TRABAJO Y CIUDADANÍA
III. El problema del trabajo alienado
Fiduciary-type funds are used to account for assets held by a government in a trust or agency capacity for others (individuals, other governments, or private organizations). Because they are held for others, these resources cannot be used to support the government’s own programs. The fiduciary fund category includes Pension (and other employee benefit) Trust Funds, Investment Trust Funds, Private-Purpose Trust Funds, and Agency Funds. Trust Funds are distinguished from Agency Funds generally by the existence of a trust agreement that affects the degree of man- agement involvement and the length of time the resources are held. Table 2-11 presents a sum- mary of the fiduciary-type funds, showing the purpose and examples of each.
Pension (and Other Employee Benefit) Trust Funds
The most widely used and often the most significant Trust Funds are Pension (and other employee benefit) Trust Funds. These funds account for resources required to be held in trust for members and beneficiaries of public employee defined benefit and defined contribution pension plans, health care and other postemployment benefit plans, and other employee benefit plans. Defined benefit pension plans guarantee specific benefits on retirement. Defined contribution plans do not guarantee
TABLE 2-11 Purposes of Fiduciary-Type Funds Fund Type To Account For
Pension Trust Resources held in trust for employee retirement plans and other employee benefit plans
Examples: Defined benefit pension plan, retiree health benefit plan Investment Trust Resources of an external investment pool managed by a sponsoring
government
Examples: The portion of an external investment pool that belongs to other governments
Private-Purpose Trust
Resources of all other trust arrangements maintained for benefit of individuals, other governments, and private organizations
Examples: Unclaimed (escheat) property, such as bank accounts, investment accounts, and other property held pending claim by rightful owners Agency Resources held in a custodial capacity that must be disbursed according
to law or contractual agreement
Examples: Sales or property taxes collected by a government on behalf of another government, Social Security taxes withheld from employees and kept separately pending distribution to the federal government
specific benefits; instead, benefits are based on periodic contributions to the plans and the earnings on those contributions. Many state governments maintain pension plans that cover not only state employees, but also one or more classes of local government employees, such as teachers.
Investment Trust Funds
Some governments sponsor investment pools, wherein they invest and manage resources belonging both to the sponsoring government (the internal portion of the pool) and to governments that are external to the sponsoring government (the external portion of the pool). The internal portion of these investment pools is reported as assets of the funds for which the investments were made. The external portions, however, are reported in Investment Trust Funds, another type of fiduciary fund. Private-Purpose Trust Funds
Private-Purpose Trust Funds are used to report all other trust arrangements under which the principal and income are held for the benefit of individuals, other governments, and private orga- nizations. An example of a Private-Purpose Trust Fund is an Escheat Property Fund. Escheat property is private property that reverts to a governmental entity in the absence of legal claimants or heirs. Many governments have laws that enable a rightful owner or heir to reclaim such prop- erty into perpetuity if the claimant can establish a right to it.
Agency Funds
Agency Funds are used to account for resources held by governmental units in a purely custodial capacity. These funds generally involve only the receipt and subsequent disbursement (after a short period of time) of assets held for individuals, private organizations, or other governments. Agency Funds may be used also to account for resources belonging both to other governments and the custodial government. For financial reporting purposes, however, only the resources belonging to other governments are reported in an Agency Fund. Assets held for the reporting government, pending distribution within the reporting government, should be reported in the appropriate governmental or proprietary fund.
An example of an Agency Fund is a Tax Agency Fund, wherein the reporting government col- lects taxes (such as sales taxes or property taxes) both for itself and as agent for other governments. The resources are held for a short period of time in an Agency Fund, which serves as a clearing account, pending distribution to the appropriate government. Agency Funds are also used to account for deposits made by contractors when submitting bids on general government construction contracts.
It is possible to use one Agency Fund to account for several agency relationships, provided there are no legal restrictions. However, due to the legal problems that exist in situations involv- ing trusts, a separate fund generally is used for each individual trust.
Reporting on Fiduciary-Type Funds
For all fiduciary-type funds other than Agency Funds, governmental entities are required to pre- pare a statement of changes in fiduciary net position and a statement of fiduciary net position. These funds are reported using the economic resources measurement focus and the full accrual basis of accounting. Agency Funds have no “net position” because their resources are equal to the liabilities to be paid from the resources. A statement of fiduciary net position is prepared for Agency Funds, but not a statement of changes in fiduciary net position.
