4 Reporting
4.3 Fund Financial Statements
4.3.7 Determining Fiduciary Activities to be Reported in Custodial Funds
4.3.7.10 Purpose
Due to the generally accepted accounting principles established by the Governmental Accounting Standards Board in GASB Statement 84, Fiduciary Activities and Washington State law that requires the Office of the Washington State Audit to prescribe a uniform system of accounting for local governments, fiduciary activities implementation is required by all local governments. The accounting standards for these activities only provide a framework which could lead to incorrect implementation, therefore the Auditor’s Office has prescribed certain activities as custodial and therefore should be reported in a Fiduciary Custodial Fund. Additionally, the Auditor’s Office has prescribed certain activities that, may appear custodial, but are ultimately not custodial and therefore would be reported in the appropriate governmental or proprietary fund.
Business Type Activities: If the resources are normally held for less than 90 days, then fiduciary reporting is not required for those resources.
4.3.7.20 Determination questions
1. Are the assets associated with the activity controlled by the government?
A government is considered to be controlling assets if either:
(a) The government holds the assets. An example of holding assets is when a government receipts money or has the money in the government’s bank account.
or
(b) The government has the ability to direct the use, exchange, or employment of the assets in a manner that provides benefits to the specified or intended recipients.
For purposes of this criteria a government uses an asset when it expends or consumes that asset for the benefit of individuals, organization, or other governments, outside of the government’s provision of services to them.
Restrictions from legal or other external restraints that stipulate the assets can be used only for a specific purpose do not negate a government's control of the assets. When a government appoints a designee to act on its behalf, the designee is performing the government's fiduciary duties and not assuming them. Thus, appointing a designee to act on its behalf does not alter the government's ability to direct the use, exchange, or employment of the assets.
Examples include:
The government is the treasurer for another government or acting as their bank.
The government is on the bank account.
Any asset the government is holding for another government and the holding government is not using the asset for their own operations.
If "no", this is not a fiduciary custodial activity; if "yes", proceed.
2(a). Are the assets derived solely from the government's own-source revenues?
Own-source revenues are revenues that are generated by a government itself. They include exchange and exchange-like revenues (for example, water and sewer charges for service) and investment earnings. Derived tax revenues (such as leasehold taxes) and imposed nonexchange revenues (such as property taxes) are also included in own-source revenue. Derived tax revenues (such as leasehold taxes) and imposed nonexchange revenues (such as property taxes) are also included.
Examples include:
When a local government leases office space the lease revenue is own-source revenue while the collected leasehold excise tax is not own-source revenue because that portion is imposed by the state under Chapter 82.29A RCW.
When a county or city imposes an impact fee those revenues are generated by that government and are own-source revenue even when those resources are required to be 100 percent remitted to other governments (such as to a school, fire or park district). The county’s or city’s ability to levy the fee by RCW means this revenue is own-source revenue.
If "yes", this is not a fiduciary custodial activity; if "no", proceed.
2(b). Are the assets associated with the activity from either government-mandated or voluntary nonexchange transactions?
Government-mandated nonexchange transactions, occur when a government provides resources to another government and requires the recipient government to use the resources for a specific purpose (for example, federal programs that state or local governments are mandated to perform or state programs that local governments are mandated to perform).
Example:
Washington State Department of Revenue’s requirement that all sales tax be remitted to the State for allocation and disbursement.
Washington State’s mandate on cities and counties to perform concealed permit processing.
Voluntary nonexchange transactions, result from legislative or contractual agreements, other than exchanges, entered into willingly by the parties to the agreement (for example, certain grants and private donations for government programs).
Example:
Administrative Office of the Courts mandated fees collected by cities and counties.
Washington State Department of Licensing functions that counties are contracted to perform.
Donations to a government for one of its programs would be voluntary nonexchange revenue and the answer would be "yes". However, a donation given to a government for the benefit of a third party would be answered "no" (this revenue classification does not apply because the resources are not governmental revenue).
If "no" (meaning not government-mandated or voluntary exchange transactions), proceed to step (3); if "yes" proceed to 2(c).
GAAP – See BARS Manual 3.6.9 – Revenue Accruals in Governmental Funds for definitions.
2(c). Are the assets from pass-through grants for which the government does not have administrative involvement or direct financial involvement?
A government has administrative involvement if it, for example (a) monitors secondary recipients for compliance with program-specific requirement, (b) determines eligible secondary recipients or projects, even if using grantor-established criteria, or (c) has the ability to exercise discretion in how the funds are allocated.
