Printed on: 02/21/2018. Please go to http://policy.umn.edu for the most current version of the Policy or related document.

ADMINISTRATIVE POLICY

Agency Funds

Responsible University Officer(s):

  • Associate Vice President and Controller

Policy Owner(s):

  • Director of Accounting Services

Policy contact(s):

Date Revised:

November 2017

Effective Date:

January 2008

POLICY STATEMENT

This policy provides guidance and an operating framework for the University to serve as fiscal agent for an associated organization (an "AO"), and certain other entities that are external to the University as defined under Board of Regents Policy: Associated Organizations.

The process of evaluating an AO or other entity for agency fund treatment must be in place to ensure the accuracy of the University's accounting for agency funds, and to facilitate effective stewardship of funds for which the University has a fiduciary responsibility. At the same time, the University must establish ongoing accountability and oversight for agency funds to minimize the University's financial exposure resulting from a third party's inability or unwillingness to pay.

The University may serve as a fiscal agent through departments, colleges, or administrative units for an AO or external entity if the following requirements are met:

  • the purpose for the agency agreement is related to activities dedicated to the mutual achievement of educational, research and public service goals that are consistent with and supportive of the mission of the University;
  • the AO is recognized by the University in Board of Regents Policy: Associated Organizations, and is in compliance with such policies;
  • the agreement is in the best interest of the University, taking into consideration its fiscal, human resource, risk management, facilities management, budget, tax, legal, and treasury implications; and
  • the approval of a chartstring operating out of an agency fund is appropriate, according to the accounting principles.

Fiscal agents must consider agency fund treatment only for entities whose activities relate to the mission of the University, but whose separate legal status requires that the operating results not be blended with the University.

Depending on the nature and extent of the services provided, the Office of the General Counsel may require a legal agreement governing the agency relationship.  Accounting Services will make the final decision on the agency relationship in accordance with Generally Accepted Accounting Principles (GAAP) and the Government Accounting Standards Board (GASB).

Each unit acting as a fiscal agent is required to:

  • hold resources provided by an AO or outside entity in an agency fund on the University's books and in the name of the AO or outside entity (the AO or outside entity will retain all its rights, titles and interests in and to such funds);
  • purchase goods and services on behalf of the AO or outside entity under agreements between the University and the supplier or provider of such goods and services, consistent with University policy and as permitted by law and contract;
  • and disburse funds to the AO or outside entity according to the University policy and procedures, Accounts Payable: Paying Non-Payroll Expenses  Generally, the University will not disburse funds or make payments directly to a vendor, supplier, or other third party at the AO's or outside entity's direction or on its behalf.

AOs and outside entities are not entitled to:

  • automatic use of any University services;
  • use of the University's tax-exempt umbrella;
  • make the University liable for any of the AO or outside entity’s debts, liabilities, or actions;
  • automatic use of the University's payroll system;
  • use of the University's name, logo or trade and service marks; or
  • continue indefinitely.

Agency fund status is contingent on adherence to all University policies and contractual agreements, as well as applicable laws.

Revocation

Accounting Services may, at its discretion, revoke a department’s ability to operate in an agency fund consistent with contractual agreements between the AO or outside entity and the University.  Accounting Services will provide reasonable notice to the AO or outside entity prior to revocation.

Charges

Depending on the level of services provided to the AO or outside entity, the University Budget Office may charge organizations that have chartstrings operating in an agency fund an administrative fee for the cost of services (purchasing, payment of invoices, etc.) provided as a part of the agency agreement.  Additionally, AOs or outside entities may be charged for the University's cost of funds, in the event that their agency fund’s chartstrings incur a deficit.

Prohibited Use of Agency Funds

No department is allowed to record transactions into agency funds to support the University’s own programs, or record resources typically held for the University itself (typically cash) into agency funds.  Agency funds can only be used by departments that are fiscal agents and have been approved as specified above.

