Federal Assistance Manual Chapter 6-05

CHAPTER 6-05 COST TRANSFERS

• 6-05-00 Purpose
  
• 6-05-10 Background
  
• 6-05-20 Policy

6-05-00 PURPOSE

The purpose of this chapter is to prescribe the conditions under which cost transfers from one funding source to another may be accepted as charges to OSM grants or cooperative agreements. This includes transfers within and between grants and cooperative agreements.

6-05-10 BACKGROUND

Audit reports have cited instances where recipients have transferred costs from other projects or programs to OSM grants many months after the original charges had been recorded in the recipients accounting records. In some cases, the transfers were not supported by documentation which adequately explained why the transfers were made. OSM recognizes that transfers of costs from one project to another are occasionally necessary to correct bookkeeping or clerical errors in the original charges. OSM also recognizes that closely related work may be supported by more than one funding source and that in such cases a transfer of costs from one funding source to another may be proper. However, frequent, tardy or unexplained (or inadequately explained) transfers, particularly where they involve projects with significant cost overruns or unexpended fund balances, raise serious questions about the propriety of the transfers themselves as well as the overall reliability of the recipient's accounting system and internal controls.

6-05-20 POLICY

1. Correction of Errors

   Transfers of cost to OSM grants and cooperative agreements which represent corrections of clerical or bookkeeping errors must be made promptly after the errors are discovered and, where possible, prior to the submission of the grant expenditure report. The transfer must be supported by documentation which contains a full explanation of how the error occurred and a certification of the correctness of the new charge. An explanation which merely states that the transfer was made "to correcterror" or "to transfer to correct project" is not sufficient. It should be noted that frequent errors in the recording of costs may indicate the need for improvements in the recipient's accounting system and/or internal controls. Therefore, where such errors occur, recipients are encouraged and may be required to evaluate the need for improvements in these areas and to make what improvements are deemed necessary.

2. Closely Related Work
   1. When closely related work is supported by more than one funding source, a cost transfer from the originally charged funding source to an OSM grant may be made provided that the transfer meets all of the following conditions:
      1. The cost is a proper and allowable charge to the grant.

      2. The transfer is supported by documentation which contains a full explanation and justification for the transfer and a certification of the propriety of the transfer by the principal investigator, project director or other responsible program official of the recipient organization.

      3. The transfer is reviewed and approved by a responsible financial or administrative official of the organization.

   2. To the maximum extent possible, cost transfers involving closely related work should be made within 120-days of the original charge. Recipients are cautioned that transfers made long after the original charge raise serious questions concerning the propriety of the transfers. Therefore, if a transfer is made after the 120-day period, the supporting documentation described in 6-05-20B.1.b, in addition to the normal explanation and justification for the transfer, must also include an explanation of why the transfer was tardy.

3. Retention of Documentation

   The documentation described in paragraphs 6-05-20.A and B must be retained by the recipient for the period stipulated in OSM's record retention procedures and be made available for verification during the course of an audit or other review made by, or on behalf of OSM. Recipients are expected to make all pertinent documentation regarding the transfers of costs available to the auditor at the time of the audit.

FEDERAL ASSISTANCE MANUAL
January 2, 1998