A government has direct financial involvement if it, for example, (a) finances some direct program costs because of grantor-imposed matching requirements, or (b) is liable for disallowed costs.
An example is:
A government does not have administrative involvement when a jail corrections officer approves inmate purchases ordered outside the corrections facility (to help ensure that contraband does not enter the facility). Keeping contraband out of the facility is a general goal of the government and not specific to overseeing the use of those funds.
If "no" (meaning the government has administrative or direct financial involvement), this is not a fiduciary activity; if "yes", proceed.
3. Are any one of the following three sets of criteria true? (all parts of the individual set must be met)
3(a). The assets are:
(a) administered through a trust in which the government itself 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.
If this set of criteria is true the assets should be reported in a fiduciary trust fund.
or
3(b). The assets are:
(a) for the benefit of individuals and
(b) the government does not have administrative involvement with the assets or direct financial involvement with the assets.
(c) In addition, the assets are not derived from the government's provision of goods and services to those individuals.
Provision of goods and services examples:
The government sells maps, umbrellas, utilities (water/sewer), etc.
The government provides services such as finger printing, background checks, etc.
Examples of when this set of criteria is true is inmate accounts for commissary purchases and patient accounts in certain medical facilities.
or
3(c). The assets are:
(a) for the benefit of organizations or other governments that are not part of the financial reporting entity and
(b) not derived from the government's provision of goods or services to those organization or other governments.
Examples include:
In evaluating each component of a transaction — collected leasehold excise tax is fiduciary because those specific dollars are for the benefit of the state and the tax is not derived from the collecting governments provision of goods or service to the state (the provision of services is to a third party).
When a government has a component unit that is considered part of the financial reporting entity, the component unit would not be reported in the fiduciary funds. The exception would be if the government was the acting fiscal agent, then the government would report the component unit in its custodial funds.
If "yes" to any one of the three sets of criteria, fiduciary reporting is applicable and activities should be reported in the custodial funds; if "no", this is not a fiduciary activity.
4.3.7.30 Prescribed custodial transactions
Below is a list of prescribed custodial fund activities, including the responses to the custodial criteria questions.
Leasehold tax and other state mandated taxes
Step 1 – Are the assets associated with the activity controlled by the government?
Yes, the collecting government receives the tax and is holding the monies in their bank account until the monies are remitted to the State.
Step 2(a) – Are the assets derived solely from the government's own-source revenues?
No, these taxes are levied by the State through RCWs therefore they are not solely from the reporting government’s own-source revenue.
Step 2(b) – Are the assets associated with the activity from either government-mandated or voluntary nonexchange transactions?
Yes, these monies are from derived government-mandated tax revenue.
Step 2(c) – Are the assets from pass-through grants for which the government does not have administrative involvement or direct financial involvement?
No, these monies are not from a grant and the reporting government does not have administrative or direct financial involvement.
Step 3(a) – Are the assets held in a trust or equivalent arrangement and the government itself is not a beneficiary?
No, these monies are not in a trust.
Step 3(b) – Are the assets for the benefit of individuals and the government does not have administrative involvement or direct financial involvement?
No, these monies are not for the benefit of individuals.
Step 3(c) – Are the assets for the benefit of organizations or other governments that are not part of the financial reporting entity? Are assets held for organizations or other governments not derived from the collecting government’s provision of goods or services to those organizations or other governments?
Yes, these monies are for the benefit of the State and the State is not part of the collecting government’s financial reporting entity. Yes, the collecting government did not provide a good or service to the State.
Conclusion: Leasehold tax and other state mandated taxes are fiduciary activities and should be reported in the custodial funds.
Department of Licensing accounts (counties only)
Step 1 – Does the government control the asset?
Yes, the collecting government’s name and tax identification number are on the bank account.
Step 2(a) – Are the assets derived solely from the government’s own-source revenue?
No, the State amounts are collected in addition to the local government’s revenues and are mandated by state law.
Step 2(b) – Are the assets derived from government-mandated or voluntary nonexchange transactions?
No, these monies are not from a government-mandated or nonexchange transaction.
Step 2(c) – Are the assets derived from a pass-through grant for which the government has administrative involvement or direct financial involvement?
No, these monies are not from a grant and the collecting government does not have administrative or direct financial involvement.
Step 3(a) – Are the assets held in a trust or equivalent arrangement and the government itself is not a beneficiary?
No, these monies are not in a trust.
Step 3(b) – Are the assets for the benefit of individuals and the government does not have administrative involvement or direct financial involvement?
