Cost and Budget Transfer Guide

Background

OMB Circulars establish principles for determining costs applicable to grants, contracts and other agreements with educational institutions as well as for the required documentation and practices associated with those costs. Since cost transfers are subject to these federal principles and requirements, it is important that all administrative staff and PIs understand the issues associated with cost transfers and adhere to the following guidelines. The University incorporates these federal principles, through the Business and Finance Bulletins, into its standards for all cost transfers involving extramural funds.

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FIS Banner award cost transfer (XECG) for non-payroll expenses

Department/Division Preparer: Processing charges against extramural funds requires specialized Banner training to allow access to the contracts and grants rule codes. See EMF contacts to schedule training.

XECG Processing Standards: If this is a transfer between funds, the following details are required in order for the journal to pass EMF approval. Within the:
- Document Text: The following questions must be answered:
  1. What is being transferred? What is the reason for this transfer? How does this transfer support the scope of the project?
  2. Is this transfer being done within 120 days of the original invoice transaction date? If not, what is the reason for the delay?
  3. Who authorized this transfer? (for contract and grants this must be the PI or delegate, and the delegation of authority must be kept in the divisional award file.) Physical proof of transfer of expense authorization must be obtained, whether is it the signature on the actual document, or a detailed email approval for this transaction.
- Line Item Text: Short description that appears in the FIS/Banner and Business Objects detail reports under Description.
  1. Audit must be able to trace back all journals to their source documents so it is imperative that this audit trail is kept clear, accurate, and concise.
  2. On the Line Item Text of the journal use the original doc description (abbreviation is accepted) with the previous document date.
  3. Example: PI Jade Smith's NSF 21110 ordered supplies that came in on Fischer Scientific I0111243 P055512 $243.33 trans date 8/14/2010. When the charge hit, it was discovered that the expenses were actually intended for his 21109 award. The line item text would read: FisherSci 8/14/10 and the Document Reference Number is the specific Invoice number (not the PO number which could apply to many invoices).
Recharge Journals: Units/divisions must have detailed written authorization from the PI or delegate on file. Forward any supporting documents to the Department/Division Reviewer once the transaction has been entered into FIS (refer to: examples of documentation).
Department/Division Reviewer: Using any associated backup documentation, review transactions for accuracy, timeliness, authorizations, and compliance with relevant University and external agency policies and guidelines. Ensure that the allowability criteria, necessary conditions, and audit standards are met for each cost transfer.
Unallowable Account Codes on Contract and Grants:
- 001040 Scholarship Stipend
- 001210 Memberships (Not Federally chargeable)
- 001240 Advertising (Not Federally chargeable)
- 001265 Administrative Services Recharge
- 001280 Expense sharing- charge (unit to unit)
- 001340 Legal Fees
- 005010 Medical Services
- 006500 Expense sharing - credit (unit to unit)

Allowability of expenses (including payroll)

If an expense does not meet the below criteria of allowability, it is NOT eligible to be charged against the sponsored agreement. According to OMB Circular A-21, these criteria are:

“(The expense) must be reasonable.” The test for reasonableness is to ask if a “prudent person” would have purchased the item and paid that price. The expense should be necessary for the successful completion of the project. Reasonableness is normally demonstrated by the PI’s or his/her designee’s approval of the expense.
“(The expense) must be allocable to sponsored agreements under the principles and methods provided herein.” The expense must be applicable to the sponsored agreement. Normally, this is demonstrated by the authorized budget from the funding agency and the PI’s or his/her designee’s approval of the expense.
“(Expenses) must be given consistent treatment through application of those generally accepted accounting principles appropriate to the circumstances.” This standard ensures that direct and indirect costs are treated consistently and distinctly from each other.
“(Expenses) must conform to any limitations or exclusions set forth in these principles or in the sponsored agreement as to types or amounts of cost items." An expense must not be specifically excluded by federal regulations or by the specific agreement.

Cost transfer requirements (including payroll)

One or more of the following conditions are necessary to justify a cost transfer:

To correct bookkeeping or clerical errors in original charges;
To distribute expenses associated with closely related work supported by more than one funding source (requires PI approval);
To record a change in a decision made originally as to the use of goods or services (requires PI approval);
To redistribute high volume/low value costs (common cost allocation);
To clear an overdraft (see:Overdrafts or balances at end of award).

