TLDR
A written cost transfer policy is a required internal control under 2 CFR 200. Cost transfers made more than 90 days after the original charge was posted are considered late and require more extensive justification to be allowable. Transfers made after award period end are almost never approvable. Most audit findings in this area stem from late transfers documented with generic justifications — not from the transfer itself.
BLUF
A written cost transfer policy is required under 2 CFR 200.302(b)(7). Cost transfers made within 90 days of the original charge, with specific written justification and dual approval, are generally allowable. Transfers made after 90 days require expanded justification. Transfers made after the grant period ends require prior federal agency approval and are rarely approved for anything other than clerical coding corrections. The documentation is the compliance — not the transfer itself.
TL;DR
- Required: written cost transfer policy as part of financial management system
- 90-day standard: transfers within 90 days use standard documentation; over 90 days requires expanded justification
- Personnel transfers: require time records showing actual work on the receiving award
- Post-period end: requires federal prior approval; rarely granted for new spending
- Audit finding rate: consistently top-10 in federal grant single audits
Why cost transfers happen
Multi-award organizations frequently charge costs to the wrong award during initial posting. Common causes:
- Personnel time split across multiple projects where initial estimates diverged from actual hours
- Shared supplies or services initially charged to a single award
- Invoice coding errors when multiple similar grants are active simultaneously
- Costs incurred near period end that were charged to the closing award rather than the new award
Cost transfers correct these errors. The transfers themselves are not prohibited — inadequate documentation and late timing are the problems auditors find.
What the written policy must cover
2 CFR 200.302(b)(7) requires a financial management system with policies for cost transfers. Auditors will request the written policy as a document and test whether practices match it. A compliant written policy addresses:
- Definition — what the organization classifies as a cost transfer versus a routine budget amendment
- Timeliness standard — the 90-day threshold and what it triggers
- Required documentation — what must accompany every transfer request
- Approval hierarchy — who may initiate, who must approve, and what approvals are required for late transfers
- Personnel cost rules — explicit statement that salary transfers require time and effort records
- Post-period restrictions — prohibition on post-period transfers without agency prior approval
- Record retention — where transfer documentation is maintained and for how long (generally 3 years from grant closeout under 2 CFR 200.334)
The 90-day standard explained
The 90-day threshold is not explicitly stated in 2 CFR 200, but it has become the de facto standard through decades of audit practice, federal agency guidance, and OIG reports. It reflects the expectation that a well-controlled accounting process will identify and correct errors within one to two accounting cycles.
Transfers within 90 days: standard documentation is sufficient. The justification should still be specific — “salary costs for [employee] for [period] reallocated from Grant A to Grant B to reflect actual time on program activities per attached timesheet” is adequate.
Transfers after 90 days: the documentation must additionally explain why the error was not identified sooner. “Periodic cost review was not completed on schedule due to staff vacancy” is a real explanation. “To correct an error” without more context is not.
Personnel cost transfers: the highest-risk category
Salary and fringe benefit transfers interact with time and effort requirements under 2 CFR 200.430. The rule is simple in principle: the receiving award can bear the salary cost only if the employee actually worked on that award during the period being adjusted.
The documentation that proves this is an after-the-fact certified timesheet or equivalent record showing actual hours on the receiving award. If the employee’s time records show no hours on the receiving award, the transfer cannot stand regardless of how good the written justification is.
Organizations should review time records before initiating personnel transfers, not after. Discovering mid-transfer that the time records don’t support the reallocation wastes time and creates a paper trail that auditors will find.
Post-period cost transfers
After the grant period of performance ends, the award closes. Costs for activities conducted outside the period of performance are not allowable. A post-period cost transfer that represents new spending — not a correction of a prior coding error — will be disallowed.
The narrow exception covers clerical coding errors: a charge that was correctly incurred during the period but posted to the wrong award due to an administrative mistake. These require:
- Written documentation showing when the cost was incurred and that it falls within the period of performance
- Prior written approval from the federal awarding agency before posting
- Specific justification that the cost benefits the award and was not previously claimed under any other award
Contact the federal program officer before posting any post-period transfer. Most agencies prefer a prior-approval conversation to an after-the-fact finding.
Integration with the single audit
If the organization is subject to a single audit (federal expenditures at or above $1,000,000 under the October 2024 Uniform Guidance revision), auditors will test cost transfers as part of internal control and compliance testing for major programs.
Auditors will:
- Request the written cost transfer policy
- Pull a sample of transfers from the GL
- Test timeliness, documentation, and approval for each sampled transfer
- Test that personnel transfers are supported by time records
- Check the transfer log for completeness
A pattern of late transfers or inadequate documentation across the sample produces a finding. A single well-documented late transfer with appropriate expanded justification generally does not.
How GrantPipe helps
GrantPipe tracks grant expenditures by award from the point of initial charge, making period-over-period reconciliation visible before errors accumulate into the 90-day zone. The cost transfer log within a grant record captures request date, original charge date, justification, and approval status — all in one place for audit access. When a transfer is flagged as late, the documentation requirement updates automatically. Start with a free trial to build a cost transfer workflow alongside your grant and fund accounting structure.
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- Cost transfer
- A journal entry that moves a cost from one award, cost center, or account to another after the original charge has posted. Transfers may correct coding errors, reallocate shared costs, or move costs between grant years.
DEFINITION
- Late cost transfer
- A cost transfer posted more than 90 days after the original charge date. Late transfers require expanded written justification and receive additional scrutiny from auditors and federal program officers.
DEFINITION
- Cost allocation
- The process of assigning shared costs — like staff time or facilities — to multiple grants or cost centers based on a reasonable and documented methodology. Distinguished from cost transfers, which correct or adjust prior allocations.
DEFINITION
- 2 CFR 200.302
- The Uniform Guidance section requiring non-federal entities to maintain financial management systems with specific attributes, including written policies for cost transfers and cost allocation.
DEFINITION
Q&A
How should a nonprofit document a cost transfer to survive audit?
Each cost transfer should be documented with: (1) the original invoice or transaction detail showing what the cost was and when it was incurred; (2) a written justification explaining why the cost benefits the receiving award and not just the original award; (3) for late transfers, an explanation of when the error was discovered and why it was not found sooner; (4) dual approval signatures with dates; and (5) retention in a dedicated cost transfer log. The justification is the most important element — it must be specific, not generic.
Q&A
Can salary costs be transferred between grants?
Yes, but personnel cost transfers are the highest-risk category because they interact with time and effort documentation. A salary transfer must be supported by after-the-fact time records showing the employee actually worked on the receiving award during the period being adjusted. Without supporting time records, a personnel transfer is disallowable even if made within 90 days.
Q&A
What is the difference between a cost transfer and a budget modification?
A cost transfer moves actual expenditures between accounts after they are posted. A budget modification changes the planned spending in the approved budget. Both may be needed when spending patterns shift significantly. A budget modification with prior agency approval does not eliminate the need to properly document individual cost transfers — it just changes which account the costs move to.
Frequently asked