This policy establishes the proper methods to transfer monies between funds and units. Tubs transfer monies between University funds for various reasons. These internal transfers must not increase total University income or expenses nor misstate the operating results of any University unit.
Reason for Policy
To ensure adherence with Generally Accepted Accounting Principles (GAAP); to promote consistent accounting treatment across the University; to ensure income and expenses are not overstated as a result of transactions that are internal to the University; and to ensure the operating results of University units are not misstated as a result of transfers.
Who Must Comply
All consolidated (meaning included in the University’s annual financial report and related financial statements) Harvard University schools, tubs, local units, Affiliate Institutions, Allied Institutions and University-wide Initiatives must comply with this policy. Non-consolidated tubs excluded from this policy are as follows:
190 Yenching Institute
295 American Repertory Theater
455 HBS Research Centers
595 HPRE 3rd Party
670 Master Trust
- Characterize transfers as operating or non-operating properly. When deciding whether to use an operating (income or expense) or non-operating code for a transfer, the tub must consider how the transaction should affect the unit’s reported operating results. Clear and accurate operating results are essential; use an income or expense object code only if the transfer should properly adjust the current year operating results of each affected unit. The flowchart in Appendix A provides guidance on this topic.
- Operating transfers affect the transferring unit’s current year net revenue/deficit. Operating transfers are made in income (4000-5999) and expense (6000-8999) object codes, which are referred to as “operating codes” i.e., “above-the-line” activity. Examples of operating items are tuition income, gift income, salaries and wages, supplies expense, etc.
- Non-operating transfers do not affect the transferring unit’s current year net revenue/deficit. Non-operating transfers are made in the 9000+ range of object codes, which are referred to as “non-operating object codes” (i.e., “below-the-line” activity). Examples of non-operating items are appreciation on investments, changes in pledge balances, capitalizations to and decapitalizations from endowment principal, etc.
- Ensure all internal transfers net to zero in the same object code. Transfers of monies between Harvard units must not increase total University income or expenses. Therefore, whether operating or non-operating, all transfers must either:
- Debit and credit the same income object code; or
- Debit and credit the same expense object code; or
- Debit and credit the same non-operating transfer object code.
- Record transfers to appropriate object codes. See Appendix B for detailed instructions on using object codes for transfers. In particular, record expense transfers to specific, natural object codes whenever possible.
- To transfer expenses from one fund to another, debit and credit the same natural expense object code used to record the expense. For example, to transfer a $3,000 computer purchase originally recorded to object code 6750, “Computer Hardware < $5,000, GENERAL,” credit the transferring fund in 6750 (to offset the original expense transaction) and debit the receiving fund in 6750 (to record the final location of the expense). In this way, the transactions properly net to zero within the same object code at the University level.
- For unrestricted funds, units may use the general transfer object codes 8921-8928 ONLY when it is impractical to transfer expenses using the natural expense object codes, such as for a group of commingled expenses (like conference expenses). BOTH the transferring fund and the receiving fund must record the transfer in the same object code.
- Units are strongly encouraged to transfer expenses individually when transferring to restricted funds, as this provides the strongest supporting documentation. Transferring aggregated expenses to a restricted fund is allowable if adequate supporting documentation is maintained. However, aggregated expenses must be transferred 100%; transfers of pro-rated aggregate expenses are prohibited.
- Include identifying information in transaction. When processing the transfer, the transferring unit should include in the journal line description sufficient identifying information so the receiving unit can research the transaction; ideally this information should include a description of the transaction, and the first initial/last name and Harvard phone number of a contact person. Transferring units are also encouraged to send the recipient unit a copy of the journal entry and any relevant supporting documentation for their records. See Appendix D for details.
- Observe special limits on transfers involving restricted funds.
- Operating transfers: only gift income, endowment distribution, related interest income and other income required to be added to the fund by the donor may be credited or moved to restricted funds. RSO and donor approval is required to move monies between restricted funds. Restricted fund monies are subject to the terms of the fund, and must be spent directly from the fund. If a restricted fund will be used to support allowable expenses from another University unit, the owning tub can cross-validate the fund to enable the other unit to spend directly from it. These funds are referred to as “cross-tub” funds. Once the fund has been cross-validated through the Chart Security Maintenance Application (CSMA), the owning unit records an income transfer to the receiving unit, using the same cross-validated fund on both sides of the entry. The other University unit may then spend directly from the cross-validated fund.
- Non-operating transfers: occasionally, tubs may need to move restricted fund balances from one unit to another. These transfers should be recorded in the same fund through the same cross validation process as described for operating transfers above. Non-operating transfers between restricted funds are prohibited unless approved by the donor and RSO. (Non-operating transfers between restricted funds are allowed ONLY for transfers of funding for construction-in-progress (CIP) or work-in-progress equipment (WIP) projects. The University’s Facilities and Equipment Funding Procedures contain further information regarding CIP and WIP project funding entries.)
- Other considerations
- Prior-year restricted fund corrections: corrections to prior-year income or expenses in sponsored or restricted donor funds must be recorded in the specific income and expense object codes, respectively, not through the non-operating transfer object codes.
- Responsibility for restricted fund transfers: individuals processing transactions against restricted funds are responsible for ensuring that the funds are spent in accordance with donor terms. This applies to all expenditures for which the person has direct responsibility, including those made with monies transferred from other tubs (such as those received under a “cross-tub” fund arrangement).
- Cost transfers on sponsored projects: cost transfers relating to federally sponsored projects must comply with the Office of Sponsored Programs Cost Transfer Policy.
- Record multi-year funding arrangements properly. If two tubs have a multi-year funding agreement, the funding must be transferred in the appropriate fiscal periods, depending upon the tubs’ agreement.
- Process internal transfers timely. Internal transfers must be processed as soon as possible after the related expenses have been incurred or income has been earned. In particular, internal transfers must be processed within the proper quarterly and fiscal year periods.
Responsibilities and Contacts
Tub finance offices are responsible for ensuring that local units abide by this policy and accompanying procedures when processing transfers.
6/30/2013: Updated format, clarified procedures, moved certain detailed information to appendices, required internal transfers be processed quarterly (instead of annually).
Appendix A: Internal Transfers Flowchart – Operating vs. Non-Operating
Appendix B: Detailed Object Code Usage Guidelines for Internal Transfers
Appendix C: Examples of Proper Internal Transfer Coding
Appendix D: Internal Transfer Journal Line Description Requirements