Vol. Year No. MONTANA OPERATIONS Management Memo 2 - 02 - 6 MANUAL Number Date Issued 06/25/02 MANAGEMENT MEMO Date Effective 07/01/01 SUBJECT: GASB 34 – Fiduciary Funds TO: All State Agencies FROM: Accounting Bureau – Department of Administration INTRODUCTION This management memo establishes State accounting policy for the presentation of fiduciary funds in relation to the Comprehensive Annual Financial Report (CAFR). This memo applies to all funds determined to be fiduciary and is effective beginning with fiscal year 2002. GENERAL DISCUSSION “Fiduciary funds should be used to report assets held in a trustee or agency capacity for others and therefore cannot be used to support the government’s own programs.” (GASB 34, para 69) Fiduciary funds include: pension (and other employee benefit) trust funds, investment trust funds, private-purpose trust funds, and agency funds. Trust funds normally are subject to a trust agreement that affects the management and length of time that the resources are to be held. The required financial statements for fiduciary funds are the statement of fiduciary net assets and the statement of changes in fiduciary net assets. Per GASB 34, the statement of cash flows is not a required fiduciary financial statement. “Fiduciary fund financial statements should include information about all fiduciary funds of the primary government, as well as component units that are fiduciary in nature.” (GASB 34, para 106) “Financial statements of fiduciary funds should be reported using the economic resources measurement focus and the accrual basis of accounting.” (GASB 34, para 107) All Fiduciary fund information is to be excluded from the government-wide financial statements. The statement of fiduciary net assets is the basic statement of position for fiduciary funds. This statement should include information about the assets, liabilities, and net assets for each fiduciary fund type. The fiduciary fund statement of position must employ the net assets presentation format. (Assets – Liabilities = Net Assets) Net assets should simply be reported as “assets held in trust” for fiduciary funds. Net assets for fiduciary funds should not be broken down as: invested in capital assets, net of related debt; restricted; and unrestricted. These components of net assets are MM – Fiduciary Funds Page 2 of 4 required in the presentation of the government-wide statement of net assets and the proprietary fund financial statement of net assets. (GASB 34, para.108) No net assets should be reported for agency funds, as all assets reported in agency funds must be offset by a corresponding liability. The statement of changes in fiduciary net assets is the basic operating statement for fiduciary funds. The statement of changes in fiduciary net assets is unique in that all changes in net assets are classified simply as additions or deductions, rather than revenues and expenses. The following components of net investment income should be reported within the additions category for both pension and investment trust funds: - Net appreciation (depreciation) in the fair value of investments. - Interest income, dividend income, and other income not included as part of the net appreciation (depreciation) in the fair value of investments. - Total investment expense (such as investment management fees, custodial fees, and all other significant investment-related costs). “Adjustments to governmental, proprietary, and fiduciary funds resulting from a change to comply with this Statement should be treated as adjustments or prior periods, and financial statements presented for the periods affected should be restated.” (GASB 34, para144) The information presented in the state’s CAFR and financial statements as prepared by agencies, is prepared from the same source of information. Therefore, readers should be able to easily compare the data that is presented. Per Management Memo 2-00-1, agencies are required to ensure that their financial statement line items conform to the CAFR line items. For this reason, agencies will be provided with a copy of the fund and account roll-ups used in regard to the CAFR presentation each year to ficilitate the preparation of agency financial statements. PENSION TRUST FUNDS “Pension (and other employee benefit) trust funds should be used to report resources that are required to be held in trust for the members and beneficiaries of defined benefit pension plans, defined contribution plans, other postemployment benefit plans, or other employee plans.” (GASB 34, para 70) Section 457 deferred compensation plans should be reported as a pension trust fund. (GASB 34 Codification Instructions Section D25.101) All previous reference to deferred compensation plans as an expendable trust fund should be replaced with pension trust fund. “The detailed display requirements of Statements 25 and 26 apply to the statements of plan net assets of pension and other employee benefit trust funds,” (GASB 34, para 32) “For all plans other than defined benefit pension plans and postemployment healthcare plans, a PERS should apply the requirements of this Statement for measurement focus, MM -- Fiduciary Funds Page 3 of 4 basis of accounting, and display.” (GASB 34, para 141) For further guidance on pension trust funds, see GASB Statements 25 and 26. INVESTMENT TRUST FUNDS “Investment trust funds should be used to report the external portion of investment pools reported by the sponsoring government, as required by Statement 31, paragraph 18.” (GASB 34, para 71) GAAP require the use of a separate investment trust fund for each individual external investment pool that a government sponsors. For further guidance on investment trust funds, see GASB Statement 31. PRIVATE-PURPOSE TRUST FUNDS Per GASB 34, private-purpose trust funds were created as a new type of fiduciary fund. “Private-purpose trust funds, such as a fund used to report escheat property, should be used to report all other trust arrangements under which principal and income benefit individuals, private organizations, or other governments.” (GASB 34, para 72) It is important to remember that all fiduciary funds are subject to the general limitation that fund resources cannot be used to support the government’s own programs. Private- purpose trust funds are funds in the 08600 to 08699 range. “The financial reporting requirements for escheat property are established in Statement No. 21, Accounting for Escheat Property. Statement 34 amends that guidance by eliminating the expendable trust fund type. Based on the requirements of Statement 21, as amended by Statement 34, escheat property held for individuals, private organizations, or another government should be reported in a private-purpose trust fund or in the governmental or proprietary fund in which escheat property is otherwise reported, offset by a liability.” (Q&A l, Question 174) AGENCY FUNDS “Agency funds should be used to report resources held by the reporting government in a purely custodial capacity. Agency funds typically involve only the receipt, temporary investment, and remittance of fiduciary resources to individuals, private organizations, or other governments.” (GASB 34, para 73) Agency funds typically do not involve a formal trust agreement. “In the statement of net assets, agency fund assets should equal liabilities. Agency funds should not be reported in the statement of changes in fiduciary net assets.” (GASB 34, para 110) Assets held for use by other funds within the state should no longer be reported in fiduciary funds at year-end, but rather in governmental or proprietary funds, as appropriate. (GASB 34, para 443) To the extent possible, agencies must make distributions prior to the fiscal year-end from the agency fund to the governmental or proprietary fund(s) for which the assets were being held. When these distributions are MM – Fiduciary Funds Page 4 of 4 made during fiscal year-end, agencies should use 1104 not 1345/2345. If 1345/2345 is used a Due To/Due From Other Funds would be reflected on the Statement of Fiduciary Net Assets, which is an improper treatment of agency funds per GASB 34 para 443. GAAP require the use of an agency fund to account for debt service transactions involving special assessment debt for which the government is not obligated in any manner. In addition, agency funds must be used to account for pass-through grants that are equivalent to pure cash conduits. In a pure cash conduit, the government must have no administrative involvement with the program and have no direct financial involvement with the grant program. CLOSING If there are any questions concerning these instructions or any other FYE procedures, call the Department of Administration, Accounting Bureau at 444 – 3092.