For an example of the financial statements prepared for fiduciary-type funds, see Tables 2-12 and 2-13 relating to Mt. Lebanon’s Pension Trust Fund. Notice that, in the statement of changes in plan net position ( Table 2-12 ), the major headings are called additions and deductions , rather
than revenues and expenses. Notice also that the additions to plan net position are from two basic sources—contributions to the plan and investment income. Investment income is derived not only from interest and dividends, but also from changes (appreciation or decline) in the fair value of the investments held by the plan. The most significant deduction from plan net position dur- ing the year results from the payment of benefits to retirees and their beneficiaries.
The statement of plan net position ( Table 2-13 ) is simply a statement of the net assets held in trust for the beneficiaries. Investments represent the most significant asset. Other assets gener- ally shown in this statement are cash and receivables. Liabilities generally consist only of accounts payable (related to the administrative expenses) and refunds payable. Notice that the liability regarding the employer’s pension promise—the present value of amounts due to current and retired employees for services rendered in the past—is not reported here. Therefore, the reader cannot discern from this statement what may be the most important aspect of the employer’s pension promise; namely, the extent to which the employer’s obligation for benefits is covered by the assets held in the plan. As discussed in Chapter 8 , those data are provided in notes to the employer’s financial statements and in other supplemental information.
TABLE 2-12 Pension Trust Fund—Statement of Changes in Fiduciary Net Position Mt. Lebanon, Pennsylvania
Pension Trust Fund
Statement of Changes in Plan Net Position Year Ended December 31, 2009
(in thousands of dollars) Additions
Contributions:
Employer, including state aid $ 1,375
Employee 222
Total contributions $ 1,597
Investment income:
Net appreciation in fair value of investments 8,773
Interest and dividends 1,624
Total investment income 10,397
Less, investment expense 140
Net investment income 10,257
Total additions 11,854
Deductions
Benefits 2,902
Administrative expenses 94
Total deductions 2,996
Increase in plan net position 8,858
Net Position Held in Trust for Benefits
Beginning of year 45,468
End of year $54,326
TABLE 2-13 Pension Trust Fund—Statement of Fiduciary Net Position Mt. Lebanon, Pennsylvania
Pension Trust Fund Statement of Plan Net Position Year Ended December 31, 2009
(in thousands of dollars) Assets
Accrued income receivable $ 101
Accrued contributions 8
Investments, at fair value:
Equity funds $36,091
Fixed income funds 15,624
Short-term funds 2,591 54,306
Total assets 54,415
Liabilities
Accounts payable 89
Net Position
Held in trust for benefits $54,326
Source: Adapted from the Comprehensive Annual Financial Report, Mt. Lebanon, Pennsylvania, December 31, 2009.
Governmental Accounting in Practice
How Many Funds Are Enough?
The numbers and types of funds used by municipal governments have nothing to do with the size of the government. Rather, the fund structure depends on how the government is organized, how it is financed, and how many funds its officials decide to establish.
New York City has a population of more than 8.3 million, and the total expenses of its governmen- tal activities were $67.4 billion in 2009. Yet its fund structure is relatively simple. It has a General Fund, a New York City Capital Projects Fund, and a General Debt Service Fund. New York accomplishes some of its capital construction and financing activities through specially created public benefit corporations, resulting in the establishment of 5 other Capital Projects Funds and 8 other Debt Service Funds. New York City has its own pension systems, and its complex labor negotiations have resulted in the establish- ment of 5 large Pension Trust Funds and 13 other labor benefit Trust Funds. But New York has no Special Revenue, Enterprise, on Internal Service Funds.
Akron, Ohio, has a population of 217,000, and the total expenses of its governmental activities were only $345 million in 2009. To account for these activities, Akron uses 48 individual governmen- tal-type funds, including more than 25 Special Revenue Funds! Akron also has 6 Enterprise Funds and 8 Internal Service Funds. Akron provides pension and other retiree benefits through plans operated by the State of Ohio, so it has no Pension Trust Funds. Nevertheless, it has 5 fiduciary-type funds for other purposes.