No, these monies are not for the benefit of individuals.
Step 3(c) – Are the assets for the benefit of organizations or other governments that are not part of the financial reporting entity? Are assets held for organizations or other governments not derived from the collecting government’s provision of goods or services to those organizations or other governments?
Yes, these monies are for the benefit of the State and the State is not part of the collecting government’s financial reporting entity. Yes, the collecting government did not provide a good or service to the State Department of Licensing.
Conclusion: The portion of the licensing fees that are the State’s portion are fiduciary activities and should be reported in the custodial funds. The collecting government’s portion of these fees are the government’s own-source revenue and should be reported in the reporting government’s governmental or proprietary funds.
Permits and certificates fees (concealed pistol permits, birth certificates, etc.)
Step 1 – Does the government control the asset?
Yes, the collecting government receives the fees and is holding the monies in their bank account until the monies are remitted to the State.
Step 2(a) – Are the assets derived solely from the government’s own-source revenue?
No, the State amounts are collected in addition to the local government’s revenues and are mandated by state law.
Step 2(b) – Are the assets derived from government-mandated or voluntary nonexchange transactions?
No, these monies are not derived from a government-mandated or nonexchange transaction.
Step 2(c) – Are the assets derived from a pass-through grant for which the government has administrative involvement or direct financial involvement?
No, these monies are not from a grant and the reporting government does not have administrative or direct financial involvement.
Step 3(a) – Are the assets held in a trust or equivalent arrangement and the government itself is not a beneficiary?
No, these monies are not in a trust.
Step 3(b) – Are the assets for the benefit of individuals and the government does not have administrative involvement or direct financial involvement?
No, these monies are not for the benefit of individuals. While the citizen is receiving a certificate/permit from the city or county the citizen is not receiving a good or service from the government imposing the fee and issuing the permits and/or certificates (the State).
Step 3(c) – Are the assets for the benefit of organizations or other governments that are not part of the financial reporting entity? Are assets held for organizations or other governments not derived from the collecting government’s provision of goods or services to those organizations or other governments?
Yes, these monies are for the benefit of the State and the State is not part of the collecting government’s financial reporting entity. Yes, the collecting government did not provide a good or service to the State.
Conclusion: The portion of the permit/certificate fees that are the State’s portion are fiduciary activities and should be reported in the custodial funds. The collecting government’s portion of these fees are for the direct benefit of the collecting government and should be reported in the collecting government’s governmental or proprietary funds.
Flexible Savings Accounts and Health Savings Accounts (Government holds the monies for an administrator and reimburses based on administrator determination).
Step 1 – Does the government control the asset?
Yes, the collecting government is holding the monies for an administrator.
Step 2(a) – Are the assets derived solely from the government’s own-source revenue?
No, these deposits are from the employee’s revenues and not the government’s directly.
Step 2(b) – Are the assets derived from government-mandated or voluntary nonexchange transactions?
No, these monies are not government-mandated or voluntary nonexchange transaction.
Step 2(c) – Are the assets derived from a pass-through grant for which the government has administrative involvement or direct financial involvement?
No, these monies are not from a grant and the reporting government does not have administrative or direct financial involvement.
Step 3(a) – Are the assets held in a trust or equivalent arrangement and the government itself is not a beneficiary?
No, these monies are not in a trust.
Step 3(b) – Are the assets for the benefit of individuals and the government does not have administrative involvement or direct financial involvement?
Yes, these monies are for the benefit of employees under the IRS requirements.
Step 3(c) – Are the assets for the benefit of organizations or other governments that are not part of the financial reporting entity?
No, the administrator and the government have a contract that requires the government to collect the monies for the employees and reimburse for approved expenses.
Conclusion: Flexible Savings Accounts and Health Savings Accounts where the reporting government is holding the monies for the administrator of the plan and reimburses the employees based on direction from the administrator of the plan are fiduciary funds.
4.3.7.40 Prescribed non-custodial activities
Impact fees (cities & counties only)
Step 1 – Does the government control the asset?
Yes, the collecting government receives the fees and is holding the monies in their bank account until the monies are remitted to the school, fire, or park district.
Step 2(a) – Are the assets derived solely from the government’s own-source revenue?
Yes, these fees can only be levied by the collecting government per state law (RCW 82.02.050.110 and WAC 365-196-850).
Conclusion: Not a fiduciary activity. Under state law, only cities and counties can authorize and levy impact fees for school, fire, or park districts. Since the city or county is levying the impact fees these monies would be own-source revenue and reported in the governmental funds of the city or county.
