Fiduciary Funds Group

Fiduciary funds are used to account for assets held by a government in a trustee capacity or as an agent for individuals, private organizations, or other governments. The key characteristic is that the government is acting as a custodian or manager of these assets, not as their owner. The government has a fiduciary responsibility to manage these assets prudently and in accordance with the terms of the trust or agency agreement.

There are four main types of fiduciary funds: pension (and other employee benefit) trust funds, investment trust funds, private-purpose trust funds, and agency funds. Each type serves a distinct purpose and has specific accounting and reporting requirements. Understanding the differences between these fund types is crucial for accurate financial reporting.

Pension trust funds account for assets held in trust for the benefit of employees and retirees. These funds are used to pay pension benefits, health insurance, and other post-employment benefits. The government's role is to manage these assets to ensure that sufficient funds are available to meet future obligations to its employees.

Investment trust funds account for the external portion of investment pools when the reporting government is the sponsoring government. These funds allow multiple entities to pool their resources for investment purposes, potentially achieving economies of scale and diversification benefits. The sponsoring government manages the investments on behalf of the participating entities.

Private-purpose trust funds account for all other trust arrangements under which principal and income are for the benefit of individuals, private organizations, or other governments. Examples include scholarship funds, endowments, and other similar arrangements. The government acts as a trustee, managing the assets in accordance with the terms of the trust agreement.

Agency funds account for assets held by the government solely in a custodial capacity. These funds are often used to collect taxes or fees on behalf of other governments or organizations. The government acts as an agent, simply collecting and remitting the funds to the appropriate party.

The reporting requirements for fiduciary funds are different from those for governmental funds. Fiduciary funds are reported using the economic resources measurement focus and accrual basis of accounting, similar to proprietary funds. This means that all assets and liabilities are recognized, and revenues and expenses are recognized when earned or incurred, regardless of when cash changes hands.

Proper accounting for fiduciary funds is essential for transparency and accountability. It ensures that the government is managing these assets responsibly and in accordance with its fiduciary duties. This helps to build public trust and confidence in the government's financial management practices.

The Governmental Accounting Standards Board (GASB) provides guidance on accounting and reporting for fiduciary funds. These standards are designed to ensure that financial statements are accurate, reliable, and comparable across different governmental entities. Compliance with GASB standards is crucial for maintaining the integrity of government financial reporting.