by James Bence, CPA
Even though GASB has postponed the implementation of GASB 84 until periods beginning after December 15, 2019, some entities are electing to continue the implementation under the original timeline. To continue our series on GASB Statement 84, Fiduciary Activities, let’s discuss how it impacts custodial funds held by a School District.
As a refresher, in order to qualify as fiduciary activity (other than those relating to pension or OPEB arrangements), each of the following must be met:
- The District must control the assets;
- The assets in question cannot be derived from:
- the District’s own-source revenues (i.e., revenues generated by the District itself such as charges for services and investment earnings as well as imposed nonexchange revenues such as property taxes).
- government mandated or voluntary nonexchange transactions (such as grants), with the exception of pass-through grants for which the District does not have administrative involvement or direct financial involvement.
- The assets must have at least one of the following:
- assets are administered through a trust in which the District is NOT a beneficiary AND are assets are dedicated to benefits based on benefit terms; AND are legally protected from the District’s creditors.
- assets are for the benefit of individuals and the District does NOT have administrative involvement with the assets; or
- assets are for the benefit of organizations/governments which are NOT part of the District; and
- assets are NOT derived from the government’s provision of goods or services to those individuals.
In order to successfully implement GASB 84, you will need to consider each of the following criteria above. Recall that control of the assets is defined as holding the assets or having the ability to direct the use of the assets. This will likely catch the majority of the current fiduciary funds as the Districts’ are likely holding the assets in District accounts, under the District’s federal ID. Next you should consider the source of the funds and if they meet the criteria in item 2 above.
Assuming the first two requirements are met, we then assess the last criterion:
Are the assets held in a Trust? This would be a separate trust fund, now referred to as CUSTODIAL FUNDS where the District holds the trust fund and will report a Statement of Fiduciary Net Position and Statement of Changes in Fiduciary Net Position.
Do we have Administrative Involvement? The implementation guide gives several examples in 2019-2 questions 4.17 – 4.23. The crux of the question lies in who is directing the use of the funds. If an employee or school representative is approving, rejecting, or modifying the requests/disbursements this is deemed to be administrative control. If the District’s Board establishes a policy which sets guidelines related to how funds can be spent, this is administrative involvement.
The absence of a policy on use of funds, or a policy which only identifies authorized signers, or even a policy which only identifies “illegal” use of funds is NOT considered administrative involvement because of the lack of substantial guidance in how to spend the resources.
When a fiduciary fund is determined to be the appropriate reporting, the activity will be maintained in a fiduciary fund with full accrual accounting as the basis. The fund will report assets, liabilities, deferred inflows/outflows of resources, and a net position. The liabilities will be recognized as the obligation for repayment or disbursement occurs. The biggest change will be the Statement of Changes in Fiduciary Net Position. The Statement does permit for the single aggregation of all addition and deletion for the custodial funds. So while this will require a more detailed accounting of the receipts and disbursements, it does not require a full range of accounts, as would a special revenue fund.
Here are a few examples from the GASB 84 Implementation Guide which may help with evaluating the impact to your respective District:
4.16. Q—A chess club of a public high school is established in accordance with the school’s operating policies and is not legally separate from the high school. The club members organize and conduct fundraising activities to pay for the club’s annual tournament and other club activities during the school year. The proceeds from the fundraising activities are held in a separate bank account in the school’s name. In determining whether those resources controlled by the school are fiduciary, are the assets held for the benefit of individuals as addressed in paragraph 11c(2) of Statement 84 (and thus require evaluation of whether the school has administrative involvement or direct financial involvement), or do they benefit an organization as addressed in paragraph 11c(3) of Statement 84 (and thus require evaluation of whether the club is part of the primary government)?
A—Assets are for the benefit of an organization if the benefits accrue to the organization as an institution, rather than to the individuals that constitute the organization. However, in that scenario, because the club is not legally separate from the primary government, it is not itself an institution. As a result, the provisions in paragraph 11c(2) of Statement 84 should be applied and thus require evaluation of whether the school has administrative involvement or direct financial involvement. (See also Question 4.28.)
4.17. Q—A school board is responsible for establishing the fees charged by student clubs to their members. The clubs are not legally separate from the school district. Assuming that the school board has no other policies in place related to the disbursement of funds for various student clubs, does the school district have administrative involvement, as discussed in paragraph 11c(2) of Statement 84?
A—Yes. Footnote 1 of Statement 84 provides examples to consider in determining whether a government has administrative involvement. The establishment of fees related to the generation of funds is analogous from a revenue standpoint to the example provided regarding determining eligible expenditures. In other words, establishing specific guidelines on how the resources can be spent is analogous to establishing guidelines on the amount at which fees are set. In that scenario, the school board is establishing the amount at which fees are set, and, therefore, the school district does have administrative involvement and the criterion in paragraph 11c(2) of Statement 84 is not met.