Fiduciary Funds

SUBJECT: FIDUCIARY FUNDS NUMBER:
F.4.
DEPARTMENTS & DISTRICTS AFFECTED: ALL AGENCIES, DEPARTMENTS, AND DISTRICTS GOVERNED BY THE BOARD OF SUPERVISORS
EFFECTIVE: 3/04
 signed
_________________________________ David E. Sundstrom, Auditor-Controller
1. POLICY
1.1 Purpose 1.2 Authority 1.3 Definitions
2. PROCEDURE
2.1 Uses of Fiduciary Funds 2.2 Establishing a Fiduciary Fund 2.3 Fiduciary Fund Checks 2.4 Other Transactions Affecting Fiduciary Funds 2.5 Fiduciary Fund Accounts 2.6 Department/Agency Fiduciary Fund Responsibilities 2.7 Disposition of Fiduciary Funds 2.8 Restrictions on Fiduciary Funds
EXHIBITS
1. POLICY
Certain monies and other assets held under the control of a County department or agency on behalf of, or for distribution to, third parties such as individuals, private organizations, corporations and other businesses, and other non-County governmental agencies, are to be maintained in fiduciary funds. Fiduciary funds are to be used and accounted for in accordance with applicable legal requirements; Federal, State, and other governmental regulations; trust agreements, trust indentures, or other fiduciary agreements; and generally accepted accounting principles.
1.1 Purpose
To establish procedures for the creation, use, monitoring, reconciliation, and disposition of fiduciary funds.
1.2 Authority
1.2.1 Government Code Section 26881 Government Code Section 26881 provides that the County Auditor-Controller, upon order of the Board of Supervisors ("Board"), shall prescribe and shall exercise a general supervision over the accounting forms and the method of keeping the accounts of all offices, departments and institutions under the control of the Board. 1.2.2 Board of Supervisors Resolution No. 82-162 Pursuant to Government Code Section 26881, Board Resolution No. 82-162 dated February 2, 1982 authorizes and directs the Auditor-Controller to prescribe and exercise general supervision over accounting forms and methods of keeping the accounts of all County departments and agencies and districts governed by the Board. 1.2.3 Government Code Section 25252 Government Code Section 25252 authorizes the Board to establish or abolish funds as necessary for the proper transaction of County business, and provides that the Board may by resolution authorize the Auditor-Controller to perform these functions. 1.2.4 Board Resolution No. 71-1006 Board Resolution No. 71-1006 dated September 14, 1971 authorizes the Auditor-Controller to establish and abolish funds as provided in Government Code Section 25252. 1.2.5 Government Code Section 29802 Government Code Section 29802 allows the Board of Supervisors to authorize the Auditor-Controller to issue replacement checks for stale-dated checks. 1.2.6 Board Resolution No. 00-148 Board Resolution No. 00-148 dated May 2, 2000 authorizes the Auditor-Controller, pursuant to Government Code Section 29802, to issue replacement checks for stale-dated checks. 1.2.7 GASB 34 Governmental Accounting Standards Board Statement No. 34- Basic Financial Statements - and Management's Discussion and Analysis - for State and Local Governments ("GASB 34"), issued June 1999, and effective July 1, 2001 for Orange County and other large governmental agencies, established new accounting and financial reporting requirements for state and local governments. One of the major changes involved the classification of, definition of, and accounting for various types of fiduciary funds.
