Responsible University Officer(s):
- Associate Vice President and Controller
- Director of Accounting Services
This policy provides guidance and an operating framework for the University to serve as fiscal agent for an associated organization (an "AO"), as defined under Board of Regents Policy: Associated Organizations, and certain other entities that are external to the University.
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.
University personnel must comply with the requirements of this policy to ensure the University maintains an effective internal control environment.
Due to the accounting and reporting implications, it is important that departments:
- Do not assign agency fund treatment to activities that are part of the University's business. Agency funds are purely custodial, and are limited to assets held in an agency capacity for others; therefore, departments cannot use agency funds to support the University's own programs.
GASB 34, ¶ 69 and 73.
- Do not assign agency fund treatment for resources (typically cash) held for the University itself; departments should report these resources in other University non-agency funds.
- 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.
Departments, colleges, or administrative units may serve as a fiscal agent for an AO or external entity. The University may establish these relationships if they meet the following requirements:
- The purpose for the agency agreement is related to activities dedicated to the mutual achievement of educational, research and public service goals;
- The AO is recognized by the University as provided in University policies and be in compliance with such policies;
- The goals are consistent with and supportive of the mission of the University;
- 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 establishment of a DeptID operating out of an agency fund is appropriate, according to the accounting principles involved.
Depending on the nature and extent of the services provided, the University 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 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,
- Disburse funds to the AO or outside entity according to University policies and procedures. 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.
The approval and establishment of an agency account does not entitle the AO or outside entity 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
- Continue indefinitely. Agency fund status is contingent on adherence to all University policies and contractual agreements, as well as applicable laws. Furthermore, the University has the right to inactivate a DeptID operating in an agency fund at its discretion consistent with contractual agreements between the AO or outside entity and the University, and after providing reasonable notice to the AO or outside entity.
Depending on the level of services provided to the AO or outside entity, the Budget Office may charge organizations that have DeptIDs setup in an agency fund for the cost of all fiscal 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 DeptID incurs a deficit.
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. DeptIDs setup in an agency fund typically involves only the receipt, temporary investment, and remittance of funds to individuals, AOs and outside entities. Agency funds are not trust accounts, nor are they banking accounts.
Each DeptID 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.
- Administrative Fee
- The monthly fee charged to a DeptID setup in an agency fund or, alternatively to a department that has recommended a waiver of the administrative fee. This fee is designed to reimburse the University for the use, by the DeptID operating in an agency fund, of various services including one or more of the following: payroll, purchasing, accounting, legal, tax, facilities, insurance, human resources, financial systems support, and treasury.
- 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 DeptID
- A type of fund held by the University of Minnesota, with the University acting as custodian or fiscal agent for an external party or organization. Money is deposited with the University for safekeeping, to be used or withdrawn by the depositor at will. These funds may be held on behalf of students, faculty, staff organizations, or some other third party. Examples include scholarship funds where the donor selects the recipient, and public financial aid funds are held until student accounts receivable are established.
- Agency Questionnaire
- A document that must be completed and used to evaluate whether a DeptID is setup 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 initial determinant as to whether agency fund treatment is appropriate.
- Fiduciary Fund
- A fund used to report resources held in a trust or custodial capacity for individuals, private organizations, or other third parties. A fiduciary fund may be either a trust fund or an agency fund, distinguishable from each other in that a trust fund generally has a trust agreement that affects the degree of management involvement and the length of time that resources are held.
- Governmental Accounting Standards Board (GASB)
- A nongovernmental entity that is recognized by governments, the accounting industry, and the capital markets as the official source of generally accepted accounting principles (GAAP) for state and local governments.
- Generally Accepted Accounting Principles (GAAP)
- The body of accounting literature that governs the appropriateness of the University's accounting policies and procedures. Conformity with generally accepted accounting principles (GAAP) is a criterion that must be met before agency fund treatment will be considered. GAAP dictates that agency fund treatment is only appropriate when the University is acting as custodian or fiscal agent for another party; and when the University has no administrative or direct financial involvement in an activity, but is merely acting as a fiscal agent.
- Pass-Through Grants
- Grants the University receives to transfer to or spend on behalf of a secondary recipient. If the University has no administrative or direct financial involvement in the program, but is merely acting as a fiscal agent, pass-through grants should be considered agency (non-University) activity and accounted for in an agency fund. If, on the other hand, the University monitors recipients for compliance with the grant, determines eligible recipients, or exercises discretion in how funds are allocated, the grant program should be considered a University activity and accounted for in a non-agency fund.
- Pell Grants
- An entitlement program funded by the federal government that is a major source of aid to college and university students. The University has administrative and direct financial involvement with Pell grants because it determines eligible secondary recipients, and is liable for disallowed costs. For this reason, the Pell Grant Program is a good example of a pass-through grant that should not be handled in an agency fund.
- An available balance that departments can draw upon to help facilitate its operations. Resources can be the result of revenues, transfers-in, and/or an existing carry forward balance.
- Accounting Services
- Agency fund accounting has an impact on the University's financial reporting; therefore, the decision about appropriate use of an agency fund resides with the Accounting Services department.
- Review requests for new agency funds and set up DeptIDs within existing agency funds based on an accounting evaluation of a completed Agency Questionnaire.
- Send copy of approved Agency Questionnaire to Office of General Council for determination of contract requirements. Notify Agency of approval by Controller's Office, and return a copy of the approved application form to the Agency.
- Review and approve requests for new DeptIDs within existing agency funds to ensure that the description of the activity matches the purpose of the agency fund in which the DeptID will reside.
- Determine when agency fund treatment is appropriate from an accounting perspective.
- Determine appropriate treatment for a newly established agency fund.
- Monitor agency fund DeptIDs to ensure that the settling of balances is completed regularly, timely, and in accordance with contracts, where they exist.
- Associated Organization
- A request for a DeptID to be setup 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 sponsor 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 month-end.
- Forfeit any abandoned monies to general University non-agency 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.
- Budget Office
- Receive responses from sponsors of agency fund DeptIDs regarding sizable and/or continuing deficits, and the process by which the deficits will be resolved.
- Charge a monthly administrative fee to DeptIDs within agency funds.
- Charge interest on DeptIDs 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.
- Agree to act in the capacity of sponsor for an agency fund DeptID requested by an entity. As a sponsor, 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 manager and submit the completed request to Accounting Services for processing.
- The sponsoring department will ensure 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.
- The sponsoring department is required to explain 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 DeptID.
- Monitor and oversee activities within the agency fund’s DeptID. 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 when Accounting Services advises OGC of a request of a new agency fund or new DeptID within an existing agency fund.
- 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) Manager
- 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 DeptID for deficits and appropriate usage.
- 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 39, Determining Whether Certain Organizations are Component Units
- GASB 14, The Financial Reporting Entity
- GASB 34, Basic Financial Statements - and Management's Discussion and Analysis - for State and Local Governments
- August 2012 - Comprehensive Review, Minor Revision: Clarifies that departments, colleges, and units may serve as fiscal agents, if approved by Accounting Services.
- January 2008