Trust and Agency (Fiduciary) Funds

1. Trust and Agency(Fiduciary) Funds Chapter 12

2. Understand & discuss circumstances when funds are used Define and distinguish among the four types of funds Prepare basic journal entries Prepare Agency Fund financial statements Prepare Trust Fund financial statements Account for common transactions affecting more than one fund and GCA and GLTL accounts Learning Objectives

3. Funds held in fiduciary capacity for • Government or its programs – endowment to finance research program or maintain recreational area • Others, including individuals, other governments, or private organizations

4. Examples of external fiduciary relationships • Pension plans • External investment pools • Endowments to finance scholarships for residents of government • Taxes, insurance premiums, & dues withheld from employees pay to be transferred to others • Taxes collected for other governments

5. May use other funds to account for fiduciary relationships • Special Revenue Fund – resources available for expenditures • Permanent Fund – maintenance of principal required • Enterprise Fund – special business-type activities

6. Accountability Focus • On the government’s fulfillment of its fiduciary responsibilities during a specified period and on remaining responsibilities at the end of the period • Difference in assets and liabilities typically called “Net Assets Held in Trust”

7. Agency Funds • Conduit or clearinghouse funds established to account for assets received for and paid to other funds, individuals, or organizations • Only used for assets held for the benefit of others

8. Allowable uses of Agency Funds • “Pure” pass-through grants – government serves only as a cash conduit (use of AF mandated by GASB) • Payroll deduction collection & payments • Imprest checking account • Receipts must be allocated among several funds • Single expenditure financed by several funds

9. Tax Agency Funds (TAF) • Used to combine tax levies from multiple governments in same geographic area • Practice avoids duplicating assessment and collection processes

10. Functions of TAF • Governments continue to maintain own tax records. • Assessments turned over to TAF for collection • TAF sends out bills to taxpayers • Collections made by TAF • Collections distributed to participating governments, less collection fee that goes to government administering the TAF

11. Assessment of Tax (479-80) TAF accounting or all funds – taxing unit shown for only one government.

12. TAF makes collections (480) Taxes receivable represents normal collections; due to taxing units represents interest and penalties.

13. Distribution of Collections (480-81) Due to General Fund is amount collected from other governments as service charge for taxes collected.

14. Distribution of Collections (481)

15. Distribution of Collections (481)

16. TAF Financial Statements s • Statements of Net Assets – does not include cash balance of TAF since money belongs to the administering government (482) • Statement of Changes in Assets & Liabilities (483) • Not an operating statement • Only reports changes in assets & liabilities

17. Other AF Reporting • Will appear as a single column on the Fiduciary Fund Statement of Net Assets • Will not appear on Fiduciary Fund Statement of Changes in Fund Net Assets • Have separate combining statement if government has more than one AF

18. City of Dallas Agency Fund Combining Statement x • Example is 2 pages extracted from FY 2004 CAFR • 1st page provides explanation for each of nine Agency Funds • 2nd page is the combining statement – not much information on each fund

19. Special Assessment Agency Funds • Used when government is not obligated in any manner on debt issued to finance a special assessment • Debt is not accounted for by government, but asset will be in GCA list • Government is debt service agent • Collects assessments from property owners • Makes payments to debt holders

20. Types of Trust Funds • Pension (or Other Postemployment Benefit) Trust Funds • Investment Trust Funds • Private Purpose Trust Funds

21. Private Purpose Trust Fund • Not common in governments • May be either • Expendable – principal and earnings may be spent • Nonexpendable – principal must be maintained but earnings may be expendable or nonexpendable

22. Establish Fund and Make Investments (485)

23. Received Interest & Sold Some Investments (485)

24. Accrued Interest & Change in Fair Value Recognized (485)

25. Payment to nonprofit organization(485)

26. Financial Statements (486) S • Statement of Net Assets • Statement of Changes in Net Assets

27. Investment Trust Funds • Used when government invests its own money as well as funds from other governments • Only money of other governments reported here • Additions are amounts invested by participating governments & investment income • Deductions are withdrawals and investment expenses incurred

28. Pension Trusts • Fastest growing funds of most governments • Occasionally run at state level for participating governments • Retirement System of Alabama (RSA) maintains funds for State employees and most county and municipal governments – making it a PERS

29. Plans classified as • Single-employer plans – only one government’s employees in plan • Multiple-employer plans – employees of many governments are participating – may be either • Agent – multiple single-employer plans combined into single operation • Cost-sharing – one large plan

30. Pension Accounting Standards • GASB #25 – Financial Reporting for Defined Benefit Pension Plans and Note Disclosures for Defined Contribution Plans • GASB #26 – Financial Reporting for Postemployment Healthcare Plans Administered by Defined Benefit Pension Plans • GASB #27 – Accounting for Pensions by State and Local Governmental Employers

31. OPEB Accounting Standards • GASB #43 – Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans • GASB #45 – Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions • Supersede all previous OPEB standards, including GASB #26

32. Primary Accounting & Reporting Requirements • Financial Statements • Statement of Plan Net Assets • Statement of Changes in Plan Net Assets • Statement of Changes in Plan Net Assets reports additions & deductions • Investments reported at fair value • Capital assets reported at historical cost and depreciated

33. Primary Accounting & Reporting Requirements (continued) • Actuarial information not in statements but in Required Supplementary Information (RSI) • Parameters established for actuarially determined information • Standardized pension benefit obligation measurement not required – several options are available

34. Contributions accrued & partial payment made (490)

35. Interest accrued and received(490)

36. Benefit accruals (490)

37. Payments made & annuities accrued (491)

38. Annuities paid and Investments made & marked to fair value (491)

39. Pension Reporting SR • Financial Statements (492 – 493) • Statement of Plan Net Assets • Statement of Changes in Plan Net Assets • Required Supplementary Information (493) • Schedule of Funding Progress • Schedule of Employer Contributions

40. Employer Fund Reporting:Annual Pension Costs • Cost-sharing plan – amount determined by the plan • Single-employer (or agent) plan • Measured as employer’s actuarial determined annual required contribution (ARC) • Adjusted for interest on beginning net pension obligation (NPO) • Adjusted for actuarial amortization from past contribution deficiencies or excess contributions