1. Chapter 19 Governmental Entities: Proprietary Funds, Fiduciary Funds,& Comprehensive Annual Financial Report

2. 2 Proprietary Funds Enterprise Funds Internal Service Funds

3. 3 Enterprise Funds Account for commercial-type activities of a governmental entity. Are used to account for operations that are financed and operated in a manner similar to private business enterprises. Examples are: Public Utilities (water companies and electric companies), Airports, Public Hospitals, Transportation systems.

4. 4 Accounting and Reporting for Enterprise Funds Enterprise use the accrual basis of accounting. Neither budgetary accounts nor encumbrances are recorded in enterprise fund. Enterprise fund must be accounted for in the same manner as a privately owned commercial business.

5. 5 Accounting and Reporting for Enterprise Funds Among the ways in which financial statements of a governmental entity's enterprise fund differ from financial statements of a business enterprise are – the absence of property taxes expense – the absence of capital stock – the presence of restricted assets (segregated from Current Assets) – the presence of liabilities payable from restricted assets.

6. 6 Accounting and Reporting for Enterprise Funds The operating transfers section of an enterprise fund's statement of revenues, expenses, and changes in retained earnings includes subsidy-type transfers to the governmental entity's general fund, and the

7. 7 Accounting and Reporting for Enterprise Funds Statement of cash flows for an enterprise fund has four categories of cash flows. 1. From operating activities 2. From non capital financing activities 3. From capital and related financing activities. 4. From Investing activities.

8. 8 Accounting and Reporting for Enterprise Funds Operating income, rather than increase (decrease) in net assets is reconciled to net cash provided by operating activities. Non capital financing activities cash flows include operating grants from other governmental entities and operating transfers to or from other funds of the governmental entities. Temporary investments of cash received from borrowings for plant assets are reported as cash flow from capital and related financing activities, rather than with cash flows from investment activities.

9. 9 Internal Service Funds Internal service funds are established to finance and account for services and supplies provided exclusively to other government entity. This fund is created to ensure uniformity and economies in the procurement of supplies and services for the governmental entity as a whole

10. 10 Internal Service Funds. Examples are: – Central Garage and motor pools – Central Printing and duplicating services – Central Repair shops The operational of internal service funds resemble those of a business enterprise, except that internal service funds are not profit motivated.

11. 11 Accounting of Internal Service Funds Financial statements of internal service funds are nearly identical in form and content to financial statements of business enterprises because internal service funds do not issue revenue bonds or receive contributions or deposits from customers, as do enterprise funds

12. 12 Accounting and Reporting for Internal Service Funds This fund use the accrual basis of accounting. Neither budgetary accounts nor encumbrances are recorded in this fund. Internal Service fund must be accounted for in the same manner as a privately owned commercial business.

13. 13 Accounting and Reporting of Internal Service Funds Similar to Enterprise Funds, internal service funds do not have owner’s equity in their statement of new assets. A net assets ledger account balance typically supports that amount in the liabilities and net assets section of the statement of new assets for an internal service fund.

14. 14 Financial Statements of Internal Service Funds Balance Sheet Income Statement- Statement of Revenues and Expenses Statement of Cash Flows Footnotes

15. 15 Applicability of FASB Pronouncements to Proprietary Funds GASB Statement No. 20, "Accounting and Financial Reporting for Proprietary Funds..., " provided temporary guidance to governmental entities for applying business enterprise-type accounting standards, as appropriate, to their proprietary funds.

16. 16 Fiduciary Fund Fiduciary Fund consists of – agency funds – private-purpose trust funds – pension trust funds and – investment trust funds The position of a governmental entity with respect to fiduciary funds is that of a custodian or trustee rather than an owner.

17. 17 Accounting of Fiduciary Fund Fiduciary Fund use the accrual basis of accounting. Neither budgetary accounts nor encumbrances are recorded in enterprise fund. For Fiduciary Fund, GASB has mandated preparation of a statement of fiduciary net assets and a statement of changes in fiduciary net assets.

18. 18 Accounting and Reporting of Agency Funds Agency funds are of short duration. Agency Funds are used to accounts for sales taxes collected by a state government on behalf of municipalities and townships of state. Do not have operations during a fiscal year. Only a statement of fiduciary assets and a statement of changes in fiduciary assets are issued for agency funds.

19. 19 Financial statements of Fiduciary Fund Statement of Fiduciary Assets. Assets Cashxxx Liabilities Vouchers Payablexxx ------------------------------------------------------------------------------------------------------ Statement of Changes in Assets & Liabilities Open.BalAdditionsDeductionsCl.Balance Assets xxx xxx xxx xxx Liabilities xxx xxx xxx xxx

20. 20 Private Purpose Trust Fund Both a statement of fiduciary net assets and a statement of changes in fiduciary net assets are issued for private-purpose trust funds There are three types of trust funds: 1. Pension Trust funds 2. Nonexpendable Trust funds 3. Expendable Trust funds

21. 21 Expendable and Nonexpendable Private Purpose Trust Expendable: An expendable private-purpose trust fund is one whose principal and income both may be expended to achieve the objectives of the trust. It is classified further as a permanent (governmental) fund, in which the agreement must specify the income from the investment of assets be utilized for benefit of government and its citizens as a whole. Principal of the assets in the fund is legally restricted and cannot be expended.

22. 22 Expendable and Nonexpendable Private Purpose Trust Non Expendable: – Only the revenues of a non-expendable private-purpose trust fund may be expended; – the principal of such a fund must be maintained intact. – Accordingly, a nonexpendable private-purpose trust fund requires two separate accounting units  one for principal and one for revenues. – It is classified as a Proprietary (Fiduciary) Fund in which the agreement specifies the principal and/or income for the benefit of individuals, private organizations, or other governments.

23. 23 Pension Trust Funds Pension Trust Fund use the accrual basis of accounting. (no budget and no encumbrances are used) Pension trust funds account for assets, liabilities, and net assets reserves of defined benefit pension plans of governmental entities, which require actuarial assumptions as to life expectancies of governmental entity employees and rates of earnings on pension trust fund assets

24. 24 Financial Statements of Pension Trust Funds Statement of Plan Net Assets Statement of Changes in Plan Net Assets Schedule of Funding Progress Statement of Cash Flow (optional)

25. 25 Investment Trust Funds Sponsoring governments are required by GASB Statement No. 31, “Accounting and Financial Reporting for... External Investment Pools,” – to establish investment trust funds for investments of smaller governmental entities entrusted to the sponsoring government for investments in higher- yielding financial instruments than the smaller governmental entities have the capacity to acquire.

26. 26 Financial Statements of Investment Trust Funds Statement of Plan Net Assets Statement of Changes in Plan Net Assets Schedule of Funding Progress Statement of Cash Flow (optional)

27. 27 Comprehensive Annual Financial Report Components of the comprehensive annual financial report issued by state and local governmental entities are – an introductory section; – a management discussion and analysis; – basic financial statements; – required supplementary information; and – combining and individual fund statements, schedules, narrative explanations, and statistical section.