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Cost Transfers Who Needs them anyway? By Sharon McCann and Audrey Portis SRA International Meeting Excerpts from Paul Frey’s presentation October 2006.

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Presentation on theme: "Cost Transfers Who Needs them anyway? By Sharon McCann and Audrey Portis SRA International Meeting Excerpts from Paul Frey’s presentation October 2006."— Presentation transcript:

1 Cost Transfers Who Needs them anyway? By Sharon McCann and Audrey Portis SRA International Meeting Excerpts from Paul Frey’s presentation October 2006 Quebec, Canada

2 Cost Transfers Agenda 1. Are Cost Transfers Necessary – General Discussion (Sharon) 2. The Audit Process – What to expect (Audrey) 3. Avoiding Cost Transfers – Best Practices (Sharon)

3 Are Cost Transfers Necessary? Yes, and the federal auditors recognize this necessity Yes, and the federal auditors recognize this necessity The key is that cost transfers cannot be used as a money management tool The key is that cost transfers cannot be used as a money management tool Cost Transfers must meet the A-21 test of being reasonable, allocable and allowable Cost Transfers must meet the A-21 test of being reasonable, allocable and allowable ( See attachment A; A-21 section C.2 ) ( See attachment A; A-21 section C.2 ) Frequent, late, and poorly explained cost transfers raise questions about the appropriateness of expenditures and the effectiveness of the University’s internal controls Frequent, late, and poorly explained cost transfers raise questions about the appropriateness of expenditures and the effectiveness of the University’s internal controls

4 The Audit Process – What to Expect In a cost transfer audit, you are guilty until proven innocent In a cost transfer audit, you are guilty until proven innocent The burden of proof regarding allowability is on the University rather than on the auditor In a recent cost transfer audit at a major research university the government looked at three things: -General Cost Transfers -Cost transfers related to effort reporting and effort certification -Cost allocation methodologies associated with cost transfers Supply charges, maintenance agreements Supply charges, maintenance agreements In such cases random percentages such as were not accepted In such cases random percentages such as were not accepted However, the allocation of direct charges was not reviewed, only cost transfers However, the allocation of direct charges was not reviewed, only cost transfers

5 Early in the audit, the auditor will make up his/her mind regarding the validity and allowability of cost transfers based on the university’s system for processing and approving cost transfers The auditor will first be on the lookout for certain characteristics of your institution’s cost transfers -What are the various level of review and approval of cost transfers -Is any one of those levels simply a rubber stamping process -How current and how accessible is your cost transfer policy (see attachment B,CMU policy) (see attachment B,CMU policy) - Can you demonstrate the volume and frequency of cost transfers denied

6 What the auditor looks for (tales from other universities): -Length of time between a charge’s appearance on an expense statement and when the cost is transferred -Processing of a cost transfer after a grant has ended. Such transfers are suspicious by nature and must be particularly well justified, especially with respect to timing -Transferring from an overrun project to a different project. In a recent audit, these were disallowed. -Transfers of partial amounts. This practice should be avoided where possible, but if unavoidable, these must also be particularly well justified especially as it relates to allocation method.

7 -Transfer of effort percentages. These must be reasonable and reflect actual effort expended.  Flat dollar amounts that reflect unreasonable effort percentages will be disallowed ($5,000 representing % effort) -Volume-Numerous cost transfers, especially those made to correct errors in the initial recording of costs indicate a poor system of controls over direct charging. -The fish bowl concept – Auditors may compare the volume of cost transfers from one department to another  Cost transfers per research dollar in one department could be compared to other departments. -Cost transfers after effort has been certified.  Almost always an automatic disallowance  Just say no

8 -Cost transfers conform to institutional policies.  If your policy says cost transfers cannot be processed beyond a certain time limit, then these types of cost transfers should not be approved.  If your policy says cost transfers cannot be processed once effort is certified, then these types of cost transfers should not be approved.

9 Avoiding Cost Transfers-Best Practices (Suggestions) Allow departments to obtain approval to keep a funded project open if future funding is forthcoming. Allow departments to obtain approval to keep a funded project open if future funding is forthcoming. (attachment C – extensions) (attachment C – extensions) Request that departments provide documentation from the funding agency to get an assurance the funds will be awarded. Request that departments provide documentation from the funding agency to get an assurance the funds will be awarded. By doing this, the expenses can be charged to the project where they belong rather than being transferred at a later date. By doing this, the expenses can be charged to the project where they belong rather than being transferred at a later date.

10 Adjust your system to allow expenses to be charged on the project when a non- competing project is expired if non- competing funding is forthcoming. Adjust your system to allow expenses to be charged on the project when a non- competing project is expired if non- competing funding is forthcoming. Expenses will be charged to the correct project initially. Expenses will be charged to the correct project initially. Make greater use of Early Center accounts if you are comfortable that funding is forthcoming. Make greater use of Early Center accounts if you are comfortable that funding is forthcoming. (Attachment D – Early Center request) (Attachment D – Early Center request) Strongly enforce that existing sponsored projects should not be used for work related to a project that has not yet been funded. Strongly enforce that existing sponsored projects should not be used for work related to a project that has not yet been funded. It is safer to transfer a cost from a non-sponsored account (department supported research) than from another sponsored account. It is safer to transfer a cost from a non-sponsored account (department supported research) than from another sponsored account. Knowing charging the wrong sponsored project is a major red flag to an auditor Knowing charging the wrong sponsored project is a major red flag to an auditor

11 Encourage no-cost extensions when it appears that cost transfers are being made to spend out a project Encourage no-cost extensions when it appears that cost transfers are being made to spend out a project Monitor the volume of cost transfers by department to identify potential trouble areas. Monitor the volume of cost transfers by department to identify potential trouble areas. Meet with the people in that department to discuss ways to reduce cost transfers including training. Meet with the people in that department to discuss ways to reduce cost transfers including training. Establish periodic training session focused on cost transfers. Establish periodic training session focused on cost transfers. Have web bases tutorial on cost transfers for individuals to use in between cost transfer training sessions and to serve as a reminder Have web bases tutorial on cost transfers for individuals to use in between cost transfer training sessions and to serve as a reminder

12 Review every cost transfer to ensure that it contains a clear, detailed explanation that addresses both why the cost transfer is being made and why the project being debited was not charged initially. Review every cost transfer to ensure that it contains a clear, detailed explanation that addresses both why the cost transfer is being made and why the project being debited was not charged initially. Allowability often depends on the strength of the justification. Allowability often depends on the strength of the justification. When in doubt, reject the cost transfer to obtain a better justification. A history of rejecting cost transfers warms an auditor’s heart. When in doubt, reject the cost transfer to obtain a better justification. A history of rejecting cost transfers warms an auditor’s heart.

13 Sometimes we think that we don’t have enough time; Be wise enough to realize that more of the same is NOT a solution. We are all apart of this constantly changing world of Research Administration. As a team we can find solutions to the changes we face.

14 MAY THE LUCK OF THE IRISH BE WITH THEE AND MAY THE WISDOM OF THE OMB CIRCULARS BE ALWAYS AT YOUR SIDE AND MAY THE 90 DAY DEADLINE NEVER RISE UP TO GREET – YEE SO THAT YEE COST TRANSFERS SURELY WILL FLY THANK YOU FOR ATTENDING THIS PRESENTATION By: Sharon McCann


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