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Why Cost Transfers Are High Risk

Why Are Cost Transfers High Risk?

Auditors review Cost Transfers as a way to determine if a department has adequate Internal Controls. 

What do we mean by Internal Controls?

Internal Controls are a process for assuring achievement of an organization's objectives in operational effectiveness and efficiency, reliable financial reporting, and compliance with laws, regulations, and policies.

In other words, the department needs to manage its funding and ensure that all costs are Reasonable, Allowable, Allocable, and Consistently Treated.

Cost Transfers provide a perfect window for Auditors to determine if a department has adequate Internal Controls, as the Auditors can easily see:

  • Transaction errors (expenses posted to the wrong award line or funding source)
  • Timing of identification of errors (more than 90 days)
  • Transfers of salary expenses after certification (Effort Statements and Project Statements)
  • Transfers for budgetary convenience (end of budget or after budget end date)
  • Adjustments to the allocation of expenses split across multiple award lines
  • If costs were temporarily posted on a sponsored budget, this can lead to fraudulent reporting/draws of funds
  • The need to temporarily post costs indicates expenditures prior to Award receipt

Unwelcome Audit Outcomes

Cost Disallowance: Departments must use unrestricted funds to cover disallowed costs.

Reputation: Federal audit findings are public (sponsor website, industry newsletters, other media). Audit findings impact the entire University.

Sponsor Restrictions: Recipients can be banned, restricted, or have increased administrative burden due to an audit. This also impacts the entire University.

Audit Findings Lead to More Audits: Audit findings could potentially lead to more internal and external audits.


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