Cost Overruns
Learn about overrun monitoring and resolution on sponsored projects at Columbia University.
Details
A cost overrun in a sponsored project occurs when total expenditures charged to the sponsored project exceed the total project budget. Overrun spending can place the University at risk because overrun costs are not covered by sponsored agreements and cannot be billed or reported to the sponsor.
The University expects that Principal Investigator (PIs) and Department Administrators (DAs) will monitor each sponsored project to ensure that the funds awarded by the sponsor will be sufficient to cover all of the expenses incurred in support the project, and that, if necessary, other resources will be identified and utilized in order to avoid incurring an anticipated cost overrun.
When an overrun exists, it is expected that the PI and/or DA will justify the overrun to the Sponsored Projects Finance (SPF) Finance and Compliance Manager or clear it to an alternate funding source.
Principal Investigators and those responsible for assisting in financial oversight over sponsored projects are expected to continually monitor expenditures incurred on each individual project so that, wherever possible, cost overruns are avoided. It is recognized, however, that in carrying out sponsored projects, it may sometimes be necessary to incur such cost overruns on a temporary basis, pending identification of alternate resources, in order that the work performed under the sponsored project is not adversely affected by a delay in identifying those alternate resources. The following rules apply to the University's expectations as to how cost overruns are to be resolved:
- When situations arise where costs are expected to permanently exceed the cumulative anticipated budget for a sponsored project, an overrun should be avoided by charging excess expenditures to an alternate, non-sponsored project upon incurrence of those expenditures.
- When situations arise where costs are expected to permanently exceed the cumulative anticipated budget for a sponsored project, an overrun should be avoided by charging excess expenditures to an alternate, non-sponsored project upon incurrence of those expenditures.
- If an overrun is incurred, and there is documentation from the sponsor indicating that there will ultimately be sufficient funds to cover the overrun and that these funds may be used for the period of incurrence (e.g., a temporary deficit which arises during a single year of a cumulatively funded, multi-year project that will resolve itself over the remaining life of the project, or a request for supplemental funding), then the temporary overrun may in most cases remain charged to the project, pending its clearance.
- The determination that the project funding will ultimately be sufficient to cover any short term overrun must be based on a realistic assessment of the status of the project and the available resources, and not merely a default judgment which delays resolution of a likely funding gap.
- Finally, even where the overrun is expected to be covered by sponsored funding over the life of the project, the University reserves the right to require a department to provide additional justification regarding the nature of the overrun or to provide interim funding if the amount of the overrun is considered to be significant, or if the period during which the overrun is expected to remain is deemed to be unreasonable.
- If an overrun is incurred, and there is documentation from the sponsor indicating that there will ultimately be sufficient funds to cover the overrun and that these funds may be used for the period of incurrence (e.g., a temporary deficit which arises during a single year of a cumulatively funded, multi-year project that will resolve itself over the remaining life of the project, or a request for supplemental funding), then the temporary overrun may in most cases remain charged to the project, pending its clearance.
- If an overrun is incurred, and there is documentation from the sponsor indicating that there will ultimately be sufficient funds to cover the overrun and that these funds may be used for the period of incurrence (e.g., a temporary deficit which arises during a single year of a cumulatively funded, multi-year project that will resolve itself over the remaining life of the project, or a request for supplemental funding), then the temporary overrun may in most cases remain charged to the project, pending its clearance.
- The determination that the project funding will ultimately be sufficient to cover any short term overrun must be based on a realistic assessment of the status of the project and the available resources, and not merely a default judgment which delays resolution of a likely funding gap.
- Finally, even where the overrun is expected to be covered by sponsored funding over the life of the project, the University reserves the right to require a department to provide additional justification regarding the nature of the overrun or to provide interim funding if the amount of the overrun is considered to be significant, or if the period during which the overrun is expected to remain is deemed to be unreasonable.
- If an overrun is incurred, and there is documentation from the sponsor indicating that there will ultimately be sufficient funds to cover the overrun and that these funds may be used for the period of incurrence (e.g., a temporary deficit which arises during a single year of a cumulatively funded, multi-year project that will resolve itself over the remaining life of the project, or a request for supplemental funding), then the temporary overrun may in most cases remain charged to the project, pending its clearance.
- Where an overdraft exists and there is no expectation that there will ultimately be sufficient sponsored funds to cover the overrun, then the overrun must be transferred to a non-sponsored project upon discovery.
- Where an overdraft exists and there is no expectation that there will ultimately be sufficient sponsored funds to cover the overrun, then the overrun must be transferred to a non-sponsored project upon discovery.
