Interfund Activities Overview

3 Accounting

3.9 Interfund Activities

3.9.8 Interfund Activities Overview

3.9.8.10 BARS requires that each fund be supported by its own separate set of self-balancing accounts. As such, funds will often interact with one another.

Interfund activity is defined as financial interactions between the funds of a government (including legally separate blended component units).

3.9.8.15 Interfund activity should be reported within each fund as described below. Governments that roll up or consolidate a fund (or funds) with another fund of the government (for example, the consolidation of managerial funds or activity between departments within a single fund) should redefine the interfund activity between these funds as intrafund activity and eliminate it for reporting. See BARS 3.1.12, Managerial Funds for additional guidance regarding intrafund activity.

• Purchase of goods or service: water fund selling water to the parks department of the general fund, parks facility rental to the water department for public meeting, permitting department selling a permit to the sewer department (sewer fund).
• Property transfers: Property transferred between funds of the same local government. For details see BARS 3.9.2, Property Transfers.  
• Cities only: Utility tax levied by the general fund on its own utility. For details see BARS 3.6.13, Utility Tax.   

2. Nonreciprocal interfund activity – A situation that does not involve the equal or near equal exchange of value between funds. One fund gives (or receives) value without receiving (or giving) value in return.

a. Interfund transfers – A flow of assets (such as cash or goods) from one fund to another without the return of equivalent assets, goods or services, or requirement for repayment. Examples of interfund transfers include:

• Regular operations subsidies such as the general fund provides an annual operating subsidy to a transit enterprise fund.
• Cities only: Utility surplus transfers as allowed by RCW. For details see BARS 3.9.3, Utility Surplus Transfers.  

b. Interfund reimbursements – A repayment from the fund responsible for a particular expenditure or expense to a fund that initially paid for them. Interfund reimbursements are reported as an expenditure/expense in the fund ultimately responsible and as a reduction of the expenditure/expense in the fund being reimbursed.

Reimbursement situations generally result out of convenience, because of errors, or due to from routine administrative transactions; however, these can also occur when a government is not able to determine proper fund allocation of an expenditure at the time it is incurred. Interfund reimbursements examples include:

• Reimbursements to correct errors – One fund accidently pays the expense/expenditure of another fund.
• Payments for convenience– One fund pays a bill for all funds and then is later reimbursed. For example, one fund pays the telephone bills for the entire government and then receives payment from the other benefiting funds at a later time. For details see BARS 3.9.4, Interfund Reimbursements.  
• Overhead cost allocation – Costs of central services or support functions shared across departments and provided on a cost reimbursement basis. For details see BARS 3.9.5, Overhead Cost Allocation and BARS 3.9.6, Internal Service Funds.

3.9.8.25 Interfund services provided and used compared to interfund reimbursements.

As noted above, interfund services provided and used arise when the one fund provides services to another fund, as a part of their normal fund activity. On the other hand, interfund reimbursements are when one fund pays another fund’s expense/expenditure and then is reimbursed. Sometimes these two are misclassified. Here are a couple of things to consider when trying to determine whether an activity is a service provided/used or a reimbursement:

• Is it a programmatic activity of the fund?

If so, then the activity is more likely to be an interfund service. For example, the internal service fund providing services to other funds is a programmatic activity. It is the reason those funds were established. However, the general fund providing accounts payable and payroll processing to other funds is not a programmatic activity. The general fund was not set up to sell goods/services, so the general fund should treat this as a reimbursement.

• Is one fund a “customer” of the other fund?

If so, then the activity is more likely to be an interfund service. For example, when the water fund provides water to other funds, those other funds are treated like customers. They are charged for water services just like external users.

• Is the purpose to “spread” out the cost of a specific activity amongst other funds/departments?

If so, then the activity is more likely to be interfund reimbursements. The purpose of cost allocation, or spreading the cost amongst the funds, is to move the expenditure into the funds that benefit from the expense/expenditure. No service was actually provided, so it should be treated as a reimbursement, not a service provided/used.

3.9.8.30 Reporting of transactions in funds for interfund activity. Note: for GAAP entities this activity should be recognized according to the fund's basis of accounting: