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Accounting for Fiduciary Activities: GASB 84

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PresentersRachel OrmsbySenior Managerrormsby@bkd.com

Kyle ElmoreSenior Managerkelmore@bkd.com

BackgroundWhat: The Board issued GASB to clarify when a government has a fiduciary responsibility & is required to present fiduciary fund financial statementsWhy: Existing standards require reporting of fiduciary responsibilities but do not define what they are

• Inconsistency on use of private-purpose trust funds & agency funds

When: Effective for fiscal years beginning after December 15, 2018; early application encouraged

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When Should Fiduciary Fund Statements Be Presented?

Four paths in determination

CUs that are postemployment

benefit arrangements

CUs that are not postemployment

benefit arrangements

Postemployment benefit

arrangements that are not CUs

All other activities

Start Here

Fiduciary Funds Flowchart

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Component Unit Definition

• Organizations that are legally separate from the primary government & for which the elected officials of the primary government are financially accountable

• Or misleading to exclude criteria

Evaluating Potential Fiduciary CUs

• Legally separate &

• Financial accountability criteria • Test 1: Voting majority of board AND

• Imposition of will or financial benefit or burden

• Test 2: Or Fiscally dependent • Misleading to exclude

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Fiduciary Component UnitsLegally separate

entityPension/OPEB plans administered through trusts under GASB 67/74 are legally separate entities for purposes of GASB 84 (draft IG Q&A)

Board composition

Retirement benefits administered through trusts may not have a traditional board

Financial burden

Primary government considered to have financial burden if legally obligated or has otherwise assumed obligation to make contributions to pension or OPEB plan

Component Unit Considerations

• What if there is no board?

• Are trustees the same as board members?

• What constitutes fiscal dependence of a pension or OPEB plan?

• Are all trusts legally separate?

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4.5. Q—A pension or OPEB plan that is administered through a trust that meets the criteria in paragraph 3 of Statement 67 or paragraph 3 of Statement 74, as applicable, does not have a governing board. Instead, another government performs the duties that a governing board typically would perform (for example, the government determines or amends the structure of the plan [vesting requirements and required contributions]). If that other government is legally obligated to make contributions to the pension or OPEB plan, should the plan be included as a fiduciary component unit of that other government?

A—Yes. In accordance with paragraph 21a of Statement 14, as amended, a government is financially accountable for a legally separate organization if it appoints a voting majority of the organization’s governing body and there is a potential for the organization to provide specific financial benefits to, or impose specific financial burdens on, the government. For purposes of that paragraph, a government that performs the duties of a governing board in the absence of one should be considered equivalent to a governing board for which the government appoints a voting majority. Further, in accordance with paragraph 7 of Statement 84, a government is considered to have a financial burden if it is legally obligated to make contributions to the pension or OPEB plan. As a result, the plan should be included as a fiduciary component unit of the other government.

Implementation Guide

Implementation Guide4.6. Q—Is the answer in Question 4.5 the same regardless of whether the pension or OPEB plan is a defined benefit plan or a defined contribution plan?

A—Yes. Regardless of whether the pension or OPEB plan is a defined benefit plan or a defined contribution plan, if (a) the pension or OPEB plan is administered through a trust that meets the criteria in paragraph 3 of Statement 67 or paragraph 3 of Statement 74, as applicable; (b) the government performs the duties of a governing board in the absence of one; and (c) the government is legally obligated to make contributions to the pension or OPEB plan, the plan should be included as a fiduciary component unit of the other government.

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Example – SE DB Pension Plan• Employer participates in single-employer defined benefit pension plan

• 7-member appointed board• 4 appointed by employer• 1 elected by active plan members• 2 elected by retired/inactive plan members

• Plan assets are in a qualified trust• Employees contribute set amount• Employer required to contribute remaining on actuarial basis

Is this plan considered to be a fiduciary component unit?

