Are you reporting your activities in the correct fund type? Local governments should analyze the services they are providing and determine if the fund types used are appropriate. An enterprise fund is a fund that may be used to report any activity for which a fee is charged to external users for goods or services. We have observed that local governments sometimes are not reporting enterprise activities in the
correct fund type, and noted the following areas of concern: - Activities financed almost exclusively by user fees (utilities) are reported in the general or special revenue funds, when an enterprise fund should be used
- Enterprise funds are incorrectly used for activities when the only revenue sources are taxes, grants and transfers (these activities should be reported in governmental funds)
- Separate enterprise funds reporting construction, capital improvements and debt
servicing related to enterprise funds (must be in the same fund as operations)
- Separate enterprise funds reporting customer deposits or equipment reserves (must be in the same fund as operations)
Because the purpose of financial reporting is to provide information needed to make financial decisions and assess financial stewardship, it is vital to make sure that the reporting meets the established governmental reporting standards. We encourage you to analyze whether your
government appropriately classifies and reports its activities, and to make appropriate revisions if necessary.
GASB has issued several pronouncements addressing various fund types, which is indicative of the importance of proper classification of activities. Specifically, GASB Statement 34 provides guidance on the use of proprietary funds, of which enterprise funds are one type. Paragraph 67 of that Statement states that if an activity meets any of the following three criteria, it
must be reported in an enterprise fund. These criteria are: - The activity is financed with debt that is secured solely by a pledge of the net revenues from fees and charges of the activity
- Laws or regulations require that fees and charges be set to recover costs including capital costs (depreciation or debt service)
- There is a pricing policy that fees and charges be set to recover cost, including capital costs (depreciation and debt service)
These criteria
should be applied in the context of the activity’s principal revenue source. The term activity generally refers to programs and services. This term is not synonymous with “fund.” As a practical consequence, if an activity reported as a separate fund meets any of the three criteria, it should be an enterprise fund. Also, if a “multiple activity” fund (e.g., general fund) includes a significant activity whose principal revenue source meets any of
these three criteria, the activity should be reclassified as an enterprise fund. The determination of an activity’s principal revenue source is a matter of professional judgment. A good indicator of the activity’s significance might be comparing pledged revenues or fees and charges to total revenue. For example, consider a county auditor’s office that charges fees to provide a payroll service to various taxing districts. Even if the fee is meant to cover the cost of the
service, the county auditor function as a whole is primarily supported with tax dollars from the general fund. It would be allowable in this case to leave the activity all within the general fund. Finding an appropriate fund type requires a careful analysis because there is not always a clear choice. For example, building permit fees may be accounted for in the general fund or a special revenue fund in certain circumstances, such as when they are partially supported by taxes. However, if
there is a pricing policy to recover the cost of issuing those individual building permits, they should be reported in an enterprise fund. If you have any questions, please contact Alexandra Johnson at or our HelpDesk. « back to Audit Connection Home Chapter 6: Account Classification Descriptions — Fund ClassificationsA fund is a separate fiscal and accounting entity with a self-balancing set of accounts recording cash and other financial resources, together with all related liabilities and residual equities or balances, or changes therein. Current fund classifications are presented below. Each classification is presented by a code number followed by a description. Governmental Fund Types
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| General Fund. This fund is the chief operating fund of the school district. It is used to account for all financial resources of the school district except for those required to be accounted for in another fund. A district may have only one general fund.
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| Special Revenue Funds. These funds account for the proceeds of specific revenue sources (other than trusts or major capital projects) that are legally restricted to expenditure for specified purposes. (Unless specifically required by Generally Accepted Accounting Principles (GAAP) or other requirements, restricted revenues may also be accounted for in the general fund.) Some examples of special revenue funds are - restricted state or federal grants-in-aid;
- expendable trusts that benefit or support the governmental entity; and
- restricted tax levies.
A separate fund may be used for each identified restricted source, or one fund may be used, supplemented by the classification project/reporting code.
