1 Welcome to FY 2005 Interfund Training Presenter: Frankie Ezzat, Principal Accountant Chart of Accounts & Journal Entry Processing unit

2Agenda Introduction Importance of Interfund/Intrafund accounts Interfund Classifications & Definition Financial Presentation of Interfund Transfers Departmental Scenarios of Interfund Accounts Usage Accounts Quick Reference Contact

3 Objective You will understand different classification of Interfund Transactions You will know the proper usage of interfund activities from different departmental scenarios You will have an understanding of different Interfund accounts You will know how the interfund transactions get reported in the County’s Financial Statements

4 Importance of Interfund/Intrafund Accounts In Fiscal Year 2004, ACO staff Spent enormous amount of time Evaluating more than 8,000 transactions which had caused an out of balance over $86 million in the County’s Financial Statements. We need departments’ help when recording interfund transactions to ensure validity and accuracy of the entries prior to posting in the system.

5 Interfund Classifications & Definition (continued )…. Classifications Generally accepted accounting principles (GAAP) establishes two broad classes for Interfund activity.  Reciprocal Interfund  Nonreciprocal Interfund

6 Interfund Classifications & Definition Reciprocal Interfund 1) Interfund Loans – Loans between funds are properly reported as increases and decreases in assets and liabilities with no effect on activities in fund financial statements. The lender fund replaces Cash with Advance To Other Funds while the borrower fund reports an increase in Cash and Advance From Other Funds.

7 Interfund Classifications & Definition Reciprocal Interfund (continued)… It is common for governments to make Interfund “loans” with little or no expectation of repayment. GAAP specifically require that any portion of an interfund “loan” that is not expected to be repaid “within a reasonable time” be reclassified as a transfer.

8 Interfund Classifications & Definition Reciprocal Interfund (continued)…. 2) Interfund Services Provided and Used It is common for a fund to provide services to one or more others, which then are charged for services received. Sometimes the amount charged is equal to the value of the services received. In other cases, the amount charged does not quite equal the value of the services received (similar to an exchange-like transaction).

9 Interfund Classifications & Definition Reciprocal Interfund (continued)…  Interfund Services Provided and Used transactions can only be recorded within Governmental Fund Types.

10 Interfund Classifications & Definition Reciprocal Interfund (continued)…  Interfund accounts are used when the Service Provider and the Service Receiver are both a Governmental Fund Type but are in different funds.

11 Interfund Classifications & Definition Reciprocal Interfund (continued)… To reimburse the Service Provider for the goods or services it has provided:  The Service Provider records an increase (credit) to an Interfund Revenue account (Charges for Services Accounts – ).

12 Interfund Classifications & Definition Reciprocal Interfund (continued)…  The Service Receiver records an increase (debit) in Interfund Expenditure account (Appropriation 3 in Other Charges, Expenditure Accounts through ).

13 Interfund Classifications & Definition Reciprocal Interfund (continued)… Note: The Interfund Revenue must Equal the Interfund Expenditure.  Cash is transferred because the Service Provider and the Service Receiver are in different funds.

14 Interfund Classifications & Definition Reciprocal Interfund (continued)… When Services received and provided are within the same fund but different Department IDs, they are called Intrafund.  Note: The fund would still have to be a Governmental Fund Type.

15 Interfund Classifications & Definition Reciprocal Interfund (continued)… In an Intrafund Transaction to reimburse the Service Provider for the goods or services it has provided: The Service Provider records a decrease (credit) in an Intrafund account (Appropriation 7, Expenditure Accounts through ).

16 Interfund Classifications & Definition Reciprocal Interfund (continued The Service Receiver records an increase (debit) in an appropriate regular expenditure account.

17 Interfund Classifications & Definition Nonreciprocal Interfund (continued)… 1) Interfund Transfer – GAAP define Interfund transfers as “flow of assets” (such as cash or goods) without equivalent flows of assets in return and without requirement for repayment.  Note: This classification can be used for recording transactions within any Fund Types.

18 Interfund Classifications & Definition Nonreciprocal Interfund (continued)…  Interfund reimbursements are treated as an adjustment to expenses or expenditures; that is, an increase in expenditures in the reimbursing fund and a corresponding decrease in expenditures in the reimbursement fund.

19 Financial Presentation of Interfund Transfers (continued)… Inflows of current financial resources from other funds are to be distinguished from a government’s regular revenues. So interfund transfers received from other funds are reported as an Other Financing Sources rather than revenue, and interfund transfer sent to other funds are recorded as Other Financing Uses.