1.3 Definitions
1.3.1 Fiduciary Funds Fiduciary funds are separate funds that are used to record assets held by departments and agencies in a trustee capacity or as an agent for individuals, private organizations, or other governmental agencies, and therefore the assets of fiduciary funds cannot be used to support the County's own programs. Fiduciary funds are classified into four different types:
  • Pension trust funds
  • Investment trust funds
  • Private-purpose trust funds
  • Agency funds
1.3.2 Pension Trust Funds Pension (and other employee benefit) trust funds are 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 benefit plans. An example of a pension trust fund is Fund 167- Extra-Help Retirement Plan, administered by the Treasurer-Tax Collector. 1.3.3 Investment Trust Funds Investment trust funds are used to report the external portion of investment pools reported by a sponsoring government. The portions of the Treasurer-Tax Collector's commingled investment pool applicable to non-County agencies such as the schools and independent special districts are reported as investment trust funds. 1.3.4 Private-Purpose Trust Funds Private-Purpose trust funds are used to report all other trust arrangements under which principal and income benefit individuals, private organizations, or other governments. Examples of private-purpose trust funds are the Public Administrator and Public Guardian Trust Funds Nos. 164 and 165, and the Child Support Trust Fund No. 154. 1.3.5 Agency Funds Agency funds are used to report resources held by the County 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. Examples of agency funds are the Unapportioned Property Tax funds, which are used to accumulate collections of property taxes and from which the collections are apportioned to all property tax receiving agencies in the County - cities, schools, special districts, redevelopment agencies, and County funds. Other examples of agency funds are the various funds held by departments and agencies in the Fund 300 series of fund/agencies, which are temporarily held before disbursement to non-County third parties such as individuals, private non-governmental organizations such as businesses, and non-County governmental agencies. 1.3.6 Public Purpose "Trust" Funds Public purpose "trust" funds are not true fiduciary or trust funds. These funds are established to hold grant monies or other reimbursements for expenditures on County programs, only in those cases where Federal requirements, State laws or regulations, court orders, or some other legal or regulatory requirements require that the monies be held in a separate fund prior to transfer to the operating fund where expenditures are to be reimbursed. These types of funds are accounted for as agency funds. If the monies are not required to be held in a separate fund, they should be accounted for directly in the fund where they will be spent, recorded either directly to revenue if the qualifying expenditures have already been spent, or in a liability account or deferred revenue account until qualifying expenditures are spent. Restrictions on establishing public purpose "trust" funds are described in Paragraph 2.1.7 of this Procedure. 1.3.7 Authorized Signer A department/agency director may designate one or more individuals as authorized signers for his or her fiduciary fund transactions. The authorized signer may request issuance, cancellation, or reissuance of fiduciary fund checks. Checks for fiduciary fund/agencies in the Fund 300 series are issued on County "trust" checks. Checks for fiduciary funds in all other numeric series are issued on County accounts payable checks. See County of Orange Accounting Manual Procedure M-1, Authorized Signature List for procedures on preparing and revising authorized signature lists.
2. PROCEDURE
2.1 Uses of Fiduciary Funds
2.1.1 Private-Purpose Trust Funds A private-purpose trust fund is used to receive, hold and disburse to third parties certain monies deposited with a department/agency under the terms of a trust agreement or trust indenture, pursuant to legal requirements, or pursuant to the department's/agency's fiduciary responsibilities. The use of the private-purpose trust fund must be authorized by the Board in the form of an agreement or contract, by statutory or other legal or regulatory requirements, by court order, or by specific trustee/custodian/agent/fiduciary responsibilities required of the department/agency director. The department/agency director may only use the monies of the fund for payments which are legally payable out of the deposits of the trust fund to non-County third parties such as individuals, private organizations, businesses, and other governmental agencies which are not governed by the Board. County department and agency directors are personally liable for misuse of fiduciary private-purpose trust funds. 2.1.2 Examples of Private-Purpose Trust Funds Examples of private-purpose trust funds currently used by County departments and agencies are:
  • Child Support Collections Trust Fund No. 154
  • Public Administrator Trust Fund No. 164
  • Public Guardian Trust Fund No. 165
  • Life Insurance Revolving Trust Fund/Agency 300/304
  • Dependent Care Assistance Trust Fund/Agency 300/307
Use of private-purpose trust funds is strictly limited to those situations where there is an actual or implied fiduciary trust agreement or indenture required by specific agreement, Board resolution, legal requirement, or the statutory and fiduciary responsibilities of the particular department or agency. 2.1.3 Performance Guarantees and Negotiable Instruments A private-purpose trust fund should be used to account for performance guarantees and negotiable instruments in accordance with County of Orange Accounting Manual Procedure M-3, Performance Guarantees and Negotiable Instruments. 2.1.4 Agency Funds Agency funds are used to report resources held by the County 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. Agency funds are differentiated from private-purpose trust funds by the fact that there is no express or implied trust agreement or trust indenture, and the County is simply holding the funds for eventual allocation or disbursement to other non-County parties such as individuals, private organizations, or non-County governmental agencies, pursuant to statutory or other legal or regulatory requirements. 2.1.5 Examples of Agency Funds Examples of agency funds currently used by County departments and agencies are:
