Systems and Procedures
A Division of The Office of Budget and Finance
A Division of The Office of Budget and Finance
In accordance with Policy RA90 Finalization and Closure, this procedure outlines the process for closing out fixed price agreements when a residual balance (unspent funds) exists at the time of project closeout.
If the residual balance is less than 20% of the award amount, and there is no indication of inappropriate accounting, the Business Area/Unit may retain that portion of the balance representing the unused direct costs. If the residual balance exceeds twenty percent (20%) of the award, the Assistant Vice President for Research (Post-Award Contractual Compliance) may approve some portion of the residual direct costs to be returned to the Business Area/Unit. Research Accounting will require the Principal Investigator (PI) to provide a detailed explanation as to why the pricing was off by such a large margin. Final approval of the disposition of the residual balance is at the discretion of the Assistant Vice President for Research (Post-Award Contractual Compliance). If approved, then a journal entry will be prepared by Research Accounting debiting income on the sponsored program to be closed and crediting income on the appropriate unit's Residuals internal order (IO), using Fund Type 1110000034 - Sponsored Residuals, for the direct expense portion and cost center 5211110000, University Funds, and general ledger account 45500010, for the indirect portion.
For Applied Research Laboratory (ARL), the total residual balance, including internal overhead and fee, will be credited to IO 59 and cost center 5211110000, University Funds, general ledger account 34400010, for the indirect portion.
For the College of Medicine (COM), the direct expense portion will be credited to an IO determined by COM and the indirect portion will be credited to cost center 3150410007, using general ledger account 45500010.
Even if a reduced Facilities & Administrative (F&A) rate was applied to the award, the full F&A rate will be applied to the remaining (unspent) balance of the award.
If an award was split between two or more different PIs, departments, or Business Area/Units, each PI/department/Business Area/Unit will receive its portion of the residual based on the unspent balance of its individual IO, minus applicable F&A recovery. In the case where one PI/department/Business Area/Unit has overspent its portion of the award and the other(s) has not, the IOs will be netted together to eliminate the deficit on the overspent IO, and the remaining residual balance will be given to the non-overspent PI(s), department(s), or college/unit(s) in proportion to their contribution to eliminate the deficit on the overspent IO. This practice ensures that award closeouts occur timely. However, college and unit leaders may work together to address repayment of one college/unit subsidizing another's deficit, which will be done outside of this procedure.
To calculate the residual balance, please refer to the Fixed-Priced Residual Balance Worksheet and the Residual Balance FAQ. This worksheet must be attached to the grant. The changing of formulas on the worksheet is prohibited.
Research Accounting will follow up with units to ensure timely closeouts. If units do not provide appropriate paperwork to complete residual balance transfers within 6 months after an award ends (or other prescribed deadline by Research Accounting ), Research Accounting may unilaterally closeout the award and residual funds will be retained centrally. This policy does not apply to COM and ARL.
Business Areas or units that do not follow the guidelines set forth in this procedure will, at a minimum, be held responsible for any fines, penalties, or losses.
Violations of University policy should be reported to the appropriate supervisor, unit manager, Human Resources representative, or the office responsible for the relevant policy or procedure. If these channels are insufficient or unavailable, individuals may submit an anonymous report through the Penn State University Hotline, accessible via the Reporting at Penn State website
Research Accounting is responsible for ensuring that procedures pertaining to the accountability and safeguarding of all cash receipts, cash funds, and other assets are established and followed in accordance with approved University policies and procedures. Regular audits relating to advances, cash, travel, equipment accountability, and other expenditures provide a means to protect University assets. Research Accounting is responsible for collaborating with Internal Auditing when audits are being performed in the administrative area. Audits pertaining to sponsored activities or other audits performed by external auditors may also be performed. Research Accounting and the Strategic Finance Partner for OSVPR is also responsible for collaborating with external auditors and/or a central University office related to these procedures.
University Records retention must be managed in accordance with Policy AD35 University Archives and Records Management, and Records Retention Schedules.
Additional questions may be directed to the Office of Records Management.
There are no exhibits associated with this procedure.
For questions or additional details, please contact the Assistant Vice President for Research (Post-Award Contractual Compliance).
To request changes to this procedure, please contact the Budget and Finance Policy and Procedure Office by submitting a GURU Technical Support Request form.
February 1, 2026