REASON FOR POLICY

Agency funds in the University's general ledger are accorded special treatment because they represent amounts held on behalf of parties external to the University, and should only be used to report resources held by the University in a purely custodial capacity. Chartstrings operating in an agency fund typically involve only the receipt, temporary investment, and remittance of funds to individuals, AOs and outside entities. Agency funds are not trust accounts or banking accounts.

Each chartstring operating in an agency fund represents activity that is not part of the University, thus its revenues, expenses, gains and losses are not included in the University's financial statements; only assets and liabilities are reported. Notwithstanding this limited interpretation and use, all agency fund activity must use the accrual basis of accounting to recognize receivables and payables when revenues are earned and expenses are incurred, respectively.

PROCEDURES

FORMS/INSTRUCTIONS

APPENDICES

FREQUENTLY ASKED QUESTIONS

CONTACTS

SubjectContactPhoneFax/Email
Primary Contact(s) Terri Hall 612-626-1235 carl0769@umn.edu
Assignment of agency account numbers Terri Hall 612-626-1235 carl0769@umn.edu
Contracts Office of General Counsel 612-624-4100

DEFINITIONS

Administrative Fee
The monthly fee charged to a chartstring operating in an agency fund. This fee is designed to reimburse the University for various services, including one or more of the following: payroll, purchasing, accounting, legal, tax, facilities, insurance, human resources, financial systems support, and treasury, if applicable.
Associated Organizations
A term used within this policy to mean an external entity that the University has established agency fiduciary relationship with and has agreed to serve as its fiscal agent.
Agency Fund
A type of fund held by the University, where it is acting as a custodian or fiscal agent for an external party or organization that has a close or affiliated relationship with the University, such as a student or faculty organization. Money is deposited with the University for safe-keeping, to be used or withdrawn by the depositor at will, thus not made available for spending in University operations.
Agency Questionnaire
A required document that must be completed by the fiscal agent. The Questionnaire is routed to Accounting Services for evaluation to determine whether a chartstring is approved to operate in an agency fund within the University of Minnesota's Enterprise Financial System. This questionnaire is used to evaluate compliance with Generally Accepted Accounting Principles, consistency with the mission of the University of Minnesota, and helps determine whether agency fund treatment is appropriate in accordance with the Governmental Accounting Standards Board (GASB).
Fiscal Agent
A department that is the liaison between the Agency and the University and provides financial oversight to the Agency chartstrings
Governmental Accounting Standards Board (GASB)
An independent, private sector organization that establishes accounting and financial reporting standards for U.S. state and local governments that follow Generally Accepted Accounting Principles (GAAP)
Generally Accepted Accounting Principles (GAAP)
In respect to the University’s accounting and financial reporting environment, it is a framework that governs the appropriateness of the GASB accounting standard pronouncements and other accounting guidance (e.g., GASB Technical Bulletins) and associated order of priority of application. Conformity with Generally Accepted Accounting Principles (GAAP) is a criterion that must be met before agency fund treatment will be considered.
Resources
An available balance that departments can draw upon to help facilitate its operations. Resources can be the result of revenues, transfers­in, and/or an existing carryforward balance.