- Once a project has expired and a final financial report has been prepared and submitted to the sponsor, any remaining overrun must be cleared immediately, unless there is an expectation that additional funds from the sponsor will be provided. In any case, when nine months have elapsed after the expiration of a project, any remaining overdraft may be transferred by Sponsored Projects Finance to a non-sponsored project owned by the school or responsible business unit.
- Once a project has expired and a final financial report has been prepared and submitted to the sponsor, any remaining overrun must be cleared immediately, unless there is an expectation that additional funds from the sponsor will be provided. In any case, when nine months have elapsed after the expiration of a project, any remaining overdraft may be transferred by Sponsored Projects Finance to a non-sponsored project owned by the school or responsible business unit.
- Throughout the year, Sponsored Project Finance sends a list of all overruns to each Principal Investigator and Department Administrator to ensure that responsible parties are aware of the liability. Upon receipt, the department is expected to review the list and either 1) justify the overrun, if additional funding that will cover the overrun is anticipated, or 2) clear the overrun, if the overrun is not expected to be covered by the sponsor. During the year-end closing process, Sponsored Projects Finance conducts a heightened review of overruns, and sends a list of all sponsored project cost overruns to each Senior Business Officer (SBO) to solicit their assistance in ensuring that all cost overruns are cleared or justified by year-end closing deadlines.
- Throughout the year, Sponsored Project Finance sends a list of all overruns to each Principal Investigator and Department Administrator to ensure that responsible parties are aware of the liability. Upon receipt, the department is expected to review the list and either 1) justify the overrun, if additional funding that will cover the overrun is anticipated, or 2) clear the overrun, if the overrun is not expected to be covered by the sponsor. During the year-end closing process, Sponsored Projects Finance conducts a heightened review of overruns, and sends a list of all sponsored project cost overruns to each Senior Business Officer (SBO) to solicit their assistance in ensuring that all cost overruns are cleared or justified by year-end closing deadlines.
- If the determination is made that an overrun should be justified, the justification must be provided to the SPF Finance and Compliance Manager. A justified overrun is one for which the department provides any of the following:
- Documentation from sponsor of forthcoming funding commitment
- If the Notice of Award does not imply that forthcoming funding permits coverage of the present budget period overrun, the department must obtain permission from the sponsor
- Copy of correspondence with Sponsored Projects Administration (SPA) about a pending budget increase to the project for a cash payment or amendment that has already been received
- Documentation of another extenuating exception deemed acceptable by the SPF Finance and Compliance Manager
- Documentation from sponsor of forthcoming funding commitment
- If the determination is made that an overrun should be justified, the justification must be provided to the SPF Finance and Compliance Manager. A justified overrun is one for which the department provides any of the following:
- If the determination is made that an overrun should be justified, the justification must be provided to the SPF Finance and Compliance Manager. A justified overrun is one for which the department provides any of the following:
- Documentation from sponsor of forthcoming funding commitment
- If the Notice of Award does not imply that forthcoming funding permits coverage of the present budget period overrun, the department must obtain permission from the sponsor
- Copy of correspondence with Sponsored Projects Administration (SPA) about a pending budget increase to the project for a cash payment or amendment that has already been received
- Documentation of another extenuating exception deemed acceptable by the SPF Finance and Compliance Manager
- Documentation from sponsor of forthcoming funding commitment
- If the determination is made that an overrun should be justified, the justification must be provided to the SPF Finance and Compliance Manager. A justified overrun is one for which the department provides any of the following:
If none of the above applies, the overrun must be cleared.
The method used to clear an overrun depends on how the overrun occurred.
Method 1
When the expenses generating the overrun are in support of the sponsored project's goals, the overrun should be cleared via an ITF.
- Credit the natural account 70435 on the sponsored project for the direct-cost portion of the total overrun, and
- Debit the natural account 75435 on the non-sponsored project for the same amount
Reminder: To calculate the direct-cost portion of an overrun, divide the amount of the overrun by 1 + the Facilities and Administrative (F&A) rate for that project. For example: if an overrun is $1,620 and the F&A rate is 62%, the direct cost portion to move is $1,000 or ($1,620/1.62)
The department must submit any overrun clearing transactions, obtain all department approval, and notify the SPF Finance and Compliance Manager of the pending transaction(s) by the deadline.
Method 2
If the overrun is caused by expenses charged to the project in error (i.e., not in support of the project's goals), the department should remove expenses via the mechanism through which they were originally charged to the project (such as AP journal or payroll cost transfer). When moving costs to another sponsored project, please note that existing polices on the timing of such transfers apply.
Guidance
- Financial Reporting and Closeout of Sponsored Projects (policy)
- Cost Overruns on Sponsored Projects (policy)
- Sponsored Projects Handbook (handbook)
Trainings
Contact
- Contact your Sponsored Projects Finance (SPF) Finance and Compliance Manager for information about cost overruns.
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