5.7 - Audit Issues

Effort Reporting

Every effort should be made by project directors and department heads to ensure employees are paid correctly from externally sponsored funds. While it may be possible to justify adjustments after effort has been certified on an activity report, frequent retroactive adjustments indicate a lack of internal control by the project director's department and the university. The following types of charging practices are almost certain to result in audit disallowances and refunds to the sponsor:

  • charging a grant with the anticipation of processing a retroactive adjustment to charge another grant when the new grant award is received;
  • retroactive adjustments toward the end of a grant period to use remaining grant funds. 

Cost Transfers

A cost transfer is a direct charge expense transferred from one account to another after the original charge has been posted in the financial records. All expense transfers, excluding personnel charges, are processed on the G/L Posting Document (Exhibit M). An HR Form 3 (Exhibit N) is used to initiate transfer of personnel costs. A complete explanation must be provided in writing to justify why the transfer is necessary and why the expense was not charged to the correct account in the first place.

PIs/PDs are cautioned that excess transfers indicate a lack of internal control, and typically lead to audit findings and repayment of project funds to the agency. Therefore, the PI/PD and/or department head should be prepared to justify expense transfers to federal and state auditors.

Transfers are allowed for charges incurred within ninety days immediately preceding the date of the transfer request, as long as the department provides adequate justification. Transfers prior to the ninety-day period are only allowed in extraordinary situations and only upon approval by the Accounting Office. Transfers processed on federal projects are always subject to review by our federal, state and independent auditors. Please refer to the Activity Report Policy (Exhibit O) for additional information on payments from federal projects.

Cost Sharing

In order for a cost to be reportable to an agency as a university contribution, the cost must meet the following criteria:

  • verifiable from the University's accounting records;
  • allowable as a cost to the project under the provisions of OMB Circular A-21;
  • not paid by another federal grant;
  • not used as a cost share on another project.

The method of documentation for cost sharing depends on the type of costs involved. Salary and wage charges are documented through the university's activity report system and complete instructions are available on that web site.

When other operating expenses are budgeted as a university contribution, a separate restricted account is established and funds transferred into the account equal to the amount budgeted. All expenses charged to the separate account are then considered applicable to the project and counted as match.

The Office of Research and Sponsored Programs provides forms for project directors to document tuition charges for graduate students.

When indirect costs are waived as a match, the Accounting Office computes the amount to be reported. Approval of the Vice Chancellor for Research and Sponsored Programs is required before waiving any indirect cost charges.

Unallowable Costs

PIs/PDs have ultimate responsibility for defending all costs charged to their sponsored projects. OMB Circular A-21, Section J, provides information on the allowability of specific cost items.
Activities that commonly result in disallowed costs are:

  • charging amounts budgeted as opposed to an amount based on actual useage;
  • assigning charges to sponsored projects in advance of the time the cost is incurred;
  • charging a cost exclusively to a sponsored project, when it also benefits non-sponsored activity;
  • assigning charges that are part of the normal administrative support for contracts and grants (proposal preparation, accounting, payroll, etc.);
  • charging travel costs for employees not specifically identified as working on the project;
  • charging ending sponsored projects to expend funds without regard to the benefit derived from the cost;
  • assigning costs incurred outside the approved project period, unless specifically approved by the awarding agency.

Common Audit Findings

The four most common audit findings identified by the Department of Health and Human Services’ Office of Inspector General are:

  • Time and Effort Reporting – findings related to inaccurate and incomplete effort certification (for example, claimed salaries being based on budgeted amounts rather than on actual time spent on the project);
  • Allocating Charges to Awards – findings related to improper allocation of costs and improper cost transfers (untimely transfers and incomplete explanations);
  • Cost Sharing or Matching – findings related to failure to disclose all cost sharing on a project;
  • Subrecipient Monitoring – findings related to insufficient monitoring of subrecipients.