So New York City’s population may be almost 40 times that of Akron, but when it comes to creat- ing funds, Akron wins in a walk.
Review Questions
Q2-1 Define fund as the term is used in governmental accounting. Q2-2 What is the purpose of fund accounting?
Q2-3 List the three categories of funds used in governmental accounting, and describe the types of activi- ties accounted for in each category.
Q2-4 Describe the difference between economic resources measurement focus and current financial resources measurement focus. Which measurement focus is used in each fund category?
Q2-5 How has governmental budgeting influenced the measurement focus and basis of accounting used in the governmental funds category?
Q2-6 Compare the timing of revenue and expense (or expenditure) recognition using the accrual basis of accounting with that using the modified accrual basis of accounting. Which basis of accounting is used in each fund category?
Q2-7 List the governmental-type funds, and briefly describe the use of each.
Q2-8 The controller for the City of Walla Walla recently made the following comment: “At a minimum, we could run city government with the use of only one fund.” Do you agree with this statement? Why or why not?
Q2-9 Why are there no capital assets in governmental-type funds? Q2-10 List the proprietary-type funds, and briefly describe the use of each. Q2-11 Why do proprietary-type funds use full accrual accounting? Q2-12 List the fiduciary-type funds, and briefly describe the use of each. Q2-13 Discuss why Agency Funds do not have a fund balance.
Discussion Scenarios and Issues
D2-1 A large city has been financing all of its services through property taxes and sales taxes. As the cost of services has been increasing, the city has found it necessary to raise its tax rates. A special com- mission appointed by the mayor suggests that it would be possible to reduce the property tax rate by charging residents a monthly fee to cover the costs of collecting and disposing of trash and garbage. The mayor likes the suggestion and wants to run the sanitation activity like a commercial business. Describe the fund accounting implications of adopting that suggestion.
D2-2 Each department in a large city maintains its own fleet of vehicles. The cost of purchasing and maintaining the vehicles is financed through the General Fund. One day, the mayor walks past the parking lot of the Parks Department and notices that many vehicles are not being used. The mayor calls her finance commissioner into the office and says: “Couldn’t we save money by setting up a central motor pool and requiring each department to use a pool vehicle whenever they need one?” The finance commissioner replies: “Yes, that will save us lots of money, but we will need to change our accounting system a bit to handle it.” Discuss the fund accounting implications of the finance commissioner’s reply.
D2-3 During a heated campaign for mayor of Hoschkosh, an unsuccessful candidate said: “I will do away with all the special interests in government. I will abolish all the Special Revenue Funds and merge that money with the general operating resources of the city.” You are the successful candidate in that race, and now the local press is pressuring you to respond to the campaign promise of the other candidate. How would you respond to the press?
D2-4 To fulfill a campaign promise, the new mayor of Cordelia is looking for ways to finance an increase in the level of police protection without raising the city’s property tax rate. He reads the city’s finan- cial report and notices that the Capital Projects Fund has a large fund balance. He discusses the fund balance with his finance commissioner, who says: “The fund balance is high because the city voted to sell bonds last year to finance construction of a new firehouse. The architect just finished
the design of the firehouse, and we are about to award a constructon contract.” The mayor responds: “Forget the firehouse. I promised to put more police patrols on the street. Let’s use the bond pro- ceeds to hire more police officers.” How should the finance commissioner respond to the mayor?
Exercises
E2-1 (Fund categories)
State which category of funds (governmental-type, proprietary-type, or fiduciary-type) would be used by a state government for each of the following purposes:
1. To construct a new highway
2. To pay salaries of personnel who maintain state parks
3. To accumulate resources to pay pension benefits for its employees 4. To collect sales taxes on behalf of local governments that impose such a tax
5. To operate a central printing department that prints forms and reports for all state departments E2-2 (Identification of funds, measurement focus, and basis of accounting)
For each scenario shown in Exercise E2-1, state which fund type would be used and which mea- surement focus and basis of accounting would be used for each fund type.
E2-3 (Identification of funds used by a large city)
This information is extracted from or based on the notes to the financial statements issued by New York City. For each item described, identify the fund used by New York City.
