Fiduciary fund in government accounting

In fund accounting, the government keeps several funds for different purposes. One of those baskets is referred to as a fiduciary fund. This is the basket for money kept in trust by the government to other parties. In doing so, the government is expected to provide the net position of such funds.

1. What's a fiduciary fund?

A kind of fund kept by the government as a trust for other parties. These parties could include individuals, institutions, and other government units. When a fiduciary fund arises, the sponsoring government assures the other parties that their money is safe. Although, it is likely that the government may use the fund to meet other needs. But will make them available when they are required.

For example, the pension fund is a fiduciary one. The government can use this money for several projects that may or may not yield income. But when it is time to pay for a pension, this money will be paid to the individuals involved. Those funds are in trust with the government because it is more likely that the government will fulfill the obligation related to the trust fund than a private individual or organization.

2. Accounting basis for Fiduciary fund

Reporting fiduciary funds is usually in the form of accrual basis accounting. This is because the money is mostly owned by private individuals and organizations. More so, the fiduciary net position and changes in fiduciary net position are usually reported as a measure of transparency and accountability.

3. Four types of fiduciary funds

3.1 Custodian/Agency fund

The fund in trust with the government on behalf of third parties. The money is kept, invested, and made available when needed by the principal party involved.

3.2 Pension fund

A fiduciary fund used to hold in trust and in the form of financial assets, for private employees, civil, and public servants. The purpose is to hold the fund till when the individual retires from its job.

3.3 Private-purpose fund

This is held by the government in favor of private organizations and other government units who are referred to as beneficiaries.

3.4 Investment trust fund

The purpose of these assets is to account for the portion of funds provided by external parties in an investment pool. The report is usually presented by the sponsoring parties.

4. Conclusion

In conclusion, assets held as fiduciary funds are in trust by the government on behalf of some beneficiaries. As we have learnt, some of the beneficiary civil and public servants, private individuals and institutions, and other government units.