NNPCL Finance and Accounts Project Accounting PDF

NNPC Limited Finance and Accounts Process and Procedures 8.0 Project Accounting 8.1 Objectives This policy covers all activities performed in initiating, recording and reporting transactions incurred during project delivery from project commencement to closure. The processes under Project Accounti...

NNPC Limited Finance and Accounts Process and Procedures 8.0 Project Accounting 8.1 Objectives This policy covers all activities performed in initiating, recording and reporting transactions incurred during project delivery from project commencement to closure. The processes under Project Accounting are designed to ensure:  All costs incurred in delivering a project are adequately tracked and accounted for on a project by project and asset class basis;  Implementation of adequate controls over project expenditure;  Timely and accurate reporting on the financial status of projects;  Timely detection of potential project budget overruns and adequate forecast of estimates to completion; and  Timely and adequate closure of project accounts and reclassification of project costs into the appropriate accounts. 8.2 Scope/Applicability The sub-processes covered under project accounting include: 8.3  Project approval and account set-up;  Project budget monitoring & reporting; and  Project completion and certification. Policy Statement  While embarking on capital projects, NNPC Limited and its Subsidiaries shall ensure that adequate framework and controls are put in place to guarantee maximum value to the NNPC Limited on all projects carried out.  NNPC Limited and its subsidiaries shall approve projects that have reasonably been justified, carry out the projects in the most 72 NNPC Limited Finance and Accounts Process and Procedures economic and efficient manner, monitor and track the projects performance as well as record and report the project at the completion stage through project close-out report. 8.4 Procedural Guidelines on Project Accounting 8.4.1 Project Approval and Account Set-up  All projects must be reasonably justified before approval and commencement. Projects shall be executed in the most economic and efficient manner, taking into consideration discount clauses and negotiations in contracts.  Bids shall be received from a minimum of three (3) vendors and analysed prior to assigning a project to a specific contractor. Refer to the SCM Policy and Procedures for details on bidding and tendering procedures.  All projects shall conform to the preapproved budget of the requesting department for the period.  A Project Management Team (PMT) shall be set up by the Project Sponsor at the inception of the project. The Project Sponsor shall be the individual who approves or supports the allocation of resources for the project and is typically the head of the business unit/directorate to which the project relates.  The PMT shall be headed by a Project Manager and the team shall consist of representatives of relevant departments including nominees from Budget & Projects Department of Federation Accounts Division, Finance and Accounts Department and Legal department.  Membership of the Project Management Team (PMT) shall be selected from Budget and Project Department, Finance and 73 NNPC Limited Finance and Accounts Process and Procedures Accounts Department and Legal Department. The selection shall be based on the following justifications:  Budget and Project Department and Finance and Accounts department staff possess requisite knowledge of project management and keeps records of all projects in NNPC Limited and its subsidiaries.  Budget and Project Department is responsible for tracking of projects and supervises the capitalisation of completed AUCs.  Status of projects and locations of such projects can be determined appropriately for effective and efficient project management system.  There shall be quarterly or half yearly visitation to projects sites across NNPC Limited and its subsidiaries for proper projects accounting system by Budget and Project Department in collaboration with SBUs and CSUs. The purpose of this visitation shall be to achieve the following:  Easy determination of project status in collaboration with subsisting PMT and other critical stakeholders.  Easy location of all on-going projects across SBUs.  Timely capitalization of completed AUCs.  Comprehensive and timely submission of on-going projects status  Minimization or avoidance and detection of abandoned or nonmoving projects.  Effective and efficient projects management system in line with global best practice.  There shall also be visitation to projects site by Budget and Project Department for confirmation and validation of progress made on 74 NNPC Limited Finance and Accounts Process and Procedures any milestone before payment can be made. This will be done in collaboration with the PMT.  A Project ID (project name and code) shall be set-up on the accounting system before any expenditure may be incurred in relation to the project.  