20 Financial Presentation of Interfund Transfers In the County’s Financial Statement of Revenues, Expenditures and Changes in Fund Balances, the interfund transfers received from other funds are reported as Transfers In and interfund transfers sent to other funds are reported as Transfers Out under Other Financing Sources/Uses.

21 Departmental Scenario Exercises  Determine if there is anything wrong with the JE  Identify the incorrect line  Offer Resolution See Flow Chart Illustration 2.0

22 Departmental Scenarios Scenario #1 - TLMA fund rendered road Services (Rider St. project # B4 0493) for EDA fund Required entries? Debit Credit Cash $12, Intf. Rev $12, Intf. Exp $12, Cash $12,221 Is This Entry Correct?

23 Departmental Scenarios (continued)… Departmental Scenarios Scenario #1 (continued)… Answer: Yes

24 Departmental Scenarios (continued)... Answer: Yes  The interfund transactions are between two Special Revenue Funds.  Interfund Revenue = Interfund Expenditure

25 Departmental Scenarios (continued)... Scenario # 2 – Legal services rendered by the County Counsel fund to Western Riverside Regional Conservation fund – To record legal services rendered by County Counsel to WRRC for June of Fiscal Year 2004.

26 Departmental Scenarios (continued)… Departmental Scenarios Scenario # 2 (continued)… Entries recorded in the system are as follows: Debit Credit Cash $3, intf. Rev $3, Prof Svs. $3, Cash$3,607 Is This Entry Correct?

27 Departmental Scenarios (continued)… Departmental Scenarios Scenario # 2 (continued)… Answer: No  The interfund transactions are between the General Fund and a Fiduciary Fund.  Regular Revenue and Expenditure accounts are to be used for this entry.

28 Departmental Scenarios (continued)... Scenario # 3 – Legal Services were rendered by County Counsel fund to Planning department fund The entries are as follows: Debit Credit Cash $5, Intf Rev $5, Intra Exp $5, Cash $5,000 Is This Entry Correct?

29 Departmental Scenarios (continued)... Departmental Scenarios Scenario # 3 (continued)... Answer: No The transactions are within same fund numbers.  County Counsel should have recorded a decrease (Credit) in appropriation 7 (Accounts ) instead of Interfund Revenue Account  Planning should have used a regular expense account.

30 Departmental Scenarios (continued)... Scenario # 4 - Clerk Recorder fund bills EDA fund For their recording services. Entries Recorded are as follows: Debit Credit Cash $1, Intf Rev $ Taxes $1, Cash $1,500 Is this entry Correct?

31 Departmental Scenarios (continued)… Departmental Scenarios Scenario # 4 (continued)… Answer: No The transactions are between Capital Project Fund and General Fund.  Fund should have recorded an Interfund Expenditure instead of regular account Taxes.

32 Departmental Scenarios (continued)... Scenario # 5 – Information Technology fund bills for system support services they provided ACO fund The entries should be recorded as  Interfund accounts OR  Regular accounts

33 Departmental Scenarios (continued)… Departmental Scenarios Scenario # 5 (continued)… Answer: Regular accounts

34 Departmental Scenarios (continued)... Scenario # 6 – ACO records Realignment County Match From fund To MH fund Entries recorded are as follows: Debit Credit Ops Out $126, Cash $126, Cash $126, IntraExp. $126,000 Is This Entry Correct?

35 Departmental Scenarios (continued)… Departmental Scenarios Scenario # 6 (continued)… Answer: No  Fund should have recorded to a regular expense account instead of account Ops Out.

36 Departmental Scenarios (continued)... Scenario #7- Form 11 directs E/O to process total payment of $60,151 from Third District Public Facilities Developer Agreement fund to Riverside Waste Mgmt. fund Entries recorded are as follows: Debit Credit Intf. Exp. $60, Cash $60, Cash $60, Contrb. Fr. $60,151 Is This Entry Correct?

37 Departmental Scenarios (continued)… Departmental Scenarios Scenario # 7 (continued)… Answer: No  Fund should have used “Contribution To Other Funds” Account Instead of Interfund Expenditure account

38 Contact  For any questions regarding this presentation or any questions on Interfund/Intrafund, Please contact Frankie Ezzat at  For any questions regarding any Interfund/Intrafund journal entry, please contact Gladys Smith or Michelle Pantoja at