05:17:00 Custodial Fund Groups

PURPOSE

Provide guidance on the identification, accounting and reporting of custodial funds.

POLICY

I. Scope

In January 2017, the Government Accounting Standards Board (GASB) issued Statement No. 84, Fiduciary Activities, which identified four types of fiduciary funds: (1) pension trust funds; (2) investment trust funds; (3) private-purpose trust funds, and (4) custodial funds. This section provides guidance on the identification, accounting and reporting of custodial funds.

Custodial funds will be used to account for remaining fiduciary activities that are not structured as part of a trust (pension trust funds, investment trust funds, or private purpose trust funds).

II.  Background

In accordance with the implementation of GASB Statement No. 84, Fiduciary Activities, custodial funds are replacing the activity traditionally reported as agency funds. In addition to the change in nomenclature, there are significant changes in accounting and reporting. Custodial Funds are to be reported as part of Fiduciary Activities financial statements, which will include the following:

• Statement of Fiduciary Net Position – full accrual basis financial statements that show all of the assets and liabilities of the institution’s fiduciary activities, and
• Statement of Changes in Fiduciary Net Position – reports additions and deductions and reflects how fiduciary net position has changed during the year under review.

III.  Procedures

Fiduciary activity will be reported as custodial funds if all of the following criteria apply:

1. Assets are held by the institution.
2. Assets associated with the activity are not derived solely from the college’s own-source revenues.
3. Assets associated with the activity have one or more of the following characteristics:

a.  Assets are for the benefit of individuals, and the institution does not have administrative or direct financial involvement with the assets. For the purposes of this section, the institution does not have administrative or direct financial involvement if the institution:

• Does not monitor compliance with any requirements of the resource provider,
  • Does not determine appropriateness of expenditures, and
  • Does not have the ability to exercise discretion over how assets are allocated.

b. Assets are for the benefit of organizations or other governments that are not part of the financial reporting entity.

The institution may agree to serve as fiscal custodian only after satisfactorily considering all of the following:

1. The purpose for the custodial fund must relate to, but not be a fundamental aspect of, activities dedicated to the achievement of educational and public service goals.
2. The custodial fund is in the best interests of the institution, taking into account all risk management implications.
3. The establishment of a custodial fund account is appropriate, according to the circumstances and reporting principles involved.

The approval and establishment of a custodial account does not:

• Automatically entitle the organization to the use of any institution services, other than the normal administration of funds as it relates to cash receipt and disbursement services.
• Place the custodial fund under the institution’s tax-exempt umbrella. Expenditures from a custodial fund are not entitled to the institution’s state sales tax exemption.
• Make the institution liable for any of the organization’s debts, liabilities, or actions.
• Continue indefinitely. Account status is contingent upon adherence to all institutional policies. The institution has the right to close any custodial account at its discretion consistent with agreements between the organization and the institution.

Additional terms and conditions are as follows:

1. Funds accepted for deposit in custodial fund accounts are not considered tax-deductible gifts to the institution.
2. The custodial fund account should have a positive cash balance at all times other than short term timing differences (60 days or less). Should a deficit occur, the external provider (owner of the custodial fund) is responsible for remedying the deficit balance promptly upon notification.
3. The institution must withhold disbursements until sufficient funds are available for deficits outside of short-term timing differences.
4. Institutional checks will be issued against the custodial fund account using approved disbursement forms.
5. Spending for illegal activities is prohibited.

Because a custodial account represents activity that is related, but not fundamental, to the institution’s primary mission, it is important that custodial fund treatment is not awarded to activities that are a normal and continuing part of the institution’s mission.

Financial stewardship of custodial funds is paramount; therefore, ongoing accountability and oversight must be maintained. Each custodial account should be reviewed periodically, at least once a year, for the purpose of ensuring that custodial funds are being properly maintained and reported correctly. Circumstances to consider which could lead to change, suspension, or revocation of custodial account status would include:

• A failure to adhere to institutional policies and procedures;
• A change in the nature of the activities and functions such that reporting as a custodial fund is no longer appropriate;
• Deficit balances which have not been remedied in a timely manner;
• A conclusion from the institution that continuing the custodial account relationship is no longer in the best interest of the institution.

After 24 consecutive months without activity, the Owner of unused balances must be contacted to arrange either a contribution to the Foundation’s General Scholarship Fund or a refund to the owner of the custodial fund. 

Individual custodial accounts should not carry a negative balance outside of short-term timing differences in processing. Under no circumstances should the custodial fund group have a deficit balance. At the end of the fiscal year, accounts receivable should be set-up and external providers should be billed for any applicable deficit balances.

IV. Funds Held for Individuals, Groups, and Organizations

Student Organizations and Activities

These accounts are established for student clubs, student organizations, or other student group or affiliated group activities that fit criteria listed above. Funds deposited in these accounts should represent funds earned or raised by the student organization or affiliates. Funds allocated to the student organization from institutional funds, such as student activities fees, shall not be placed in a custodial fund account.

Custodial fund accounts of these types should be provided only for bona fide student activities and institution-affiliated organizations, with approval of the appropriate institutional administrative office such as the Vice President for Student Services.

V.  Designated Scholarships

These are funds provided by individuals, companies, civic organizations, church groups, and other groups for the purpose of awarding scholarships and loans to students matriculating in established degree programs. The individuals or entities providing the funds have the sole discretion in designating the recipient and the amount of aid to be provided. Pass through grants, for which the institution does not have any direct financial or administrative control, will be reported in this fund.

With the exception of pass through grants, individuals and organizations desiring a custodial account for scholarships should provide an award letter or similar documentation that specifies the following:

• Recipient(s)
• Purpose of the aid
• Amount of aid for each recipient.

Custodial scholarship funds shall not be treated as gifts to the institution.

05/21