Audit standards for cost transfers (including payroll)

All cost transfers to extramural funds must be timely, appropriate, and consistently treated throughout the campus. Specifically, each cost transfer must meet the following audit standards:

It must relate to individual items of expenditures.
It must refer to a source document in detail sufficient to link the transfer to the original expense (invoice, payroll or other).
It must be the same amount as originally recorded in FIS or an appropriate portion.
The cost transfer must be fully explained:
- Why is the expense transfer being prepared?
- Why was the original FOAPAL charged?
- How was it determined that the new FOAPAL should be charged?
  - How does the expense relate to the project being charged?
  - What benefit did the project receive from the expense being transferred?
The required supporting documentation for the cost transfer is on file in the department/division business office.
- Depending on the type of transfer, annotated copies of source documents may need to be attached to support the transfer.
- Any documentation must support the purpose of the cost transfer, not the original charge.
- Records and documentation associated with a cost transfer are to be kept at the department/division for five years after the submission of the final financial report on the award (normally, ninety days after the final ending date of the project).
Cost transfers must be recorded in FIS within 120 days from the close of the month in which the charge first posts to the ledger.
- If the transfer is made after the 120-day period, a full explanation of the events which caused the delay must accompany the transfer.

Overdrafts or balances at the end of an award

Transferring an Overdraft
The recommended method to clear an overdraft on an extramural fund is to move expenditures to an unrestricted fund or to a divisional fund set up for that purpose. The explanation should state the reason for the transfer, such as, “Moving overdraft from federal fund to (name of unrestricted fund)...”

Strategies Regarding a Surplus Near the End of an Award
Normally, federal auditors pay particular attention to cost transfers that significantly reduce the remaining funds on an award. A surplus or large final balance on an award may be addressed in the following ways:

If the award is not covered by automatic carry-forward provisions, recommend to the PI that permission from the funding agency to carry forward the unused funds to the next budget period be requested through the Office of Sponsored Projects.
If the award is in its last year, recommend to the PI to work with the Office of Sponsored Projects so that a no-cost-time-extension (NCTE) can be obtained. This should be done before the end of the award period.
Transfer expenses back to a fund if the expenses were previously transferred to another fund to avoid or eliminate a potential overdraft. This situation could occur when there are refunds or other unexpected credits to the original fund.

A cost transfer should never be executed solely to reduce the final balance on an award without applying the allowability criteria for expenses and the necessary conditions for transfers described above.

Adjusting budgets on extramural funds

Upon receipt of an Electronic Data Process (EDP) aka "yellow sheet" and authorized budget for a new or supplemental award, EMF Accounting initially allocates the budget. Within the same fund, departmental/divisional staff can reallocate a budget to a different organization or activity code, or to a more appropriate budgetary pool (category).

Note: In order to process Budget Adjustments in Banner, special contracts and grants training must be completed for access to the budget adjustment rule codes. To schedule training, refer to EMF Contracts & Grant.

Budget adjustments must:

use FIS rule code XDCG
remain within the assigned fund
remain within the specified Contracts and Grants allowable budget pools (see contracts and grants budgetary pools)
be in compliance with specific award restrictions, including any required prior approvals

Regarding budget signs:

(D)ebit/+ is an increase to the budget pool
(C)redit/- is a decrease to the budget pool

Responsibilities

Principal Investigator

The Principal Investigator is responsible for the management of funds on an award. This includes monitoring expenses to ensure that an expense was charged against the appropriate fund and conforms to the University’s and funding agency’s policies. Each expense must ultimately be traced back to the PI’s or his/her designee’s authorization.

Department/Division Business Office

The department/division business office serves as the office of record for cost transfers. It is also responsible for providing adequate internal controls, including adequate separation of duties, to ensure the appropriateness, accuracy and timeliness of all its transactions and journals. Specifically, it ensures that the allowability criteria, necessary conditions, and audit standards described above are met for each cost transfer.

Extramural Funds Accounting

Normally, cost transfers entered into FIS using rule code XECG will be reviewed and approved or disapproved online by the Extramural Fund Accounting staff. EMF staff will review the adequacy of the on-line justification and the timeliness of the transfer. If disapproved, EMF will notify the responsible department/division and indicate the reason for disapproval. Additional training may be requested for department/division staff who enter and initially approve transfers that are repeatedly disapproved by the EMF staff.

Definitions

Costs specifically associated and identified to a particular project, program or activity.

Indirect Costs

Costs incurred for a common or joint purpose benefiting more than one cost objective and which cannot be readily assigned to a particular project, program or activity.

Principal Investigator (PI)

The Principal Investigator is the person, normally a faculty member or a researcher, primarily responsible for the financial management and control of project funds in accordance with University and sponsor policies and procedures. The PI bears the main responsibility for the direct costs that are charged to an award.

Transfers of Expense (XECG) or Cost Transfers

Move a direct cost charged from one FOAPAL to another FOAPAL.