RESPONSIBILITIES

Accounting Services
  • Decide on the appropriate use of an agency fund.
  • Review and approve requests for chartstrings to operate within an agency fund based on the fiscal agent’s completed Agency Questionnaire.
  • Notify department of agency fund approval.
  • Review and approve requests for chartstrings to operate within an existing agency fund by ensuring that the description of the activity matches the purpose of the agency fund in which the chartstrings will operate.
  • Determine when agency fund treatment is appropriate according to GAAP and GASB.
  • Review agency fund transactions to ensure they are appropriately recorded in an agency fund and in compliance with the Agency Fund Policy. Require departments to reclass transactions out of the agency fund, if applicable.
  • Revoke agency fund status if required
Associated Organization
  • Seek a University department to be the fiscal agent for its request for agency fund treatment. Request a chartstring to operate in an agency fund can originate from a University department acting on behalf of an external entity, or an outside third party. In either situation, the Agency must seek a University department to be the fiscal agent for its request for agency fund treatment.
  • Prepare an operating budget that identifies projected sources of funding and planned expenditures.
  • Sign contracts recommended by the Office of General Counsel and agree to be bound by the terms and conditions of the contract.
  • Initiate and submit financial transactions, in accordance with University policies, procedures, and business forms. Review monthly financial transactions and balances recorded in the Enterprise Financial System and all related modules for integrity, accuracy, and completeness of the activity. Investigate and correct inaccuracies, discrepancies, or errors timely.
  • Pay monthly administrative fee within 3 days of the calendar month end.
  • Forfeit any abandoned monies to general University non­agency funds. Funds will be deemed abandoned if, for a period of 18 months or more, no accounting transactions have been made (other than monthly administrative fees) and there has been no official notification by the agency fund owner of intent to renew the agreement.
University Budget Office
  • Monitor agency fund balances and receive responses from fiscal agents of agency fund chartstrings regarding sizable and/or continuing deficits, and the process by which the deficits will be resolved.
  • Charge a monthly administrative fee to chartstrings with agency funds.
  • Charge interest on chartstrings that operate in a deficit for longer than a specified period.
  • Approve agency fund usage that may result in financial liability, including cost of funds, to the University.
Department
  • Agree to act in the capacity of fiscal agent for an agency fund chartstring requested by an entity. As a fiscal agent, the department is the liaison between the Agency and the University.
  • Either complete an Agency Questionnaire on behalf of an Agency, or review an Agency Questionnaire completed by an Agency for adequacy and completeness. Solicit approval from the appropriate RRC Chief Financial Manager and submit the completed request to Accounting Services for processing.
  • Fiscal agent ensures that the Agency will receive regularly issued University financial reports, so that it is aware of the balance receivable from or payable to the University and is afforded the opportunity to review transactional detail for correctness.
  • Fiscal agent explains sizable and/or continuing deficits and the process by which the deficits will be resolved.
  • Pay the administrative fee if the department has waived any assessed fees for the applicable agency fund’s chartstrings.
  • Monitor and oversee activities within the agency fund’s chartstrings. Advise the Office of General Counsel if the Agency is not adhering to University policies and procedures, or the terms and conditions in its contract.
Office of General Counsel (OGC)
  • Determine whether a contract is appropriate.
  • Develop a contract that governs the relationship between the University of Minnesota and the Agency.
  • Consult with Accounting Services regarding proper accounting treatment before agency fund designation is negotiated or becomes part of a contract.
  • Recommend appropriate action if the terms of the agreement are not being followed.
  • Verify compliance with the financial terms of the contract via an annual review of the status of the contract.
Resource Responsibility Center (RRC) / Chief Financial Manager (CFM)
  • Review and approve the Agency Questionnaire before submission to Accounting Services.
  • Respond to follow-up requests for information that could originate from either Accounting Services or the Office of General Counsel.
  • Review the proposed operating budget and confirm that the sources of funding are appropriate and consistent with University policies.
  • Monitor the agency fund’s chartstrings for deficits and appropriate usage.

RELATED INFORMATION

  • Board of Regents Policy: Associated Organizations
  • Administrative Policy: Reconciling and Verifying General Ledger Accounts and Other Financial Information
  • The Framing Principles on the University's Relationship with and Oversight of Associated Organizations
  • The University's Chart of Accounts Manual
  • GASB 14, The Financial Reporting Entity
  • GASB 34, Basic Financial Statements - and Management's Discussion and Analysis - for State and Local Governments
  • GASB 39, Determining Whether Certain Organizations are Component Units
  • GASB 61, The Financial Reporting Entity: Omnibus—An Amendment of GASB Statements No. 14 and No. 34

HISTORY

Amended:
November 2017 - Comprehensive Review: Wording clarification, edits to definitions based on wording in policy, procedure, and related questionnaire; change of order to the OGC and Accounting Services routing order of approval.
Amended:
August 2012 - Comprehensive Review, Minor Revision: Clarifies that departments, colleges, and units may serve as fiscal agents, if approved by Accounting Services.
Effective:
January 2008
Supercedes:
Agency
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