Interfund Reimbursements

3 Accounting

3.9 Interfund Activities

3.9.4 Interfund Reimbursements

3.9.4.10 For financial reporting purposes, all revenue, expenditures/expenses, gains, losses, assets, and liabilities resulting from exchange and exchange-like transactions should be recognized when the transaction takes place.  This means transactions should be presented at gross amounts unless the transaction is a reimbursement or else netting is specifically allowed by GAAP.  Examples of allowable netting other than reimbursements include reinsurance activities for public entity risk pools (Governmental Accounting Standards Board (GASB) Codification of Governmental Accounting and Financial Reporting Standards (Cod.) Section (Sec.) Po20 "Public Entity Risk Pools"), pollution remediation obligation (GASB Cod. Sec. P40 "Pollution Remediation Obligations") and some insurance recoveries (GASB Cod. Sec. C50 "Claims and Judgments"), etc.

3.9.4.20 Interfund reimbursements are repayments from the fund responsible for particular expenditures/expenses to the fund that initially paid for them. They are adjustments to correct the assignment of the expenditures/expenses. Reimbursements reduce expenditures/expenses in the fund that is reimbursed and move the expenditures/expenses to the fund that ultimately pays for it. The offsetting transaction should be posted on an object level.

3.9.4.30 There is one major exception to this definition: frequently, internal service funds are created to account for cost allocation and purchasing. In those funds, cost allocations and payments for pooled purchases are treated as revenues rather than reimbursements.

3.9.4.40 Examples of reimbursements include: (1) correction of errors, (2) internal allocation of overhead and (3) payments received for others’ share of pooled activities (payments for a convenience) such as the distribution of utility and telephone bills among the departments and funds after one department has paid the bill or the allocation of insurance premiums and payrolls among various departments and funds.

(1) Correction of errors example: The general fund accidentally paid the water fund’s $2,000 phone bill. The water fund later reimbursed the general fund.

When the error is discovered and the general fund is reimbursed, the general fund entry would be:

Note: The credit to the functional expenditure should be the same BARS code that the original expenditure was recorded too.

The water fund journal entry would be:

(2) Allocation of overhead costs example: The general fund processes all payroll and accounts payable for other funds/departments within the government. The cost of processing payroll and accounts payable (the general fund’s employee salaries, benefits, and supplies) are then allocated to other funds/departments at year-end. Throughout the year the government accounts for the expenditures in the general fund and then prepares and records a correcting journal entry at year-end to move the expenditures to the appropriate funds/departments that benefitted from the payroll and accounts payable processing staff and supplies. At year-end the general fund has the following costs to allocate:

To remove the costs from the general fund the government would enter the following journal entry:

The sewer fund is responsible for 10% of the total costs. The sewer fund would entry the following journal entry:

The other funds/departments that costs are allocated to will have similar journal entries to report their portion of the expenditures.

(3) Payments for convenience: The general fund pays the entire phone bill for the government, then later gets reimbursed from the other funds. The total phone bill is $15,000. Of that, $10,000 is for the general fund, $3,000 is for the sewer fund, and $2,000 is for the water fund.

In this case, each fund should record their share of the expenditure at the time of payment, even if the general fund initially pays the entire bill.

General Fund journal entry:

Sewer fund journal entry:

Water fund journal entry:

3.9.4.50 Reimbursements do not include recoveries for damages, whether from insurance or from private sources, grants, contractual payments, impact payments, or shared costs of providing services from the federal, state or local governments. Also, do not include expenditures which constitute direct cost of the activity like interfund taxes, utility payments, licenses, interest, etc.

Reimbursements from external parties

This information has moved to BARS 3.1.10.75, Accounting Principles.