Subject:  Justification/Documentation of Cost Transfers No.        03-2 (formerly 97-5)
Date:    May 12, 2003

(Note:  This Important Notice is being sent to Fiscal Officers, Chairpersons, Deans and Chancellors.  Please forward to others who have a need to know.)

The U.S. Department of Health and Human Services (DHHS) which has audit cognizance of all federal programs at Indiana University has always placed a high emphasis on the timeliness and justification of cost transfers.  Cost transfers continue to be closely scrutinized by state and federal auditors.  Additionally, there has been a renewed emphasis on the timeliness of cost transfers not only for direct costs to and from the account, but also for cost share expenditures.               

The term “cost transfer” refers to any movement of previously-recognized expense from a contract or grant account to another account.  Cost transfer documents in the Financial Information System (FIS) include General Error Correction (GEC), Distribution of Income (DI), Transfer of Funds (TF), Salary Transfer (ST) and A-21 Effort Reports.  In order to be consistent on the processing of cost transfers, the following procedures must be adhered to on any transfer into or between contract and grant accounts.

 ·         Overdrafts on contract and grant accounts should not be covered from other contract and grant accounts unless specifically allowed by agency guidelines.

 ·         The cost transfer document should provide a full explanation of why the transfer is being made.  An explanation of “to correct error” or “to transfer to correct project” will not be sufficient.  The explanation should include justification that the person was actually working on the project in the case of a Salary Transfer document, or that materials were consumed on the project in the case of a General Error Correction or Distribution of Income/Expense.

 ·         All cost transfers with the exception of salary transfers generated from effort reports should be made within 90 days of the original charge.  Any transfer after the 90 day period should include an explanation of why the transfer was tardy in addition to the justification outlined above.  Transfers exceeding the 90 day limit will receive additional scrutiny concerning the propriety of the transfer.

 ·         To reinforce our commitment to compliance with federal guidelines, cost transfers between fiscal years will no longer be allowed on contract and grant accounts without the adequate documentation to support such transfers for audit purposes.  This includes transfers to fulfill cost share commitments as required by the terms of the award.  You are encouraged to review your accounts closely and have all reasonable transfers completed by June 30 of each fiscal year.  Transfers not completed in a timely manner and that cross fiscal years are subject to additional external review and may be disapproved by Contract and Grant Administration staff.  All non-salary related cost transfers must be completed in the university fiscal year to which they pertain.  These transfers must be posted prior to the first close of the year-end process.  Transfers crossing fiscal years will require additional justification.

 Initiation and justification of cost transfers are the responsibility of the fiscal officer.  Any disallowance resulting from improper transfers shall become the responsibility of the project director and/or their department or school.  Important Notice 03-4 “Accounting for Cost Share” provides additional information related to the timeliness of cost share transfers.


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