All projects shall be initiated with a project set-up form which shall contain a minimum of the following information:  Project Name;  Project Site;  Relevant department(s);  Budgeted cost of the project;  Project start date;  Estimated project finish date;  The head of the project team; and  Other project team members.  Appropriate approvals must be obtained in line with the approved DOA/DFA before the project is set up.  All expenditure relating to each project shall be charged to the project using the Project ID (project name and code).  The Project Accountant working in consultation with the PMT shall be responsible for initiating project set-up on the accounting system  All project advance payments shall not exceed the maximum allowable percentage of 15%.  All project costs shall be charged to each project account through the ‘Work Breakdown Structure (WBS)’ function in SAP and settled at the end of each month as Assets Under Construction (AUC). 75 NNPC Limited Finance and Accounts Process and Procedures  At the end of each financial year, all costs incurred for services rendered and goods delivered but not paid for shall be accrued in accordance with the terms of the project agreement.  At every milestone payment, the Project Accountant shall obtain the statement of work completion from the Project Manager in addition to the following documents:  Authority for Expenditure (AFE);  Invoice; and  Milestone Certificate. 8.4.2 Project Budget Monitoring and Reporting  A project budget containing the approved cost estimates for the execution of the project shall be set up for each project in the accounting system. The budget shall take into consideration, the project timelines and milestones.  The project manager is responsible for estimating the budget required to complete project activities.  The project budget shall be used to monitor actual expenditure and estimated cost to completion.  The Project Accountant shall be responsible for preparing a report on the financial performance of the project. This report shall form an input into the periodic project progress report prepared by the PMT.  The financial performance report shall contain at the minimum:  Project budgeted cost;  Actual project cost till date;  Estimated cost to completion; and  Budget vs actual variance analysis. 76 NNPC Limited Finance and Accounts Process and Procedures  The estimated cost to completion shall be computed by estimating the cost implication of outstanding tasks and project milestones.  The financial performance report shall be discussed by the PMT with the Project Sponsor, noting any potential for budget overrun and any need for budget revisions.  The Project Manager shall be responsible for establishing and articulating justification for budget revision and reappraising budget estimates based on the analysis of the actual against budget spend for preceding periods.  The Project Sponsor shall challenge revised budget estimates and assumptions and agree/disagree with budget revisions.  Project budget revisions shall be endorsed by the Project Sponsor and approved by the relevant Committee/Board in line with the financial authority matrix. 8.4.3 Project Completion and Certification  All project closure shall be effected using a project closure form on the financial system.  A close-out report shall be prepared by the Project Manager upon project completion. The close-out report shall be approved by the Project Sponsor. The project closure form shall be raised by the Project Accountant upon presentation of the approved close-out report.  For contracts with retention clause, the retention shall be deducted on each milestone payment. Retention shall also not be paid to the contractor until the close out report is prepared and duly acknowledged by the Project Sponsor.  The PMT shall ensure that the project carried out aligns with the overall scope and objective of the project. 77 NNPC Limited Finance and Accounts Process and Procedures  ‘As-Built’ documents are all documentation pivotal to the contract and which serve as supporting evidence of the contract work. The ‘As-Built’ documentation must be delivered by the contractor before the close-out report is prepared and endorsed. Components of the ‘As-Built’ documentation are:  System description manual;  Operating & maintenance procedures, training manuals;  Fabrication record books;  Supplier documentation;  Certificates and systems completion documentation;  Design documentation;  Engineering databases, lists, registers and software;  Design Fabrication Installation (DFI) resume; and  “As-Built” documentation index.  The Project shall be closed on the financial system at project completion and the project cost transferred to the appropriate asset accounts.  As part of year-end financial closure, the Budget and Project Department shall review all outstanding project accounts/Asset Under Construction (AUC) in ledgers to ensure that costs have been adequately captured and classified. 8.5 Additional Information The Procedural Guide on Project Accounting Policy, NNPC Limited provides instructions on implementation of this policy and is an integral part of this policy. 8.6 References 78