Sneak Preview: Recipients Urged To Minimize Cost Transfers

(The following was excerpted from a Thompson Grants 360 article.) As nonfederal entities develop their internal time and effort reporting practices and review labor expenditures and other costs, they are encouraged to implement procedures that can minimize cost transfers, speakers told attendees at the recent National Grants Management Association’s Annual Grants Training conference.

A cost transfer is a corrective procedure that assigns an expense to a federally or nonfederally funded chart of accounts that was initially recorded on another chart of accounts. It often requires the entity to go back and manually credit one account while debiting another account. Cost transfers must not be used as a means of managing available cash balances,

“If you have the expectation for complete and accurate reports, it helps to minimize cost transfers from one project to another,” said Steve Mandes, chief financial officer at the University of Maryland, Baltimore. “Once a cost transfer happens, auditors will want to see it. You have to support why you are doing this, why it wasn’t charged correctly to begin with and what led you to find the error. Cost transfers can look like you are just moving money around to make things balance, and if you don’t have a good [documented] explanation for making the transfer, you may not remember why it happened.”

Fellow panelist Eric Russell, senior manager at Crowe LLP, said he has often seen cost transfer issues among Department of Transportation grant recipients. “There are so many funding sources that individuals completing timesheets are not sure which project code number is the right one,” he said. “That results in numerous cost transfers on the back end [that could garner] auditor attention. It is very difficult to support those transfers later.”

Time and effort reporting requirements are addressed in the uniform guidance under Subpart E cost principles, compensation — personal services (§200.430), although the federal government has not mandated a single approach to time and effort reporting under grants. Instead, nonfederal entities must exercise judgment in developing the documentary support for time and effort reporting based on the cost principles and other federal guidance. Time and effort reports may be prepared after the fact, and entities must determine how often to prepare and certify such reports. Entities must be aware of all of the work each employee has performed to know the correct percentage of time and effort to attribute to each project (§200.430(i)(1)(iii)), totaling 100% among all projects or among all federal and nonfederal time and effort.

Among the approaches nonfederal entities use to report timekeeping include daily timekeeping, project activity reports, random moment studies or effort reporting, Russell said. “Just be sure that you have a process present with written procedures that allows you to have consistent execution of [time and effort] activities,” he added.

(The full version of this story has now been made available to all for a limited time here.)

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