Pre-Award Spending

Pre-award spending can be in association with an Advanced Award, prior to the official award notification. However, there are times when the fully executed award is issued with an effective date in the future. The awarding agency determines the allowability of pre-award spending. Pre-award spending allows the Principal Investigator the availability of funds prior to the effective date of the award. Always remember to check the Terms and Conditions of your award for allowability.

NOTE: Our authority to recover pre-award costs was defined under the Research Terms and Conditions (Section 25(c)), but these have now expired. The new Uniform Guidance grants federal agencies the authority to permit pre-award costs, but that doesn’t mean all of them will choose to do so. We are currently expecting revised Research Terms and Conditions by the end of April. Some agencies (including DoD) may elect not to participate in the new Research Terms and Conditions. Other agencies (including NSF and EPA) may issue new awards under different terms that explicitly permit recovery of pre-award costs.

Unless you are certain that pre-award costs will be reimbursed in your specific case, it would be better not to incur any at this time.

UG (Uniform Guidance) 200.458 Pre-Award Costs

Project Expenditures to Sponsored Accounts

All expenditures being charged to sponsored awards are assigned an object code classification. These object codes tell the PI, departmental budget assistant, Research Accounting and auditors the category to which a cost is related. Specific categories all expenditures fall into are:  Salaries, Wages, Departmental Allotment, Fringe Benefits, Tuition, Equipment and Overhead (F&A). Some of these categories have detailed listing of object codes, such as Salaries, Wages, Departmental Allotment and Equipment, to further describe a cost.The link below provides you with the detailed list of the object code classifications, first by category and then in numeric order along with descriptions and uses.

Additional information regarding the Object Classification Codes can be found here.


Expenditures made on sponsored awards require monitoring to make sure they are allowable, allocable and reasonable to be charged to a project. Some costs are allowed under certain conditions and others are not. Federal policies such as the Cost Accounting Standards, OMB Circulars and Uniform Guidance are available to help us make these decisions. If a cost is determined that it may be subject to an exception a Cost Accounting Justification Form would need to be completed and approved by various levels within the Administrative Area. Cost Sharing/Matching may be required of some sponsors, therefore funding will need to be monitored and managed to make sure the administrative area can demonstrate that they are meeting their obligations.

If a Principal Investigator wants to begin spending funds prior to the start date of the award, a Pre-Award Cost Authorization (PCA) form must be completed and signed by the appropriate individuals in the Administrative Area.

Should income, beyond the sponsor's award, be generated on a grant during the project period, it must be separately accounted for and identified with the account number(s) of the sponsored project involved. This income is called Program Income.

The tools needed to manage the financial health of all awards can be found here.  

Cost Transfers

Moving salary, wage and project expenditures, either from or on to a sponsored award, is allowable if proper documentation is provided with the transfer. Cost transfers fall into two categories: Labor Adjustments and Non-Personnel Costs.


Labor estimates are posted to the University's pay and effort system by use of a properly completed Salary Assignment Sheet (SAS). The labor estimate is, in most cases, completed months prior to the month of the effort.

There are two categories of Labor Adjustments:


    • Estimate realignments may happen frequently and are an expected standard operational event given that the initial labor distribution process is done using the Plan-Confirmation method. The PI or authorized delegate must request and approve the estimate realignments for federal funds; Budget Administrator or authorized delegated authority for non-federal funds.

      • Estimate realignments may be done at any time for pay periods not yet paid.
      • Estimate realignments must be done within the month following the month paid. For example, salary paid in October must be realigned no later than November.

    • Given that a timely review of monthly clearing account vouchers is expected, labor transfers should occur infrequently and must include detailed documentation as to why the transfer is required. Written PI approval for the labor transfer for sponsored awards is required and must be included in the information sent to the Finance Office with the request for the labor transfer. For non-sponsored funds, written approval from the Budget Administrator or appropriate delegated authority is required.
    • Labor transfers are requests done after the month following the month paid. For example, salary paid in October is considered a labor transfer if changed in December or later.


Charging costs to the correct account the first time demonstrates good administration of sponsored programs and helps ensure the University’s compliance with federal requirements. Cost transfers to or from sponsored programs should be processed when discovered, documented with appropriate justification and approved by the PI and/or Budget Administrator (or authorized delegates). Costs must be allowable, allocable, and reasonable in accordance with the Office of Management and Budget, the funding agency, and the University’s policies.