Fiduciary Activates Flowchart

Start Here

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Control of Assets• Government holds the assets, or

• Government has ability to direct the use, exchange or employment of assets for benefit of specified or intended recipients

• Government uses asset when it expends or consumes asset for benefit of others, outside of the government’s provision of services to them

• Appointing designee to act on its behalf does not alter the government’s ability to direct the use, exchange or employment of assets

Restrictions on use of asset do not negate government’s control of the assets

Evaluating Whether Government Controls Assets

• Restrictions on the use of assets, e.g., through a custodial agreement, does not negate a government’s control over those assets

• Ordinarily, the assets of most defined contribution plans (401(k) and 457) are NOT controlled by the sponsor

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Fiduciary Activities FlowchartStart Here

Assets NotDerived from Certain Revenues

Assets associated with activity not derived (1) solely from the government’s own-source revenue, or (2) from government-mandated or voluntary nonexchange transactions

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Evaluating Whether Activity Is Derived from Government’s Own-Source Revenue

• Basic principle: the government cannot be a fiduciary for its own resources

• Consider• Deposits• Retainages payable• Payroll withholding• Property taxes

Assets Not Derived from Certain Revenues

• Assets associated with activity not derived (1) solely from the government’s own-source revenue, or (2) from government-mandated or voluntary nonexchange transactions

• Except for pass-through grants for which the government does not have administrative or direct financial involvement (GASB 24 ¶5)

• Examples:Administrative

involvement

• Monitors secondary recipients for compliance with requirements• Determines eligible secondary recipients• Ability to exercise discretion on how funds are allocated

Direct financial involvement

• Finances some program costs through grantor-imposed matching requirement

• Liable for disallowed costs

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Fiduciary Activities FlowchartStart Here

Assets with Certain CharacteristicsAssets associated with activity have one or more of the following characteristics

Administered through a trust or equivalent arrangement

•Government is not the beneficiary

•Assets dedicated to providing benefits to recipients under benefit terms

•Assets legally protected from creditors of the government

For the benefit of individuals

•Government does not have administrative or direct financial involvement (similar to GASB 24 ¶5)

•Assets not derived from government’s provision of goods & services to those individuals

For the benefit of other organizations

•Not part of the financial reporting entity

•Assets not derived from government’s provision of goods & services to other organization

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Assets for the Benefit of Individuals

Government does not have administrative or direct financial involvement

• Monitors compliance with requirements of the activity• Determines eligible expenditures• Ability to exercise discretion on how funds are allocated

Administrative involvement

• Provides matching resources• Other financial involvementDirect financial

involvement

Determining Whether Benefit Is for Individual or Organization• No definition of organization• If benefit to individual, government may not have administrative or

direct financial involvement• No similar requirement if benefit to organization• Likely the determining factor of whether many assets, including

student activity funds, are reported as assets of the primary government or as fiduciary activities

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Determining Whether Organization Has Administrative or Direct Financial Involvement

• Criteria is derived from GASB 24 for pass-through grants

• Difficult to interpret in connection with this standard for other fiduciary activities

• Likely will be several Q&As on this topic

Example – Property Tax Collections

• County collects property taxes on all taxable property within its boundaries based on its own tax levy ordinance & the tax levy ordinances adopted by other governments

• Property taxes are collected for the county & for the other taxing bodies such as the city, park district, school district & fire protection district

• The property taxes collected & held for other governments are commingled with the taxes collected for the county & are not held in a trust or equivalent arrangement

• The government holds the funds in a separate demand deposit account• The taxes collected are distributed to all taxing bodies at regular intervals (at least

bimonthly)

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Example – Property Tax Collections –Portion for Other Governments

› Test One – control• Government controls the assets

› Test Two – not from certain revenues• Own-source revenues• Government-mandated or voluntary nonexchange transactions

› Test Three – meet at least one characteristic• Trust• For Individuals – with no admin or direct financial involvement, &

not from government’s provision of services• For Organizations – not part of reporting entity, & not from

government’s provision of services

Example – Property Tax Collections – Portion for Reporting Government

› Test One – control• Government controls the assets

› Test Two – not from certain revenues• Own-source revenues• Government-mandated or voluntary nonexchange transactions

› Test Three – meet at least one characteristic• Trust• For Individuals – with no admin or direct financial involvement,

& not from government’s provision of services• For Organizations – not part of reporting entity, & not from

government’s provision of services

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Conclusion – Property Tax Collections

• Portion for Other Governments

• Fiduciary Activity

• Portion for Reporting Government

• Governmental or Business-Type Activity

Example – Drama Club• The drama club of a school district holds several fundraising events during

the year to fund club activities• The drama club has 3 student leaders who determine how the funds should

be allocated & facilitate the purchases• The drama club has a teacher sponsor who provides oversight for reviewing

club spending for appropriateness & stamps OKAY TO PAY on club invoices to be processed by the main office

