Overdrafts, Bad Debts and Audit Disallowances on Sponsored Programs

Scope

This policy applies to all Indiana University faculty and staff involved in the fiscal operations and administration of grants and contracts or otherwise with the authority to incur expenses under grants and contracts.

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Policy Statement

It is the policy of Indiana University that the Responsibility Center with prime responsibility for managing a sponsored award is financially accountable for all overdrafts, bad debts, and audit disallowances related to the award. The Responsibility Center is responsible for finding a suitable source of funds to cover the overdraft or audit disallowance. These funds may come from other unrestricted funds available to the principal investigator, department, school/responsibility center or campus but not from other sponsored programs.

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Reason for Policy

The purpose of this policy is to identify responsibilities and a process for the resolution of cost overdrafts and audit disallowances on restricted sponsored projects (e.g., grants and contracts). This policy provides guidance to ensure best practices in the fiscal management of grants and contracts at Indiana University and to meet requirements of Office of Management and Budget 2 CFR part 200 Uniform Administrative Requirements, Cost Principals, and Audit Requirements for Federal Awards and other sponsoring agencies and to, specifically, identify responsibilities and processes for the handling of cost overdrafts, bad debts and audit disallowances.

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Procedures

• Departments should monitor and reconcile sponsored project account financial statements on a monthly basis at a minimum.  Overdrafts on sponsored project accounts should be identified and rectified as soon as possible, moving the costs to the appropriate unrestricted account in a timely manner.  
• Audit disallowances, bad debts, and overdrafts must be transferred from the sponsored project account to an unrestricted university account and may not be transferred to another sponsored project account. 
• When all reasonable measures to collect outstanding invoiced from sponsors have been exhausted by the Office for Research Administration (ORA), ORA will inform the responsible department and initiate a credit memo utilizing a departmental account to reverse the invoice. 
• Nothing in this policy shall preclude other units of Indiana University from taking additional actions to recover the funds. For more information or assistance, please contact the Office for Research Administration.

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Definitions

Audit Disallowance: Sponsored Program expenditures determined to be unallowable in an audit

Bad Debts: Any income due to the University under an award agreement that is deemed to be uncollectable.

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History

Replaces III-60: “Policies Related to Contract and Grant Administration: Overdrafts and Audit Disallowances”

A substantive review of the policy was conducted by IU Research resulting in substantive revisions to the policy on April 29, 2024.

Previous Versions:

• Effective Dates: 10-03-2011 through 5-3-17
• Effective Dates: 05-03-2017 through 04-29-2024

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