Proprietary funds in government accounting

Proprietary fund in a government account is a pool of funds made to match related government expenses or expenditures. It follows the fund accounting principles but uses accrual accounting rather than cash basis. Also, the fund type is mostly applied to government business enterprises such as NNPC. 

1. What's proprietary fund

It is a type of fund accounting that is used by a government to keep account of activities similar to normal business activities. The activities can be within the fund and other government departments. According to Accounting Tools, proprietary funds are governmental funds used for business-like activities. When the government partakes in business, the need for a separate fund to account for these activities becomes necessary. 

The goal of such a fund in government accounting is to ensure proper management of the fund. Instead of putting all funds in the same place, a separate basket will prevent issues of misused. More so, it will ensure accountability and transparency. In addition,it will be easy to hold someone responsible if the proprietary fund is not properly managed. 

2. Proprietary fund example

An example of proprietary funds is the Lagos State BRT project used to convey commuters at a cheaper transport fare compared to other private transportation providers. The state government buys the buses from their fund, fuels them and ensures their maintenance.

To ensure the continuation of the business, the government collects transport fare as revenue from commuters which is used to cover expenses for the enterprise maintenance. At the end of the period a financial report is prepared by the fund accountant for the BRT. The report follows the same principles used by the private sector. 

Therefore, there will be the income statement, balance sheet, cash flow statement as well as the changes in net position. According to Accounting Tools, the reports to be prepared are: statement of net position (similar to the balance sheet), statement of revenue and expenses (similar to the income statement, and the statement of changes in fund net position (similar to changes in equity).

3. Types of proprietary funds

These are enterprise and internal service funds.

3.1 Enterprise fund

This is a fund type used to account for transactions with third parties whereby they have to pay for the services of the government business enterprise.

3.2 Internal service funds

Internal service funds primarily account for activities by the GBE with other funds, departments of the government, and agencies of other governments. 

4. Conclusion

Finally, proprietary funds account for government businesses. The fund helps cover the expenses incurred as well as debts. It includes enterprise and internal service funds. For reporting, the principles used in the private sector are also applied to them.