  • Various agencies in the Fund 300 series of agency numbers, used to temporarily hold funds for distribution to third parties
  • Property tax and interest unapportioned funds in the 600 series of fund numbers, used to deposit and allocate property taxes and interest earnings to other governmental agencies, such as cities, school districts, and independent special districts
  • Housing and Community Development Deferred Loan Program Fund 177 and Amortized Loan Program Fund 180, used to make low-cost housing loans which are repaid when houses are sold
  • Public Safety Sales Tax Fund 212, used to deposit and disburse to cities and the County the proceeds of the special State half-cent sales tax for public safety purposes
2.1.6 Unidentified Deposits An agency fund should be used to temporarily account for unidentified deposits from third parties until they are either identified and can be transferred to the identified third party to which they belong, or until they are escheated in accordance with County of Orange Accounting Manual Procedure R-1, Escheatment of Unclaimed Money. 2.1.7 Public Purpose "Trust" Funds Public purpose "trust" funds are not true fiduciary or trust funds. These funds are established to hold grant monies or other reimbursements for expenditures on County programs, only in those cases where Federal requirements, State laws or regulations, court orders, or some other legal or regulatory requirements require that the monies be held in a separate fund prior to transfer to the operating fund where expenditures are to be reimbursed. These types of funds are accounted for as agency funds for operational purposes but are reclassified to the operating funds they ultimately benefit for financial statement reporting purposes. If the monies are not required to be held in a separate fund, they should be accounted for directly in the fund where they will be spent, recorded either directly to revenue if the qualifying expenditures have already been spent, or in a liability account or deferred revenue account until qualifying expenditures are spent.
  • Separate agency funds will only be established for these types of public purpose "trust" monies when a separate fund is required by one of the following: Federal law or regulation
  • State Constitution, statute, or regulation
  • Court Order
  • Contract or agreement with another party
  • County ordinance or resolution
  • Board policy
  • Valid administrative requirement, for example, funds are required to earn interest and cannot be commingled in the related operating fund
2.1.8 Pension Trust and Investment Trust Funds Pension trust funds and investment trust funds are established and used only by the Treasurer-Tax Collector, and should not be utilized by any other department or agency.
2.2 Establishing a Fiduciary Fund
2.2.1 New Fiduciary Funds New fiduciary funds are established by the Auditor-Controller based upon Board resolution or minute order, or upon a written request signed by the requesting department/agency director. Refer to County of Orange Accounting Manual Procedure F-3, Requesting Establishment/Deletion of Funds/Agencies. All of the required information about the new fiduciary fund specified in Section 2.3 of Procedure F-3 must be included in the Board resolution or minute order or written department/agency director request, including the legal or other authority for the fund and the reason and purpose for establishing the fund. In addition, an explanation must be provided of the specific legal, regulatory, or administrative authorities or reasons for establishing and accounting for the new fund as a separate fiduciary fund rather than as a regular budgeted governmental or proprietary fund or as part of another pre-existing budgeted fund. New fiduciary funds will only be established if they qualify as agency or private-purpose trust funds as defined and described above. The only exceptions to this policy are noted in Section 2.2.2 below. 2.2.2 Separate Public Purpose Fund Required A new fiduciary agency fund will only be established for public purpose "trust" revenues, such as Federal or State grants or other reimbursements from other agencies for County program expenditures, when a separate fund is specifically required by one of the following:
  • Federal law or regulation
  • State Constitution, statute, or regulation
  • Court order
  • Contract or agreement with another party
  • County ordinance or resolution
  • Board policy
  • Valid administrative requirement, for example, funds are required to earn interest and cannot be commingled in the related operating fund
2.2.3 Separate Public Purpose Fund Not Required If a separate fund is not required for public purpose monies, such as grant funds from the Federal or State governments or other reimbursements from other agencies for County program expenditures, for any of the reasons indicated in Section 2.2.2 above, then the monies are deposited to one of the following accounts in the operating fund and accounted for as indicated:
  • Revenue Account:Deposit the funds directly into an appropriate revenue account of the fund in which the expenditures were made, provided that the qualifying expenditures have already been spent or will be spent or accrued before the end of the fiscal year in which the revenue is received.