1. “This is the general operating fund of the City. Substantially all tax revenues, Federal and State Aid (except aid for capital projects) and other operating revenues are accounted for in [this fund].” 2. “This fund . . . accounts for resources used to construct or acquire fixed assets and make capital
improvements.”
3. “This fund, required by State legislation . . . into which payments of real estate taxes and other revenues are deposited in advance of debt service payment dates. Debt service on all City . . . bonds is paid from this fund.”
4. These funds account for assets held on behalf of the City’s employees to pay pension benefits. E2-4 (Nature of governmental-type funds)
State whether the following sentences are true or false regarding the nature and uses of governmental- type funds . If the sentence is false, state why.
1. Debt service expenditures and capital outlays are never made directly from the General Fund. 2. Special Revenue Funds are used if the law restricts one or more specific sources of revenue,
rather than general tax revenues, for specific purposes.
3. Special Revenue Funds cannot be used if a portion of the revenues are derived from transfers from the General Fund.
4. Capital Projects Funds are used to account for and report on all capital assets, whether they are financed from the proceeds of general obligation bonds or from revenue bonds sold by propri- etary funds.
5. Debt Service Funds are used to accumulate resources for paying debt service in the current year, but not in future years.
E2-5 (Measurement focus and basis of accounting in governmental-type funds)
State whether the following sentences are true or false regarding accounting measurements within governmental-type funds . If the sentence is false, state why.
1. Capital assets are recognized as assets and depreciated over their estimated useful lives. 2. Repayments of bond principal are recorded as expenditures.
3. Liabilities for compensated absences are not accrued unless they are required to be liquidated with current financial resources.
4. As a general rule, property taxes are recognized as revenue and reported in the operating state- ment, provided they are expected to be collected at a future date.
E2-6 (Nature of proprietary-type funds and measurements within them)
State whether the following sentences are true or false regarding proprietary-type funds and the accounting measurements made within them. If the sentence is false, state why.
1. Enterprise Funds are used when a governmental entity sells products or services primarily to external parties (such as the general public) for a fee or user charge.
2. An Enterprise Fund may not be used if the entity, such as a provider of mass transit services, receives subsidies from the General Fund.
3. To ascertain the amount of capital assets acquired by an Enterprise Fund during the year, you should read the statement of revenue, expenses, and changes in net position.
4. When Enterprise Funds are used, expenses are accrued only if they are expected to be paid within 60 days after the end of the year.
5. When Enterprise Funds are used, revenues are recognized in the period they are earned, even if cash has not been received.
E2-7 (Nature of fiduciary-type funds and measurements within them)
State whether the following sentences are true or false regarding the nature of fiduciary-type funds and the accounting measurements within them. If the sentence is false, state why.
1. Governments may access the resources of fiduciary funds to help support their own programs. 2. When a government sponsors an Investment Trust Fund, the portion that belongs to other gov-
ernments is reported as assets of the Fund, but the portion belonging to the sponsoring govern- ment is not.
3. The statement of net position for a typical Agency Fund shows assets and liabilities, but no fund balance.
4. When reporting on the resources of Pension Trust Funds, equity securities held by the Funds are reported at original cost.
E2-8 (Measurement focus and basis of accounting for different fund types)
Several new city council members asked you to explain why the financial statements for the Water Enterprise Fund “seem to look different” than the financial statements for the General Fund. “For example,” says one, “the captions are different, and some accounts in the Water Enterprise Fund statements don’t appear in the General Fund statements.” Write the explanation that you would provide for these council members.
E2-9 (Nature of governmental fund types and fund balances)
J. J. Peachum is running for election as a commissioner of the municipality of Mt. Lebanon. He examines Table 2-6 in the text and calculates the total of the fund balances to be $10,282,000. Then, in a major campaign speech, he announces: “We have a surplus of more than $10 million. If elected, I will use this entire slush fund to reduce your property taxes.” Comment on Peachum’s assertion, based solely on your analysis of Table 2-6 , your understanding of the nature of governmental-type funds, and your general knowledge of governmental finance. (Fund balances will be discussed in Chapter 5 , and financial statement analysis will be covered in Chapter 14 .)
E2-10 (Effect of different measurement focuses and bases of accounting)
Following are some of Friendly Village’s transactions during the calendar year 2013. For each