
     • Books: Contact Barnes and Noble at RIT, 424-6777 x 203 to set up an account for your project. Please provide: RIT contact and billing information, Oracle account number, student names and UID #, start and end dates for purchasing and purchase restrictions, such as amounts and items to be purchased. Participants must have their UID card and understand the purchase restrictions. Barnes and Noble will send an invoice to your department for approval and payment processing.
     • Fees: Submit an invoice payment form for appropriate fees to be paid on behalf of the participant.
     • Travel: Participant travel reimbursements have to be substantiated with receipts, even if the allowance amount is well below the total costs incurred for the trip. To reimburse participants for travel expenditures, submit an invoice payment form with original receipts to fully substantiate the amount of the payment.
7. Oracle Acct # - Enter the Oracle account # indicating the account form which the stipend will be paid. All participant support payments are charged to a project that begins with the letter P, "PXXXX", when involving a sponsored project. Your SPA representative will verify that the corresponding object codes are enabled on the project.
8. Participant Signature - Collect the participant's signature and date.
9. PI Signature - The principal investigator signs for their sponsored project, dates the form as the approver, and forwards to SPA for processing.
10. SPA Signature - Forward the forms to your SPA rep for review. Once the SPA rep approves the form, copies will be distributed as follows:
    • For all participants receiving a stipend, a copy of the form and the W-9 (for non-RIT students) will be sent to Accounts Payable for stipend/subsistence allowance payments
    • For participants who are RIT students receiving stipend/subsistence allowance payments and housing, meal or other miscellaneous credits, copies of the form will be also be forwarded to the Office of Financial Aid and Scholarships to ensure that the student's account is credited appropriately.
    • For participants who are not RIT students receiving housing, meal or other miscellaneous credits, departments should work with Student Auxiliary Services for these transactions. Typically they will submit a spreadsheet with the list of participants, account code combos and the amounts. SPA will maintain the original signed forms outlining these commitments.

The University's travel policies and procedures provide information about approved business travel from RIT (i.e., one's normal place of employment), or one's home, to a destination in Rochester, or outside of the Rochester area. RIT will reimburse faculty, staff and students, or pay outside vendors, for necessary and reasonable transportation and travel related expenses incurred in connection with RIT approved business travel. Detailed information about travel expense reimbursements can be found in the following locations:

• Travel Policies and Procedures
• Fly America Act
• Fly America Checklist

The following email was sent to Principal Investigators and Grant/Contract Administrators regarding RIT's preferred travel agents and charges to federal awards.

To assist travelers and administrators when making business travel arrangements, RIT has established relationships with four travel agencies: Borelli Travel Services, Carlson Wagonlit Travel, Town & Country Travel, and Van Zile Travel. For efficiency, all airfare charges are made to an RIT Business Travel Account. RIT processes one payment each month for each agency and then charges the appropriate general ledger account for the airfare.

The RIT Travel Policy requires that employees traveling on university business submit a Travel Expense Report (TER) whenever airfare is purchased or there is an overnight stay. The policy applies even if there are no expenses associated with the trip for which the employee needs to be reimbursed. For example, if the employee made arrangements through an RIT travel agent, the airfare is directly charged to the appropriate RIT general ledger account, and another party (e.g. a hosting university) defrayed lodging and meal costs, there would be no expenses requiring reimbursement. RIT employees are still required to complete a TER in this case, listing the airfare costs both in the Expense and the Advance Amount sections. Since there are no expenses to be reimbursed, the amount due to traveler (Amount Due Payee) would be zero. Completing the TER constitutes official notification to Accounts Payable that the trip has occurred and documents the business purpose as required by RIT Travel Policy and Internal Revenue Service regulatory requirements.

Travel Charged to Federal Grants and Contracts

For costs charged to federal grants and contracts, the TER documents the Principal Investigator’s (PI’s) knowledge/approval of the activity and provides the supporting documentation that must be retained with the project’s records for audit purposes. If the traveler is not an RIT employee (i.e. students and/or consultants), please send a copy of the itinerary and boarding pass(es) along with business purpose and PI approval to Accounts Payable. If the trip was to an international destination, submit the above documentation to Sponsored Programs Accounting to ensure compliance with the Fly America Act, as well as, RIT Travel Policy.

In order to comply with federal regulatory requirements, costs for travel arrangements made through one of RIT’s travel agencies are charged to a pre-paid general ledger account. This means the charge is not reflected as a grant/contract expense and RIT does not draw the funds from the federal sponsor at the time the travel arrangements are made. When the trip is actually complete and the traveler submits travel documentation signed by the award’s PI, the charge will be reflected in the grant statement and the costs are recovered from the federal sponsor.

If you need additional information about RIT travel, RIT’s Travel Policy and Procedures Manual is available on the Controller’s office web site at (NEEDS UPDATED LINK)

If you have any questions about this process change, please contact Mary Kay Tyner, Accounts Payable, Customer Service/Travel Expense Specialist at 5-7221 (mktpsn@rit.edu) or Kathleen Brady, Sponsored Programs Accounting, PI Mentor/Outreach Specialist at 5-2458 (kmmpay@rit.edu).