GASB Statement No. 84 and Custodial Funds

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Governmental Accounting Standards Board (GASB) Statement No. 84, Fiduciary Activities, significantly changes how a government reports its fiduciary funds. While some entities have already implemented this pronouncement, many entities will be implementing it in the current fiscal year, as GASB allowed a delay in implementation through GASB Statement No. 95, Postponement of Effective Dates of Certain Authoritative Guidance.

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 government 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

For purposes of this newsletter, we will focus on Path #4 as it relates to city and county governments.

City and county government activities that should be considered are primarily those previously identified as agency funds – funds held by a court, Tax Commissioner, Sheriff, etc. The use of agency funds has been eliminated with this statement and replaced with custodial funds. Most existing agency funds that meet the criteria to be reported as a fiduciary fund under GASB 84 will fall under the custodial fund reporting unless the assets are held in trust.

An activity is deemed to be a fiduciary activity if all the criteria below are met:

  • Assets associated with the activity are controlled by the government (as described above)
  • Assets associated with the activity are not derived either:
  • Solely from the government’s own-source revenues.
  • From government-mandated non-exchange transactions or voluntary non-exchange transactions except for pass-through grants where the government does not have administrative or direct financial involvement.
  • Assets associated with the activity have one or more of the following characteristics:
  • Assets are (a) administered through a trust where the government is not a beneficiary, (b) dedicated to providing benefits to recipients in accordance with the benefit terms, and (c) legally protected from the creditors of the government.
  • Assets are for the benefit of individuals and the government does not have administrative or direct financial involvement with the assets, and the assets are not derived from the government’s provision of goods or services to those individuals.
  • Assets are for the benefit of organizations or other governments that are not part of the reporting entity, and the assets are not derived from the government’s provision of goods or services to those organizations or other governments.

Listed below are two examples from the GASB 84 Implementation Guide that may affect your local government.

Jail Inmate Activities

Q—A County government operates a jail. Some inmates have jobs in the jail, and their earnings are deposited into an account established for each inmate. Families of inmates also can deposit resources into the inmates' individual accounts. The County is the custodian of the individual accounts. Inmates use the resources in their individual accounts to make purchases at the commissary. Neither the County government nor any jail official has the authority to determine how the inmate will use the funds in their individual account. When an inmate is released, any remaining balance in their individual account is paid to them. Should the County report the inmate accounts in its fiduciary fund financial statements?

A—Yes. The County is holding the inmate accounts, so the control criteria is met. The assets are not derived from the County's own-source revenues or from a government-mandated nonexchange transaction or voluntary nonexchange transaction. Moreover, the assets are for the benefit of individuals (the inmates), and the County does not have administrative involvement or direct financial involvement with the assets because the inmates have discretion on how the assets are spent. Finally, although the assets may be used to generate commissary revenue for the County, the assets themselves are not derived from the government’s provision of goods or services to the inmates.

Fee Collections by County Tax Commissioner

Q—A County collects property taxes on behalf of the other tax-levying governments within its jurisdiction. The County collects a fee, equal to 1 percent of the amount billed, from the other governments to provide this service. The taxes are deposited into the County collector's property tax distribution account, a custodial fund. Should the County report the fees in the custodial fund with the taxes collected?

A—No. The County is obligated to provide the collection service for which a fee is charged to the other taxing governments. The nature of that transaction is exchange or exchange-like, resulting in own-source revenues of the County. Paragraph 11b(1) of Statement 84 states that an activity is not fiduciary if the assets are derived from the government's own-source revenues. Therefore, the County should report the fees in its governmental fund financial statements.

Custodial funds will be reported in the statement of fiduciary net position, requiring the same elements as other fiduciary funds, including net position. In addition, the statement of changes in fiduciary net position will include custodial fund activity. This change will result in more detail of additions to and deductions from custodial funds than currently reported for agency funds. In the statement of changes in fiduciary net position, governments are required to report disaggregated additions by source and disaggregated deductions by type. GASB 84 allows for custodial funds that receive resources normally held and disbursed within three months, to be reported in one aggregated line for additions and deductions. The most common example of this is a county that receives and disburses property taxes to other governments. The county could simply report one line for additions called property taxes collected for other governments and one line for deductions called property taxes distributed to other governments.

Because custodial fund activity has not previously been included in the financial statements, your government will need to ensure a system is in place to identify the sources of additions and the types of deductions for financial reporting, as well as how this information will be accumulated.

If you have any questions about GASB Statement No. 84, please do not hesitate to contact us. We will be happy to assist you!

Article Written By:
Meredith Lipson, CPA
Partner, Mauldin & Jenkins

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