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Governmental Accounting Standards Board (GASB) Statement No. 84, Fiduciary Activities, was issued in January 2017, and could significantly change how a government reports its fiduciary funds.

What Are Fiduciary Activities?

Fiduciary generally means you are holding something for someone else. This could include assets held in trust for a private purpose, such as a scholarship fund; post-employment benefits such as pensions and other items; or funds belonging to one party/entity that are collected or held by another entity such as by courts or a tax collector.

Under GASB 84, there are four paths to making the determination to whether a governmental should report assets in a fiduciary fund –

  1. Component units that provide postemployment benefits
  2. Component units that do not provide postemployment benefits
  3. Postemployment benefit arrangements that are not component units
  4. All other activities

When determining if an entity is a component unit, refer to the criteria in GASB Statement No. 61 – The Financial Reporting Entity – an amendment of GASB Statements No. 14 and No. 34. Under existing GASB standards – there can be component units that are fiduciary. They are not just limited to blended or discretely presented.

Post-employment Benefits (Including Pensions)

Component units that provide post-employment benefits are fiduciary if they operate under one of the following arrangements:

  • A pension or other post-employment benefit (OPEB) plan that is administered through a trust whereby: 1. Contributions of employers and nonemployer contributing entities are irrevocable, 2. Assets are dedicated to provide benefits to plan members in accordance with benefit terms, and 3. Plan assets are legally protected from the creditors of the employer, nonemployer contributing entities, and the plan administrator.
  • More uncommon situations in which assets of the component unit are from entities that are not a part of the reporting entity but are accumulated for pensions or OPEB benefits.

Example entities to consider when implementing this standard would include defined benefit pension plans, defined contribution pension plans (excludes section 457 plans which will be addressed in a currently on-going GASB project), defined benefit OPEB plans, and defined contribution OPEB plans.

Other post-employment benefits arrangements might still be fiduciary, though not component units, if the government controls the assets.

A government controls the assets of the activity if –

  1. The government holds the assets, OR
  2. The government has the ability to direct the use, exchange, or employment of the assets in a manner that provides benefits to the specified or intended beneficiaries.

What about other activities besides post-employment benefits?

Other component units are fiduciary if they have one or more of the following characteristics –

  • The assets are (1) administered through a trust agreement or equivalent arrangement in which the government itself is not a beneficiary, (2) dedicated to providing benefits to recipients in accordance with the benefit terms, and (3) legally protected from the creditors of the government.
  • The assets are for the benefit of individuals and the government does not have administrative involvement with the assets or direct financial involvement with the assets. In addition, the assets are not derived from the government’s provision of goods or services to those individuals.
  • The assets are for the benefit of organizations or other governments that are not part of the financial reporting entity. In addition, the assets are not derived from the government’s provision of goods or services to those organizations or other governments.

So What is “Administrative Involvement” or “Direct Financial Involvement”?

Examples of administrative involvement are –

  • If the government monitors compliance with the requirements of the activity that are established by the government or by a resource provider that does not receive the direct benefits of the activity
  • If the government determines eligible expenditures that are established by the government or by a resource provider that does not receive the direct benefits of the activity
  • If the government has the ability to exercise discretion in how assets are allocated.

An example of direct financial involvement might be if the government provides matching resources for the activity.

What about the “all other activities” path?

All other activities are fiduciary if all three of the following are met –

  1. The government controls the assets (see previous discussion of control).
  2. Those assets are not derived either a.) solely from the government’s own-source revenues, or b.) from government-mandated nonexchange transactions or voluntary nonexchange transactions with the exception of pass-through grants and for which the government does not have administrative or direct financial involvement.
  3. One of the following are met –
    1. The assets are (1) administered through a trust agreement or equivalent arrangement in which the government itself is not a beneficiary, (2) dedicated to providing benefits to recipients in accordance with the benefit terms, and (3) legally protected from the creditors of the government.
    2. The assets are for the benefit of individuals and the government does not have administrative involvement with the assets or direct financial involvement with the assets. In addition, the assets are not derived from the government’s provision of goods or services to those individuals.
    3. The assets are for the benefit of organizations or other governments that are not part of the financial reporting entity. In addition, the assets are not derived from the government’s provision of goods or services to those organizations or other governments.

Examples of activities of local governments that will need to be evaluated include:

  • Funds held by a court
  • Funds held by a Tax Commissioner
  • Funds held by the Sheriff
  • School activity funds

So How Do We Report Fiduciary Activities?

Fiduciary activities should be reported in financial statements as one of four types: pension (and other employee benefit) trust funds, investment trust funds, private-purpose trust funds, and custodial funds. There are now new definitions for pension trust funds, investment trust funds, and private-purpose trust funds, but these definitions are largely the same as what we use today – just modified to confirm to this new standard. A trust agreement or equivalent arrangement should be present for an activity to be reported in a trust fund.

Custodial funds would report fiduciary activities for which there is no trust agreement or equivalent arrangement and any fiduciary activity that is not required to be reported in one of the three previous types of fiduciary activities.

All fiduciary funds (including custodial funds) will report a Statement of Net Position (under full accrual accounting) and a Statement of Changes in Net Position (not that this is a new requirement if the custodial fund was previously reported as an agency fund).

How Do We Get Ready?

In order to prepare for the implementation of this new standard, the first thing you should do is inventory possible fiduciary activities and make sure you understand what arrangements are in place. If necessary, go through the component unit determination to determine if activities qualify as component units. For activities that will now be reported as governmental activities (but were previously fiduciary activities), consider whether budgets are needed. For activities not previously included in the financial statements, determine how that activity will be accumulated and audited.

When is This New Standard Effective?

The standard is effective for periods beginning after December 15, 2018, which means it will be effective for fiscal years ending December 31, 2019, June 30, 2020, and September 30, 2020.

Will You Be Sharing More Information?

Yes! Please stay tuned for our upcoming newsletters and an upcoming webinar which will go into more detail on this new standard and will include questions and answers from the recently issued Implementation Guide and other relevant discussion.

Submitted by:
Hope Pendergrass, CPA
Director
Mauldin & Jenkins