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    Shall the cancelled funds be removed from the contract now? Why does finance become burden to quarterly (every 90 days) report on these cancelled funds? Why does the PCO not apply usable funds to the contract awaiting final invoice/billing, now?


    Answer

    The answer to your question lies within the FMR 7000.14-R pertaining to a closed/cancelled appropriation.  The funds will close/cancel after the 5 year expiration period which falls after the current appropriation period which is 1 year for O&M/MILPERS, 2 years for RDT&E, 3 years for Procurement & SCN, and 5 years for MILCON.  Once the appropriation cancels/closes, the funds are no longer available for expenditure and any old bills must be paid with current year funds.  According to the FMR 7000.14-R, the funds must still be tracked in the accounting system.  What follows are some excerpts that address this direction/guidance.
     
    The Financial Management Regulation (FMR) 7000.14-R in Volume 3 Chapter 10 states:
     
    CHAPTER 10
    ACCOUNTING REQUIREMENTS FOR EXPIRED AND CLOSED ACCOUNTS
     
    *1002 DEFINITIONS
     
    A. Adjustments to Expired or Closed/Cancelled Accounts. Increases or decreases to obligations or expenditures. Adjustments involve recording obligations or expenditures that were made or incurred, but not recorded, during the period prior to expiration or cancellation of the account.
     
    B. Closed/Cancelled Accounts. Accounts with balances that have been cancelled under 31 U.S.C. §§ 1552, 1555, or 1557. When balances are cancelled, the amounts are not available for obligation or expenditure for any purpose.
     
    1003 STANDARDS
     
    *100301. Accounts
    General ledger accounts and transactions required to record cancellations, account closure, and expired transactions are defined in the Department of Defense (DoD) Standard Chart of Accounts and in the DoD United States Standard General Ledger (USSGL) Transaction Library. These documents can be accessed on the Standard Financial Information Structure (SFIS) web page.
     
    100303. Closed/Cancelled Accounts
     
    A. Certain appropriations are available for obligation for a specific period, i.e., annual and multi-year appropriations. Both the obligated and unobligated balances of such appropriations must be closed/cancelled, and are no longer available for obligation or expenditure for any purpose, on September 30th of the fifth fiscal year after the expiration of an appropriation’s period of availability for incurring new obligations (31 U.S.C. § 1552(a)).
     
    B. Certain appropriations are available for an indefinite period. Obligated and unobligated balances in such appropriations must be closed/cancelled when no disbursements have been made from the indefinite appropriation for a period of two years and the President, the Secretary of Defense, or the Secretary’s designee determines the purposes for which the appropriation was made have been carried out (31 U.S.C. § 1555)
     
    C. In some instances, following closure/cancellation of an appropriation, it becomes necessary to adjust an obligation that otherwise would have been properly chargeable (both as to purpose and amount) to an appropriation before closure/cancellation. Should such an adjustment become necessary, the obligation must be charged to an appropriation currently available for the same purpose, subject to certain limitations discussed in subparagraph
     
    D. If an adjustment to an obligation otherwise properly chargeable to a closed/cancelled appropriation pursuant to 31 U.S.C. §§ 1551 – 1557 is required, and the related program or function has migrated from one DoD activity to another, the adjustment is chargeable to the current DoD activity to which the program has transferred. The current DoD activity is responsible for providing current-year funds from an appropriation account available for the same purpose to satisfy the obligation.
     
    F. Official accounting activities must maintain proper general ledger controls for valid unpaid obligations and receivables pertaining to closed/cancelled accounts. General ledger controls must be perpetuated until all obligations are paid and accounts receivable collected.
     
    Thus, while expired appropriations may be used in certain instances for new obligations; those appropriations are not available beyond the end of the fifth fiscal year following their expiration.
    2. The DoD appropriations, primarily the Operation and Maintenance appropriations as covered by 10 U.S.C. § 7313(b), expire and are closed/cancelled at the same time as other appropriations. For example, within the Navy, these appropriations are not available for the payment of changes in the scope of work for ship overhaul, maintenance, and repair beyond the end of the fifth fiscal year following the expiration of such appropriations for other purposes.
     
    Getting back to the question, there is no reason (from the information provided in the question/background) the funds should not be de-obligated.  De-obligated or not, the funds must still be tracked in general ledger accounts.  The "usable" funds are often not readily available since the contract is closed.  The appropriate funds will need to come from someone else's funds.
     
    To get a better understanding of what should be done in this instance, the PCO/contract negotiator, financial management, and (as applicable/appropriate) the contractor should discuss the situation to determine an appropriate course of action.
     

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