All sponsored award expenditures should be initially charged to the correct sponsored project. However, occasionally expenses are charged erroneously. When an erroneous entry affects a sponsored project, the correction must be made on a timely basis and sufficient information must be provided to allow for a clear audit trail back to the initially recorded expense.

Cost transfer documentation and timeliness of corrections involving sponsored projects is the department’s responsibility. Some examples of cost transfer are:

  • Correcting charges BETWEEN sponsored projects are cost transfers. For example, if lab supplies are incorrectly charged to one sponsored award and are moved to the correct sponsored project.
  • Correcting charges FROM sponsored projects TO department general funds are cost transfers. For example, if meeting expenses are erroneously charged to a sponsored project and later moved to a department general account.

The following are NOT Cost Transfers UNLESS they are untimely. If any of these transactions are untimely, then they need to be coded as cost transfers and the untimely documentation requirements apply.

  • Allocating charges that cannot be specifically identified as a direct charge to a sponsored account at the time of purchase or use are considered original or initially recorded charges; they are not cost transfers. Examples include allocation of long distance phone bills, break-out/distribution of purchase orders and service center bills that cannot be allocated at the time of purchase.
  • Initially recorded charges such as expenses charged through a Purchase Order, Purchasing Card, Service Center, copying charges, etc., are not cost transfers

A cost transfer from one sponsored project to another may not be processed in these instances:

  • to cover cost overruns with funds in other sponsored projects
  • to avoid restrictions imposed by the Sponsor
  • or for other reasons of convenience


A cost transfer should be processed promptly after the error is discovered. Untimely cost transfers may raise serious questions concerning the propriety of the cost transfer and may be subject to a cost disallowance. A cost transfer is considered “untimely” when it is not processed within the month following the date of the original transaction’s posting to IBIS. Violations of the deadline do not necessarily mean that the related expenditure is unallowable from a regulatory perspective, but require additional documentation providing an explanation as to why the transfer was not done in a timely basis.

The justification must provide a full explanation of the reason for the delay in processing the correction (cost transfer). The justification should also identify steps taken to prevent the error from occurring again, if appropriate.


A non-personnel cost transfer is documented by processing a journal voucher. Adequate justification and documentation of the reason for the transfer must be part of the explanation section of the journal voucher. Explanations should disclose why something happened, not what happened.For example, “to correct error” is not an adequate justification – but “correction needed because wrong account inadvertently charged due to misunderstanding the PI’s directions." The reason for the error must be included as part of the justification (e.g. Due to…)

Consulting/Purchased Services

Please note that there are very different policies and procedures depending on whether you want to HIRE a consultant (or a professional service, a purchased service, etc.) on a Penn State project as opposed to if you want to SERVE as a consultant (on a non-Penn State project). Each of the relevant policies and procedures are described below.


Consultants, Purchased Services and Professional Services


as Consultants (for Penn State Faculty Members)

Unallowable Costs

All costs proposed or incurred on a sponsored project must comply with the terms and conditions of the sponsored award in determining costs that are allowable or unallowable. At no time should unallowable costs be charged to a sponsored project.

Per Section 200.403 of Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards, except where otherwise authorized by statute, costs must meet the following general criteria in order to be allowable under Federal awards:

  • Be necessary and reasonable for the performance of the Federal award and be allocable thereto under these principles.
  •  Conform to any limitations or exclusions set forth in these principles or in the Federal award as to types or amount of cost items.
  •  Be consistent with policies and procedures that apply uniformly to both federally-financed and other activities of the non-Federal entity.
  •  Be accorded consistent treatment. A cost may not be assigned to a Federal award as a direct cost if any other cost incurred for the same purpose in like circumstances has been allocated to the Federal award as an indirect cost.
  •  Be determined in accordance with generally accepted accounting principles (GAAP), except, for state and local governments and Indian tribes only, as otherwise provided for in this part.
  •  Not be included as a cost or used to meet cost sharing or matching requirements of any other federally-financed program in either the current or a prior period. See also §200.306 Cost sharing or matching paragraph (b).
  •  Be adequately documented. See also §§200.300 Statutory and national policy requirements through 200.309 Period of performance.

Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards

Expenditure Guidelines for Costs not Allowable under OMB Circular A-21 (FNG05)

Unallowable Cost Provisions (FNG05-b)