Retainage and refundable deposits
Step 1 – Does the government control the asset?
Yes, the collecting government receives the fees and is holding the monies in their bank account until the contracting party meets their obligations.
Step 2(a) – Are the assets derived solely from the government’s own-source revenue?
Yes, although these deposits could be revenues for the collecting government, as revenue recognition is dependent on the contracting party meeting certain criteria in order for the collecting government to remit the retainage and/or deposit to the contracting party.
Conclusion: Not a fiduciary activity, since these monies are derived from the government’s own-source revenue. Therefore the retainage and refundable deposits should be reported in the government’s governmental or proprietary funds.
Payroll clearing accounts
Step 1 – Does the government control the asset?
Yes, the collecting government receives the fees and is holding the monies in their bank account until remittance to the mandating government (federal and/or state).
Step 2(a) – Are the assets derived solely from the government’s own-source revenue?
No, these deposits are from the employee’s revenues and not the government’s directly.
Step 2(b) – Are the assets derived from government-mandated or voluntary nonexchange transactions?
No, these monies are not government-mandated or voluntary nonexchange transaction.
Step 2(c) – Are the assets derived from a pass-through grant for which the government has administrative involvement or direct financial involvement?
No, these monies are not from a grant and the reporting government does not have administrative or direct financial involvement.
Step 3(a) – Are the assets held in a trust or equivalent arrangement and the government itself is not a beneficiary?
No, these monies are not in a trust.
Step 3(b) – Are the assets for the benefit of individuals and the government does not have administrative involvement or direct financial involvement?
No, these monies are not for the direct benefit of individuals. While the employee benefits from the employing government withholding and paying the employee’s portion of taxes and other payroll items, the employee’s government is obligated by law to withhold and pay the appropriate employee related payroll withholdings.
Step 3(c) – Are the assets for the benefit of organizations or other governments that are not part of the financial reporting entity?
No, the mandating authority (federal and/or state government) requires the employing government to collect and remit these monies and has the legal authority to enforce the liability on the employing government.
Conclusion: Not a fiduciary activity, since these monies are for the benefit of the collecting government and therefore these items should be reported on the financial statements of the collecting government.
Flexible Savings Accounts and Health Savings Accounts (Government holds the monies for an administrator and makes reimbursement decisions).
Step 1 – Does the government control the asset?
Yes, the collecting government is holding the monies for an administrator.
Step 2(a) – Are the assets derived solely from the government’s own-source revenue?
No, these deposits are from the employee’s revenues and not the government’s directly.
Step 2(b) – Are the assets derived from government-mandated or voluntary nonexchange transactions?
No, these monies are not government-mandated or voluntary nonexchange transaction.
Step 2(c) – Are the assets derived from a pass-through grant for which the government has administrative involvement or direct financial involvement?
No, these monies are not from a grant and the reporting government does not have administrative or direct financial involvement.
Step 3(a) – Are the assets held in a trust or equivalent arrangement and the government itself is not a beneficiary?
No, these monies are not in a trust.
Step 3(b) – Are the assets for the benefit of individuals and the government does not have administrative involvement or direct financial involvement?
No, while these monies are for the benefit of employees under the IRS requirements since the government is making reimbursement decisions there is administrative involvement.
Step 3(c) – Are the assets for the benefit of organizations or other governments that are not part of the financial reporting entity?
No, the administrator and the government have a contract that requires the government to collect the monies for the employees and reimburse for approved expenses.
Conclusion: Not a fiduciary activity, since these monies are under the administrative control of the government.
4.3.7.50 Court accounting
Cities and counties with their own court
1. Administrative Office of the Courts (AOC) mandated fees (BARS Codes 386/586)
Step 1 – Does the government control the asset?
Yes, the government is collecting the fines and fees and holding the monies in their bank account until remitting the monies to the State.
Step 2(a) – Are the assets derived solely from the government’s own-source revenue?
No, the AOC/state amounts are collected in addition to the local government’s revenue.
Step 2(b) – Are the assets derived from government-mandated or voluntary nonexchange transactions?
No, these monies are not a government-mandated or nonexchange transaction.
Step 2(c) – Are the assets derived from a pass-through grant for which the government has administrative involvement or direct financial involvement?
No, these monies are not from a grant and the reporting government does not have administrative or direct financial involvement.
Step 3(a) – Are the assets held in a trust or equivalent arrangement and the government itself is not a beneficiary?
