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 is 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 all costs are Reasonable, Allowable, Allocable and Consistently Treated.
Cost Transfers provide a perfect window for an Auditor to determine if a department has adequate Internal Controls as the Auditors can easily see:
- Transaction errors (expenses posted to the wrong budget)
- Timing of identification of error (more than 90 days)
- Transfer of salary expenses after certification (FEC & GCCR)
- Transfers for budgetary convenience (end of budget or after budget end date)
- Adjustments of allocation of an expense split across multiple budgets
- If costs were temporarily posted on a sponsored budget – can lead to fraudulent reporting, draw of funds
- The need to temporarily post costs indicates starting of expenditure prior to Award receipt
Unwelcome Audit Outcomes
Cost Disallowance: Departments must use unrestricted funds to cover disallowances costs.