  • Liability Account: Deposit the funds directly into an appropriate liability account (e.g. Account 9340-Due to Other Governmental Agencies) of the fund in which the reimbursable expenditures will be made, if the qualifying expenditures have not yet been spent. Debit the liability account and credit an appropriate revenue account when qualifying expenditures are spent or accrued on the program. If qualifying expenditures will not be spent or accrued within 60 days after June 30, a deferred revenue account should be used as explained in the next bullet.
  • Deferred Revenue Account: Deposit the funds directly into an appropriate deferred revenue account (e.g., Account 9540-Deferred Revenue-Unearned) of the fund in which the reimbursable expenditures will be made, if the qualifying expenditures are not expected to be booked until 60 days following the end of the fiscal year, June 30, in which the revenues were received. Record a debit to the deferred revenue account and a credit to an appropriate revenue account when the qualifying expenditures are actually spent on the program in the following fiscal year.
2.3 Fiduciary Fund Checks
2.3.1 Fiduciary Fund Trust Checks Fiduciary fund checks for disbursements made from the Fund 300 series of agency numbers (agency numbers 301-399) are issued on "trust fund checks". These checks are prepared based upon authorized "Request for Trust Fund Check" forms (see Exhibit I) signed by an authorized signer. Authorized signers of "Request for Trust Fund Check" forms must be on the "Authorized Signature List" filed with the Auditor-Controller. Please refer to Section 1.3.7 of this Procedure, and to County of Orange Accounting Manual Procedure M-1, Authorized Signature List. 2.3.2 Fiduciary Fund Accounts Payable Checks Payments made from fiduciary funds that are not in the Fund 300 series are processed on regular County accounts payable checks. Backup documentation for these payments should be submitted to the Auditor-Controller Claims and Disbursing Section based on the standard requirements for the particular type of payment being made. If payments are made using the "Request for Check" form (see Exhibit II), an authorized signer must sign the form, and the authorized signer must be on the department's/agency's authorized signature list for the fund from which the payment is made. Please refer to Section 1.3.7 of this Procedure, and to County of Orange Accounting Manual Procedure M-1, Authorized Signature List. 2.3.3 Check Cancellations Once issued, fiduciary fund checks may only be cancelled by the Auditor-Controller upon receipt of a written request to cancel the check. The request must be signed by an authorized signer for "Request for Trust Fund Check" forms, in the case of a check issued from the Fund 300 series, or by an authorized signer for payments from the applicable fund in the case of an accounts payable check. The request for check cancellation should be sent to the Check Writing Unit of the Auditor-Controller's Claims and Disbursing Section. 2.3.4 Stale-Dated Checks County trust and accounts payable checks become stale-dated and void six months from their issue dates. Stale-dated checks will not be paid by the County's bank. The dollar amount of any stale-dated check issued from the Fund 300 series of agency numbers is transferred by the Auditor-Controller to the County General Fund to General Fund level revenue (Fund/Agency 100/100). The dollar amount of stale-dated accounts payable checks is transferred back to the fund from which the check was issued. 2.3.5 Reissuance of Stale-Dated Checks A stale-dated check may be reissued up to two years after the check's void date, based upon a request from the department or agency. The request must be in the form of a memo, signed by an authorized signer for the fund from which the check was issued, and sent to the Auditor-Controller's Check Writing Unit. The dollar amount of a reissued check will be transferred back from the County General Fund to the originating fiduciary fund by the Auditor-Controller, if the check was issued from the Fund 300 series of agency numbers.