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| Capital Projects Funds. These funds account for financial resources to be used to acquire or construct major capital facilities (other than those of proprietary funds and trust funds). The most common source of capital projects funding is the sale of bonds or other capital financing instruments. A separate fund may be used for each capital project or one fund may be used, supplemented by the classification project/reporting code.
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| Debt Service Funds. These funds account for the accumulation of resources for, and the payment of, general long-term debt principal and interest.
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| Permanent Funds. These funds account for resources that are legally restricted to the extent that only earnings, and not principal, may be used for purposes that support the school district's programs.
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Proprietary Fund Types
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| Enterprise Funds. These funds account for any activity for which a fee is charged to external users for goods or services. Enterprise funds are required to be used to account for any activity whose principal revenue sources meet any of the following criteria: - debt backed solely by revenues from fees and charges (thus, not debt that is backed by the full faith and credit of the school district);
- legal requirement to recover costs through fees and charges;
or
- policy decision of the governing board of management to recover the costs of providing services through fees or charges.
Some examples of enterprise funds are activities such as the food service program, the bookstore operation, the athletic stadium, or the community swimming pool.
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| Internal Service Funds. These funds account for any activity within the school district that provides goods or services to other funds, school district departments, component units, or other governments on a cost-reimbursement basis. The use of an internal service fund is appropriate only for activities in which the school district is the predominant participant in the activity. Otherwise, the activity should be reported as an enterprise fund. Examples of internal
service funds are such activities as central warehousing and purchasing, central data-processing, and central printing and duplicating. Do not use internal service fund revenues or expenditures in federal surveys—unless the revenues are generated from outside the school district or education entity.
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Fiduciary Fund Types
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| Trust Funds. These funds account for assets held by a school district in a trustee capacity for others (e.g., members and beneficiaries of pension plans and other postemployment benefit [OPEB] plans, external investment pools, or private-purpose trust arrangements) and that therefore cannot be used to support the school district's own programs. Trust funds are generally accounted for using the economic resources measurement focus and the accrual basis of accounting
(except for the recognition of certain liabilities of defined benefit pension plans and certain postemployment health care plans; refer to GASB Statements 26, 27, 43, and 45 for guidance on the recognition of these liabilities). Trust funds include pension trust funds (including OPEB plans), investment trust funds, and private-purpose trust funds (as described below). - Pension Trust Funds. These funds account for resources that are required to be held in trust for members
and beneficiaries of defined benefit pension plans, defined contribution plans, OPEB plans, or other benefit plans. Typically, these funds account for local pension and other employee benefit funds that are provided by a school district in lieu of or in addition to any state retirement system.
- Investment Trust Funds. These funds account for the external portion (i.e., the portion that does not belong to the school district) of investment pools operated by the school
district.
- Private-Purpose Trust Funds. These funds account for other trust arrangements under which the principal and income benefit individuals, private organizations, or other governments.
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| Agency Funds. These funds account for funds that are held in a custodial capacity by a school district for individuals, private organizations, or other governments. Agency funds may include those used to account for student activities or taxes collected for another government.
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What is an enterprise fund used for?
An enterprise fund identifies the total direct and indirect costs to provide the service and the sources and amounts of revenues that support the service for which a fee is charged in exchange for service.
What are enterprise funds used for quizlet?
Enterprise funds are used by state and local governments to account for services that are provided to the general public on a user-charge basis, with prices set to recover the costs of operations, activities financed with debt secured solely by revenues from fees of the activity, activities required by law or ...
Under which of the following circumstances must governments use an enterprise fund?
Under which of the following circumstances must an enterprise fund be used? When its activities are financed with debt that is secured solely by a pledge of the net revenues from the charges made by the activity.
What are the purposes of enterprise funds and internal service funds?
Use of proprietary funds
The basic difference between them derives from who the primary customer is. Enterprise funds provide goods and services to customers outside the reporting entity; internal service funds provide goods and services to internal customers.
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