References

Uniform Guidance
University Business and Finance Bulletin A-47:
- Section V.A. (establishes conditions necessary for valid cost transfers)
- Section V.B. (establishes justification and documentation requirements for cost transfers)
UC Systemwide Policies and Guidelines website

Contracts and grants budgetary pools

B02000	Salaries
B03000	Supplies and Expenses
B04000	Inventorial Equipment
B06000	Fringe Benefits
CG3500	Travel-Domestic
CG3A00	Travel-Foreign
CG3C00	Subcontracts
CG3P00	Participant Support
CG3Y00	Indirect Costs (Overhead)
CG6000	Tuition and Fees

Examples of documentation

The type of transfer will determine the specific documentation required. The following are examples of the kinds of documentation that may be needed to support a non-payroll transaction.

Invoices.
Requisitions or Purchase Orders (P.O.).
Travel Expense Vouchers.
E-mail or letter demonstrating written prior approval from the funding agency.
Fully executed consultant agreement or subaward.
E-mail of memo indicating authorization from the Principal Investigator.
References adequate enough to enable online inquiry to any relevant transactions or journals, including earlier transfers.
Logs or records justifying redistribution of high volume/low value costs.

Extramural fund ranges

18000 to 18199 20501 to 20599	Special State Appropriations
18200 to 18999 20600 to 20939	State of California Agreements
20950 to 20999	Local Gov't contracts
21000 to 33999	Federal Gov't contracts & grants
57000 to 59999	Private contracts & grants
62000 to 63000	Private contract & grants
80000 to 80999	ARRA grants
81000 to 86999 87000 to 87999	Federal Gov't contracts & grants ARRA contracts

Inventorial account codes

Account codes	Description	Commodity Block Line Item Text:
006130	Lease greater than $100K - non-computer (usually a capital lease). See below.	INVEQUIP clause
006150	Lease greater than $100K - computer equip. (usually a capital lease). See below	INVEQUIP clause
007000	Accessories (components) to inventorial equipment purchased on another PO.	Property Number of accessorized item
007010	Inventorial equipment excluding computer and furniture (Will be assigned Property Number and tagged).	All inventorial data in INVEQUIP clause
007020	Computer equipment - inventorial (Will be assigned Property Number and tagged).	All inventorial data in INVEQUIP clause
007040	Furniture - inventorial - must be greater than $1,500 (excludes system furn). (Will be assigned Property Number and tagged).	All inventorial data in INVEQUIP clause
007050	Items used in the fabrication by UC employees of inventorial equipment that UC will use - title will vest with UC or government.	Fabrication EIMR number
007080	Transfers of inventorial equipment between university departments.	n/a
007090	Installment purchase of inventorial equipment See “ Leases” below.	All inventorial data in INVEQUIP clause
007110	Initial complement of supplies/components (all items on same PO as inventorial equipment that are needed to put it into service).	Line item number on PO to add value to
007130	Trade-in of used equipment (all items on PO affected by trade-in, including freight & tax) IMPORTANT: See "Trade-in" on reverse.	“Trade-in PN 95-70-00999. Amt.: $999”
009530	Inventorial plant equipment (including initial complement of supplies) - Use with org codes 97xxx only	All inventorial data in INVEQUIP clause
009535	Accessories (components) to inventorial plant equipment - Use with org codes 97xxx only	Property Number of accessorized item

Unallowable Nonpayroll Expenses

The following types of expenses usually cannot be charged directly to a federally-sponsored award, except as noted:

Advertising (Account Codes - 001220, 001223, 001230, and U0123 _)
Exception: This cost may be charged directly to a benefiting activity if it is incurred for one of the folllowing purposes:

Recruitment of personnel
Procurement of goods and services
Disposal of scrap or surplus materials
Required to comply with sponsored award agreement terms.

Fines and penalties (Account Code - 009430)
Costs resulting from violations of, or failure to comply with, federal, state, and local laws and regulations, including University regulations, are unallowable.

Exception: Incurred as a result of complying with specific terms of the sponsored award agreement.

Donations and contributions (Account Code - 001280 and U0128_)
Donations or contributions made to any organization or activity are unallowable.

Unallowable memberships (Account Code - 001210 and U0121_)
Membership costs for any civic or community organization or club (country, social, or dining) are unallowable.

Unallowable advertising (Account Code - 001240)
Costs associated with events related to instruction or other institutional activities including displays, demonstrations and exhibits are unallowable.

These costs must be direct charged to an Instructional fund/organization code.

Social activities and entertainment (Account Code - 001250 and U0125_)

Costs incurred for alcoholic beverages, amusement, social activities, entertainment (e.g., tickets to shows or sporting events), and any related items, such as meals, lodging, rentals, transportation, and gratuities are unallowable.
Entertainment costs associated with such items as flowers, party balloons, or other sensitive items should be charged to an entertainment account code specifically set up to account for such expenses.

Legal proceedings (Account Code - 001340)
Costs incurred in connection with any criminal, civil or administrative proceeding are unallowable.

Exception: Incurred as a result of complying with specific terms of the sponsored award agreement or with the specific written direction of an authorized official of the sponsoring agency.

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Cost and Budget Transfer Guide