2.4 Other Transactions Affecting Fiduciary Funds
2.4.1 Journal Vouchers Journal Voucher forms are utilized to record transactions such as transfers of funds into or out of fiduciary funds from or to other funds in the County Treasury. Refer to County of Orange Accounting Manual Procedure J-3, Journal Voucher Preparation and Review. 2.4.2 Deposit Orders Deposits of monies to fiduciary funds are made on Deposit Order forms, as discussed in County of Orange Accounting Manual Procedure C-4, Deposits.
2.5 Fiduciary Fund Accounts
2.5.1 Asset and Liability/Equity Accounts Fiduciary fund entries are usually only made to asset and liability/equity accounts. Fiduciary funds are normally not budgeted funds and do not utilize revenue and expenditure accounts. The standard account balances in fiduciary funds are the Cash Account 8010 and the Balance-Trust Funds Account 9200. Other balance sheet accounts may be used as appropriate, depending upon the nature of the fiduciary fund. For example, deposits from other parties are coded to the 9100 through 9160 series of accounts, depending on the type of deposit. Monies held for other governmental agencies are coded to the 9340 Account-Due to Other Governmental Agencies. Refer to the County of Orange Chart of Accounts for appropriate codings. 2.5.2 Reporting Categories Reporting category codes should be used to provide for more detailed identification of fiduciary fund amounts. For example, deposits from other parties should be identified by unique reporting categories to identify each depositing party separately.
2.6 Department/Agency Fiduciary Fund Responsibilities
2.6.1 Accountability for Fiduciary Funds Departments and agencies are responsible for the fiduciary funds under their control, and are accountable for all transactions of and all monies held in their fiduciary funds. County department and agency directors are personally liable for misuse of fiduciary funds under their control. 2.6.2 Maintenance of Authorized Signature List Departments and agencies are responsible for maintaining an updated "Authorized Signature List" on file with the Auditor-Controller, with the signatures of those employees currently authorized to sign payment requests, journal vouchers, and other transactions for fiduciary funds. Refer to County of Orange Accounting Manual Procedure M-1, Authorized Signature List. 2.6.3 Control of "Request for Trust Fund Check" Forms Departments and agencies are responsible for maintaining all "Request for Trust Fund Check" forms in a secured location to prevent unauthorized access. Only a minimum number of individuals should have direct access to these forms. A control log of all "Request for Trust Fund Check" forms should be maintained. The log and blank forms must be safeguarded by an individual having no other trust fund responsibilities. The log must indicate:
  1. The number, sequence, and the date delivered of the forms
  2. The forms issued, to which authorized individual they were issued, and the date issued
  3. Periodic verification of forms issued and remaining
  4. The issuance of forms in numerical sequence
2.6.4 Payment Documentation Departments and agencies must maintain adequate documentation on file supporting each payment request from a fiduciary fund. Supporting documentation should be cancelled or marked in some way at the time the payment request is made to prevent it from being reused. 2.6.5 Reconciliation of Fiduciary Funds Departments and agencies are responsible for reconciling, at least monthly, each fiduciary fund balance per the department's or agency's subsidiary ledger records or other detailed records to the Auditor-Controller's General Ledger balance shown for the fiduciary fund. This reconciliation should be performed by a person having no other fiduciary fund responsibilities. The reconciliations must identify the differences between the department's or agency's detailed or subsidiary records and the General Ledger balance of the fund, the reasons for those differences, and the planned disposition of any reconciling items. Reconciliations should be documented and retained for five years. 2.6.6 Unresolved Reconciling Items Reconciling items that come up during the reconciliation process that cannot be specifically identified or resolved should be disposed of as follows, depending on the nature of the items:
  • Monies Due to Others-Any monies in fiduciary funds that can be identified to third party depositors or creditors that are due to them should be paid out if the conditions for refund have been met.
  • Unclaimed Deposits-Any unclaimed deposits or other unclaimed monies from third parties held in fiduciary funds should be handled in accordance with County of Orange Accounting Manual Procedure R-1, Escheatment of Unclaimed Money.