• The school district does not have a policy or procedure requiring the school board be involved in the approval of the drama club purchases

• The school district invests the funds on behalf of the clubs• The clubs are not in a trust equivalent arrangement

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Example – Drama Club• Test One – control

• Government controls the assets• Test Two – not from certain revenues

• Own-source revenues• Government-mandated or voluntary nonexchange transactions

• Test Three – meet at least one characteristic• Trust• For Individuals – with no admin or direct financial involvement, &

not from government’s provision of services• For Organizations – not part of reporting entity, & not from

government’s provision of services

Conclusion –Drama Club

Fiduciary Activity

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Example – Speech Team• The speech team of a school district is allocated a percentage of school district

registration fees annually & also receives various donations throughout the year through fundraising activities

• The speech team has 3 student leaders who recommend how the funds should be spent• The school board has an internal district policy requiring a designated teacher to oversee

speech team activities, including purchases, & requiring a principal to approve all speech team purchases

• The teacher sponsor approves team spending & stamps “OKAY TO PAY” on the invoices• The school principal reviews all team purchase orders & approves them prior to the main

office processing the payment• The school district invests the funds on behalf of the team• The team is not in a trust equivalent arrangement

Example – Speech Team• Test One – control

• Government controls the assets• Test Two – not from certain revenues

• Own-source revenues• Government-mandated or voluntary nonexchange

transactions• Test Three – meet at least one characteristic

• Trust• For Individuals – with no admin or direct financial involvement,

& not from government’s provision of services• For Organizations – not part of reporting entity, & not from

government’s provision of services

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Conclusion –Speech Team

Governmental Activity

ReportingFiduciary Activities

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Four Types of Fiduciary Funds

Pension & OPEB trust

fundsInvestment trust funds

Private-purpose

trust fundsCustodial

funds

Fiduciary Funds – Trusts• Assets administered through a trust

• Government itself is not the beneficiary• Assets dedicated to providing benefits to recipients under

benefit terms• Assets legally protected from creditors of the government

Pension & other employee benefit trust funds

• Pension or OPEB plans administered through trustsunder GASB 67 or GASB 74

• Other employee benefit plans where resources held in trust & contributions to trust are irrevocable

Investment trust funds

• Assets held in trust• External portion of

investment pools• Individual investment

accounts

Private-purpose trust funds

• Fiduciary activities held in trust not required to be reported as pension, other employee benefit or investment trust funds

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Fiduciary Funds – Nontrusts• Custodial funds

• Report fiduciary activities not held in trust• Report external portion of investment pool not held in trust in

separate “external investment pool fund” column under custodial funds

• Exception: Assets normally expected to be held three months or less by a business-type activity

• May report asset & corresponding liability instead of a separate custodial fund

• Additions/deductions reported as operating cash inflows/outflows in statement of cash flows

Statement of Fiduciary Net Position• Report balances of all fiduciary funds• Liability to beneficiaries

• Recognized when event occurs that compels government to disburse fiduciary resources

• Events that compel government to disburse fiduciary resources• Demand for resources has been made, or• No further action, approval or condition is required to be taken

or met by beneficiary to release the assets

Pension or OPEB plans report in accordance with GASB 67 or 74, as applicable

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Statement of Changes in Fiduciary Net Position

• Report additions/deductions of all fiduciary funds• Disaggregate additions by source• Separate display of

• Investment earnings• Investment costs (separable from investment earnings & administrative costs)• Net investment earnings

• Disaggregate deductions by type• Separately display administrative costs• Single aggregated total for additions & deductions for custodial funds where resources

normally expected to be held for three months or less• Description indicates nature of resource flows

What Do I Do Now?

Recommendations for Governments

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Identify Potential Fiduciary Population• Current activities reported as fiduciary• Bank accounts• Current governmental & BTA funds• Component Units• Nonreported activities

• No defined population to start with• Review known resources controlled but not held by the

government• Consult with operational departments

Research & Gather Information• Research relevant laws & regulations• Obtain documentation, such as

• Contracts &/or agreements• Trust documents• Originating documents• Descriptions from entities involved with activities

• Gather enough information to gain a preliminary understanding of• Who/what entity provided the resources• The purpose of the resources• The potential beneficiaries of the resources

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Other Considerations

GASB 84 Implementation Guide Issued June 2019

Questions?

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