DHHS Cost Transfer

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DHHS Office of Inspector General (OIG) Targets Cost Transfers

The above was part of the title of a front page article from Federal Grant News for Colleges and Universities. Federal Grant News is published jointly by NCURA and NACUBO. Periodically the DHHS OIG reports where it is targeting its audits. At a recent meeting of NCURA, representatives of the DHHS OIG discussed their FY 2005 Work Plan. Topics discussed included effort reporting, cost sharing, subrecipient monitoring, NIH salary cap compliance, prior approval requirements for shifts in PI effort of more than 25% and cost transfers. Auditing effort reporting and cost sharing was recently responsible for Mayo Clinic settlement of $6.5 million dollars discussed in the DGCA Forum release on June 20, 2005.

The audit of cost transfers grew primarily out of NIH not-for-cause compliance visits at major research universities. The NIH staff observations revealed "cost transfer policies tend to be nonexistent, incorrect, or confusing, and the requirements for making appropriate cost transfers are often misunderstood by institutional officials, especially PIs and departmental administrators."

The Work Plan audit objective is to "determine if cost transfers are 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 grantee, consortium participant, or contractor."

According to the OIG staff the limited review they have been able to complete at this point has identified the following systemic problems:

accounting systems do not identify cost transfers
transfers can be done manually outside the system
source documentation is not reviewed to determine if it is a legitimate cost transfer

They also uncovered the following transactional problems:

there is no documentation that adequately explains the reason for transfers, particularly for salary and effort transfers after certification and for transfers from non- Federal to Federal grants
significant time delays occur before transfer is made
transfers are made between budget periods
and reliance for the transfer is placed on the PI's verbal approval

Rutgers has a University Cost Transfer Policy. The policy was originally issued in a memorandum from the Controller on January 31, 1991 and subsequently codified in the University Regulations and Procedure Manual in Book 6.1.16 (in FY 06 this will change to Section 40.2.11). Both can be accessed from our web site, the first under “Topics & References”; “Cost Transfer” and the second under “Policy and Procedures”; “Relevant University Policies – Grant and Contract Accounting.” Anyone preparing or approving cost transfers must be knowledgeable of and fully applying the University’s Cost Transfer Policy. Please be aware that journal entries and salary reallocations are cost transfers and as such must comply with the Cost Transfer Policy.

Please make sure any of your cost transfers, in addition to all other University requirements, take into account the following salient points:

A. There must be sufficient justification and supportive documentation explaining the cost transfer. The explanation/justification/documentation of a JE should be able to clearly explain what is being transferred or corrected and why the account selected is the correct account. Supporting documentation should include reference numbers such as VN#s, JE#s, dates of the entries, name of vendors if for purchases or TABERs, amounts, etc. The explanation/justification/documentation should be such that an outside auditor who doesn’t know our jargon can understand it.

We have found that auditors question or find unacceptable and incomplete explanations such as "to transfer to 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." Auditors often conclude that we don’t take seriously what we charge to the awards. Another unacceptable explanation that raises suspicion of an auditor is "to close account". This comment immediately raises questions/concerns by auditors on the appropriateness of any transfer of expense to the account or between grant accounts.

B. The cost transfer is made within 120 days of the original charge per the University policy. When the award has 120 days or less remaining until termination, any cost transfer must also meet the deadline for submission of final costs in our close-out procedures. Transfers made after 120 days raise serious questions on the propriety of the transfer. If these are required, a further justification must be included explaining why the transfer took so long to be submitted and why it should be allowed at this time.

C. Cost transfers at Rutgers are primarily accomplished via journal entries or salary reallocations. While the cost transfer policy does not specifically mention approvals, all cost transfers must be properly approved. Both the preparer and approver should sign the journal entry or salary reallocation. There can be no self-approvals. The approver should be the superior of the preparer. In very small departments the PI may prepare the entry and the appropriate post-award grant office staff member approve it.

Ronald S. Thompson, CPA, MBA, Assistant Controller
Rutgers, The State University of New Jersey         732-932-0165 ext 2218
Division of Grant and Contract Accounting                     Fax 732-932-0182
3 Rutgers Plaza                                E-mail     rst@rci.rutgers.edu
New Brunswick, NJ 08901-8559     Web site http://postaward.rutgers.edu