Governmental Accounting
Chapter 8
Agency Funds and Cash and Investment Pools
I) Introduction
A) Nature of Fiduciary activities
B) Private Purpose vs. public purpose trust funds
C) Financial reporting of fiduciary activities
II) Agency Funds
A) Introduction and Purpose
1. Used to account for assets belonging to other parties for which the
governmental unit is acting as agent.
a. No fund equity -- all assets offset by equal amount of liabilities
2. Common examples
a. Employee's withholding taxes
b. Tax agency funds
c. Pass-through agency funds
d. Special assessment taxes where governmental unit has no
obligation to assume debt service on the debt if property owners
default. *
e. Cash and investment pools--(internal investment pool) earnings
allocated proportionately.
* Required for use by GASB standards
B) Accounting for Tax Agency Funds
1. Taxes levied by all governmental units and funds within the county are
collected by County Treasurer.
2. Treasurer must make periodic distributions of taxes collected in
proportion of levy of each fund to total taxes levied.
a. Collections of taxes for prior years must be distributed on the basis
of taxes levied for those years.
3. Due to administrative burden of collecting and disbursing taxes, it is
common for the collector to withhold a certain percentage from the
collections of each unit as an agency fee.
4. Gross amount of tax levy is recorded as a receivable and as a liability.
5. When collected the taxes receivable account is reduced. If cash is not
distributed immediately the liability to each specific fund should be
recorded.
6. The "fee" retained by the collector (not paid out to appropriate fund)
would be recorded as an expenditure in each such fund.
C) Required Financial Statement.
1. Include as a separate column in the Fiduciary Funds “Statement of
Fiduciary Net Assets.”
2. May optionally include in the CAFR a combining statement of net
assets for the agency funds.
III) Cash and Investment Pools (Investment Trust Funds)
A) Purpose
1. Effective way of managing cash and investments of the funds of the
government.
B) Types
1. Internal investment pool
a. May properly use an agency fund.
b. Agency funds assets and liabilities are NOT reported in external
financial statements. Each participating fund reflects its
proportionate share of the pools assets.
2. External investment pool
a. Must establish an investment trust fund
b. Internal participants equity is Not reported in the financial
statements of the investment trait fund.
C) Accounting Issues
1. ALL investments and withdrawals are measured at fair value.
2. Each participant has a proportionate share of the investment pools
total assets.
a) Journal Entry made by transferor:
Equity in Pooled Cash and Investments XXX
Investments
XXX
Revenue-Change in fair value
XXX
b) Journal entry made by investment pool:
Cash
XX
Investments
XX
Due to ___________ Fund
XX
Additions Deposits in pooled investments
XX
3. ALL earnings, gains, and losses are allocated to participants based on
their propotionate interest.
a) Gains and losses considers both realized and unrealized.
b) May accumulate earnings in “Undistributed Earnings on Pooled
Investments”
Cash
XX
Undistributed Earnings on Pooled Investments XX
c) May accumulate gains and losses in “Reserve for Change in Fair
Value of Pooled Investment.”
i. Both realized and unrealized gains and losses.
d) Journal entries for investment pool:
Cash
XX
Undistributed Earnings on Pooled Investments XX
Undistributed Earnings on Pooled Investments XX
Due to __________ Fund
Additions – Investment Earnings
XX
XX
Investments
XX
Reserve for change in Fair Value of Investments
XX
Reserve for change in Fair Value of Investments XX
Due to _________ Fund
Additions – Change is Fair Value of Investments
XX
XX
4. Participant funds record changes in equity as follows (assume
increase):
Equity in Pooled Cash and Investments
Revenues-Investment Earnings
Changes in Fair Value of Investments
XXX
XXX
XXX
5. When assets are contributed to or withdrawn from the investment pool,
earnings, gains, and losses to date should be apportioned to
participants.
a) It is very likely that the addition or withdrawal will change the
proportional interest of participants.
b) During closing entries for the investment trust fund, the “additions”
accounts are transferred to “Net Assets held in Trust for
participants” accounts.