Construction and Renovation Project Close-out Process

From an accounting perspective, a construction / renovation project is considered to be complete when it is placed in service. At that point, the activity is reclassed from “construction-in- progress” on the balance sheet to an asset and depreciation begins in the subsequent accounting period. However, at the actual in-service date, there are often significant outstanding expenditures remaining. The objective of this process is to establish the timeline and steps for closing-out construction/renovation projects, including returning funds to original funding sources within 90 days from the date the project is placed in service (net of outstanding obligations consistent with the original scope); completing all remaining close-out steps within the following 90 days (180 days from the in-service date).

When the project is placed in-service (defined as the date a new building or renovated space is occupied), the following close-out process will begin.

1. FMS will provide Procurement Services with a list of purchase orders to be “final closed”. This will liquidate any remaining encumbrances for which no additional payments are expected.
2. About 60 days after the date in service, FMS will initiate a list of outstanding additional expenditures consistent with the original scope of the project. The final list will also note if the future expense is currently encumbered.
3. The list of outstanding additional expenditures consistent with the original scope of the project will be sent to Property Accounting no later than 90 days after the date in service.
4. At the end of the 90 day period, Property Accounting will transfer any surplus funds remaining on the project account back to the original source, not including the list of outstanding expenditures consistent with the original scope (Step #3) and remaining balances for valid encumbrances. (Some or all of the outstanding expenses listed might be encumbered, therefore Property Accounting will cross-reference the two to ensure amounts are not duplicated and deducted twice from the unfunding entry). The remaining contingency and retainage will be liquidated as appropriate.
5. At the end of the 180 day period, Property Accounting will end date the general ledger project account so that no further activity can be recorded. If there are outstanding invoices to be paid from the list of outstanding expenditures, the project will be enabled to allow payments to be processed.
6. When all payments are complete FMS must ensure all encumbrances are at -0-. A project must have a net balance of zero and no outstanding encumbrances to be closed. Property Accounting will return all remaining funding.
7. For incremental expenditures not included on the original outstanding expenditure list, FMS will request funding from the Budget Office.
8. If there is an energy rebate which may not have been determined by the project end date, FMS will ask Property Accounting to temporarily reopen the project when the funds are received. Property Accounting will reverse prior funding up to the amount of the rebate.