Fiduciary Funds

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• Chapter 7
• Fiduciary Funds

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Overview of Chapter 7

• Overview of fiduciary funds
• Agency funds
• Private-purpose trust funds
• Investment trust funds
• Pension (employee benefit) trust funds
• Re-cap of Fiduciary Financial Statements

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Overview of Fiduciary Funds

• Fiduciary funds report resources which belong to
  other parties but which are being held by the
  government as agent or trustee.
• As a general rule the accrual basis and economic
  resources measurement focus are used
• Fiduciary assets are NOT included in the
  government-wide statements because the resources
  are not available for general use

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Agents vs trustees

• The difference in agents and trustees is a legal
  distinction concerning the responsibilities of
  the fund manager.
• Agents hold assets and keep them safe from theft
  etc.
• Trustees are responsible for not only holding the
  assets safely, but also for administering an
  investment program to earn a reasonable return on
  the principal.

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Common Uses of Agency Funds

• Collection of special assessments
• Required by GASB when government is not legally
  obligated to pay the debt in case of default by
  citizens.
• Tax agency fund
• When you have property tax on city, county,
  library etc in overlapping geographic areas, one
  unit typically agrees to do all of the tax
  collection and remit appropriate amounts to other
  units.

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Accounting Equation for Agency Funds

• There are no revenues, expenses, (or additions or
  deductions) or fund balances
• Therefore, closing entries are not necessary
• Thus, Assets Liabilities

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Financial Statements for Agency Funds

• Agency assets and liabilities will be included in
  the Statement of Fiduciary Net Assets.
• Since there are no revenues or expenses, agency
  funds are not included in the Statement of
  Changes in Fiduciary Net Assets
• The CAFR should include a Combining Statement of
  Changes in Assets and Liabilities-all Agency Funds

8
Private Purpose Trust Funds

• Used when the government administers funds used
  for beneficiaries other than the government and
  its citizens.
• Principal must be maintained endowment or
  nonexpendable
• Principal and income can be spent expendable

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Private Purpose Trusts vs Permanent Funds

• In addition to differing in purpose, these two
  forms of trust fund have very different
  accounting
• Permanent Funds use the modified accrual basis of
  accounting while Private Purpose Trusts use the
  accrual basis.
• Permanent Funds are included in the
  government-wide financial statements and Private
  Purpose Trusts are not.

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Accounting for Investments in Trust Funds

• Investments are carried at fair value
• Holding gains and losses are reported as Net
  increase (decrease) in fair value of investments
  (see Ill. 7-5)
• Dont disclose realized vs unrealized gains or
  losses (Fn disclosure of realized gains is
  allowed)
• Dont classify as trading, available for sale or
  held to maturity

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Escheat Property

• Escheat Property - resources from unclaimed bank
  accounts, estates, etc. is typically turned over
  to the state - the state searches for owners.
• The state may keep part of unclaimed amount and
  return some to local level.
• The amount treated as net revenue to the state
  should be the amount they ultimately expect to be
  able to keep.

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Escheat Property - continued

• When the government takes over property, it
  records the asset at its FMV and an equal amount
  of gross contribution revenue.
• The escheat property should be reported either in
  a private-purpose trust fund or in the fund where
  the property ultimately escheats.
• The amount for which the government expects to
  find owners should be estimated and treated as an
  expense and liability.

13
Investment Trust Funds

• Internal Investment Pools
• If government money is pooled for efficient
  management, the individual investment balances
  should be shown on the balance sheets of the
  contributing funds of the government.

• External Investment Pools
• These represent amounts held for other
  governments participating in the investment pool.
• External moneys are reported as investment trust
  funds

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Public Employee Retirement Systems (PERS)

• Contributory vs. noncontributory funds -- refers
  to whether the employee has to contribute
• Defined benefit plans
• employer must pay formula amount whether or not
  the asset return is sufficient to make payments
• risk of additional future liability is on the
  employer.
• Defined contribution plans
• benefits are based on assets accumulated
• risk of insufficient retirement pay is on the
  employee, not the employer.

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Pension (and OPEBs) Trust Financial Statements
(schedules)ie Plan Accounting (GASB 25/43)

• Statement of Plan Net Assets
• Statement of Changes in Plan Net Assets
• Schedule of Funding Progress
• Schedule of Employer Contributions (ARC vs actual
  contributions)

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Pension note disclosures

• Descriptions of plan details
• Accounting policies
• Lists of investments which exceed 5 of net
  assets
• If have over 5, those investments are more risky
  because the portfolio may be insufficiently
  diversified.
• Description of actuarial methods used

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Employer Reporting(GASB 27/45)

• This relates to how employers account and report
  their expenses, expenditures, assets, and
  liablities
• The amount of the required contribution is an
  expenditure in government type funds and an
  expense in proprietary types
• Unfunded liabilities (NPO) for governmental funds
  are recorded in the government-wide statements
• NPO for proprietary funds are recorded in the
  fund statements

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IRS 457 Deferred Compensation Plans

• Example of IRS 457 plan
• A manager earns 50,000 but has 5,000 withheld
  and contributed to a 457 plan. He will not be
  taxed on the 5,000 until he draws it out at
  retirement.
• Reporting
• Not shown in government financial statements if
  administered by an external party.
• If government administers or participates in
  investment decisions, then a pension trust fund
  would be used.

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Re-cap of Fiduciary Fund Financial Statements

• Statement of Fiduciary Net Assets
• Statement of Changes in Fiduciary Net Assets
• Supplemental Schedules
• Schedule of Pension Funding Progress
• Schedule of Employer Pension Contributions
• Note Fiduciary Funds are NOT included in
  government-wide statements