No, these monies are not held in a qualifying trust.
Step 3(b) – Are the assets for the benefit of individuals and the government does not have administrative involvement or direct financial involvement?
No, these monies are not for the benefit of individuals.
Step 3(c) – Are the assets for the benefit of organizations or other governments that are not part of the financial reporting entity? Are assets held for organizations or other governments not derived from the collecting government’s provision of goods or services to those organizations or other governments?
Yes, these monies are for the benefit of the state and the state is not part of the collecting government’s financial reporting entity. Yes, these funds are for the state and the local government’s court is not providing a direct service to the state.
Conclusion: AOC fees are fiduciary activities and should be reported in the custodial funds.
2. Local government revenue fines and fees BARS Codes
Step 1 – Does the government control the asset?
Yes, the government is collecting the fines and fees and holding the monies in their bank account.
Step 2(a) – Are the assets derived solely from the government’s own-source revenue?
Yes, as an example, the city’s police department or the county’s sheriff department issued the tickets during the performance of their public safety function and the revenue is generated by the city/county for their own use.
Conclusion: Not a fiduciary activity, the local government’s fines and fees are the government’s own revenue.
3. State distributions to local government
Step 1 – Does the government control the asset?
No, the State controls the money and distributes the money.
Conclusion: Not a fiduciary activity, the monies are not reported by the city/county until the money is received by the city/county from the state and would be considered own-source revenue upon receipt.
Cities and counties that contract for court
1. Administrative Office of the Courts (AOC) mandated fees (BARS Codes 386/586)
Step 1 – Does the government control the asset?
Cities and counties that contract out for court services generally do not remit monies to the Administrative Office of the Courts (AOC). The court providing the service to the city/county generally remits the AOC monies for the contracting city/county. The city/county contracting for court services would therefore not report AOC fines and fees in their custodial funds.
2. Local government revenue fines and fees BARS Codes
Step 1 – Does the government control the asset?
No, the city or county does not control the asset, since the court the city contracted with holds the asset in their bank account.
Conclusion – Not a fiduciary activity, the monies are not the city/county until remitted from the court provided to the city/county.
3. Payment for court services
Step 1 – Does the government control the asset?
No, there is no asset. This is an expense for the city or county receiving the court services.
Conclusion: Not a fiduciary activity, this is a direct expense for the city/county receiving the court services and should be coded to BARS code 512.50.PP.
GAAP – providing court services
1. Administrative Office of the Court (AOC) mandated fees (386/586) – Please see above section.
2. Court provider’s collection/remittance of the fines and fees for the city/county receiving the court service
Step 1 – Does the government control the asset?
Yes, the court provider is collecting the fines and fees and holding the monies in their bank account.
Step 2(a) – Are the assets derived solely from the government’s own-source revenue?
No, these fines and fees are levied/ticketed by another government.
Step 2(b) – Are the assets derived from government-mandated or voluntary nonexchange transactions?
No, these monies are not a government-mandated or nonexchange transaction.
Step 2(c) – Are the assets derived from a pass-through grant for which the government has administrative involvement or direct financial involvement?
No, these monies are not from a grant and the collecting government does not have administrative or direct financial involvement.
Step 3(a) – Are the assets held in a trust or equivalent arrangement and the government itself is not a beneficiary?
No, these monies are not held in a qualifying trust.
Step 3(b) – Are the assets for the benefit of individuals and the government does not have administrative involvement or direct financial involvement?
No, these monies are not for the benefit of individuals.
Step 3(c) – Are the assets for the benefit of organizations or other governments that are not part of the financial reporting entity? Are assets held for organizations or other governments not derived from the collecting government’s provision of goods or services to those organizations or other governments?
Yes, these monies are for the benefit of the city or county and the city or county is not part of the collecting government’s financial reporting entity. No, the collecting government is providing a service (court) for a fee to another government.
Conclusion: Not a fiduciary activity, the fines and fees are collected by the court provider in which they are providing a service to the local government for a fee and would be reported in the collecting government’s financial reports under Restricted Cash and Due to Other Governments liability accounts.
3. Revenue for court services
Step 1 – Does the government control the asset?
Yes, the government is collecting the fee holding the monies in their bank account.
Step 2 – Are the assets derived solely from the government’s own-source revenue?
Yes, this is the court provider’s revenue for performing the court service for a fee.
Conclusion: Not a fiduciary activity, the revenues are the court providers own revenue and should be coded to BARS Code 341.49.00.