  • Monies Held for Other Funds-Any monies in a fiduciary fund that are being held for transfer to other funds -- for example, Federal or State grant monies for reimbursement of County expenditures on Federal and State programs -- should be transferred as revenue to the appropriate funds where the expenditures were incurred, provided, of course, that qualifying expenditures actually have been made. This treatment also applies to donations from third parties for expenditure on County programs where the qualifying expenditures have been made.
  • Monies Refundable to Other Agencies-Any monies held in a fiduciary fund that are from Federal, State, or other governmental agencies for reimbursement of County expenditures that are in excess of allowable expenditures, or are for programs or projects that will not be implemented or have closed, should either be refunded to the applicable agency or transferred to an appropriate County fund in accordance with applicable agreements, guidelines, or regulations.
  • Cash Overages-If a reconciling item is due to a cash overage, it should be processed pursuant to County of Orange Accounting Manual Procedure C-6, Overage Fund.
  • Unidentified Items-Reconciling items which cannot be identified at all and do not fit into any of the above categories should be handled in accordance with County of Orange Accounting Manual Procedure R-1, Escheatment of Unclaimed Money.
2.6.7 Unreconciled Fiduciary Fund Balances If the subsidiary ledger or detailed records maintained by the department or agency for a fiduciary fund totals to a balance that is greater than the General Ledger balance (after allowing for all other identified reconciling items), the shortage in the General Ledger balance should be handled as follows: 2.6.8 Document Retention Departments and agencies must retain copies of all "Request for Trust Fund Check" forms, filed in numerical sequence with supporting documents, and also retain all copies of any voided forms in the numerical sequence file, for at least five years. Copies of all backup documentation for accounts payable checks issued from fiduciary funds must also be retained for at least five years. Copies of all other transaction documentation, such as journal vouchers and deposit orders, and of the monthly fiduciary fund reconciliations, must also be retained for at least five years.
2.7 Disposition of Fiduciary Funds
2.7.1 Unclaimed Funds Any unclaimed monies in a fiduciary fund must be handled in accordance with County of Orange Accounting Manual Procedure R-1, Escheatment of Unclaimed Money. 2.7.2 Closing Fiduciary Funds A fiduciary fund which is no longer required by a department or agency should be closed in accordance with County of Orange Accounting Manual Procedure F-3, Requesting Establishment/Deletion of Funds/Agencies. 2.7.3 Department/Agency Director Change The fiduciary funds of a department or agency director leaving office must be handled in accordance with County of Orange Accounting Manual Procedure M-4, Requirements of Elected or Appointed Officials Assuming or Leaving Office.
2.8 Restrictions on Fiduciary Funds
2.8.1 Restricted Funds Fiduciary funds are not funds available to the responsible department or agency, and must not be used to directly finance the operations of a department or agency. The only exceptions to this restriction are as indicated in Paragraph 2.7.1 of this Procedure. Fiduciary fund monies must not be paid directly from the fiduciary fund for salaries and benefits, purchases of supplies or services, equipment purchases, capital project expenditures, or for any other County operating or capital expenditures, because such payments bypass appropriations and budgetary control, and are therefore unauthorized. The department or agency director is personally liable for such payments made directly from fiduciary funds. Specific Board authorization must be obtained if such payments must be made directly from a fiduciary fund. 2.8.2 Unbudgeted Funds Fiduciary funds are not usually budgeted funds, and do not normally have appropriations, estimated revenues, expenses, or revenues. 2.8.3 Cash/Balance Control Departments and agencies must never pay out or transfer out of a fiduciary fund amounts in excess of the cash or of the fund/agency balance of a fiduciary fund or fiduciary fund/agency. 2.8.4 Interest Earnings Fiduciary funds which are required by law, regulation, or Board direction to earn their own interest are established as separate interest earning funds, and interest revenue and the related investment expenses are recorded directly to the fiduciary fund. Fiduciary agency funds that are not required to earn their own interest are established as agencies within Fund 300, and the interest earnings and related investment expenses applicable to all agencies in Fund 300 are credited to the County General Fund.
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