The Borough's fund structure shall follow the requirements as
laid out in GASB Statement No. 34, Basic Financial Statements –
and Management’s Discussion and Analysis – for State and
Local Governments, as may be amended by GASB from time to time. Fund
financial statements, as described below, should be used to report
detailed information about the Borough using a current economic resources
measurement focus and the modified accrual basis of accounting. Funds
will be broken down into three separate categories:
A.
Governmental fund reporting focuses primarily on the sources, uses
and balances of current financial resources and typically has a budgetary
focus. Proprietary funds focus on the determination of operating income,
changes in net position (or cost recovery), financial position and
cash flows.
B.
General Fund. The General Fund is used to account for all financial
resources except those required to be accounted for in another fund.
The General Fund is the general operating fund of the municipality.
Tax revenues and other receipts that are not allocated by law or contractual
agreement to another fund are accounted for in this fund. The general
operating expenditures of the municipality are paid from the General
Fund.
C.
Special revenue fund(s).
(1)
Special revenue funds are used to account for and report the proceeds
of specific revenue sources that are restricted or committed to expenditure
for specified purposes other than debt service or capital projects.
The term "proceeds of specific revenue sources" establishes that one
or more specific restricted or committed revenues should be the foundation
for a special revenue fund. Those specific restricted or committed
revenues may be initially received in another fund and subsequently
distributed to a special revenue fund. Those amounts should not be
recognized as revenue in the fund initially receiving them; however,
those inflows should be recognized as revenue in the special revenue
fund in which they will be expended in accordance with specified purposes.
Special revenue funds should not be used to account for resources
held in trust for individuals, private organizations, or other governments.
(2)
The restricted or committed proceeds of specific revenue sources
should be expected to continue to comprise a substantial portion of
the inflows reported in the fund. Other resources (investment earnings
and transfers from other funds, for example) also may be reported
in the fund if those resources are restricted, committed, or assigned
to the specified purpose of the fund. Governments should discontinue
reporting a special revenue fund, and instead report the fund's
remaining resources in the General Fund, if the government no longer
expects that a substantial portion of the inflows will derive from
restricted or committed revenue sources. (NOTE: Governmental Accounting
Standards Board (GASB) Statement No. 54, Fund Balance Reporting and
Governmental Fund Type Definitions, paragraphs 30 through 31.)
(3)
The Borough will maintain individual special revenue funds as needed.
D.
Debt service fund.
(1)
Debt service funds are used to account for and report financial resources
that are restricted, committed, or assigned to expenditure for principal
and interest. Debt service funds should be used to report resources
if legally mandated. Financial resources that are being accumulated
for principal and interest maturing in future years also should be
reported in debt service funds. (NOTE: GASB Statement No. 54, paragraph
34)
(2)
The essential purpose of a debt service fund is to account for the
accumulation of resources toward the future retirement of long-term
liabilities. The use of a debt service fund is required when an entity
is accumulating resources that can only be used for future repayments,
such as when a portion of the real estate tax levy is designated or
identified as being directly related to the future repayment of outstanding
debt obligations. Otherwise, the use of a debt service fund is permitted,
rather than mandated for financial reporting purposes.
(3)
Payment of bonds and coupons.
(a)
If the bond ordinance specifically provides for payment of bonds
and coupons at a certain bank, payment should be made to the bank,
on or immediately prior to each due date for the total amount of bonds
maturing and coupons due and payable on such due date plus the paying
agent's fees, if any.
(b)
The bank should render a statement of such account and turn
over paid bonds and coupons periodically, preferably at the end of
each month. The Borough Manager should keep a record of bonds and
coupons paid and reconcile this register with each bank statement.
The statements and bonds and coupons (properly canceled or stamped
to show payment) must be carefully preserved.
(c)
Within a reasonable time after the due date of the last maturing
bond any balance in the account resulting from bonds or coupons not
presented for payment should be returned by the bank to the Borough
Manager.
(d)
If the bond ordinance specifically provides for payment of bonds
and coupons at the office of the Borough Manager, there would appear
to be no authority for a bank to act as paying agent and the presentation
and payment would be made at the office of the Borough Manager.
E.
Capital projects funds.
(1)
Capital projects funds are used to account for and report financial
resources that are restricted, committed, or assigned to expenditure
for capital outlays, including the acquisition or construction of
capital facilities and other capital assets. Capital projects funds
exclude those types of capital-related outflows financed by proprietary
funds or for assets that will be held in trust for individuals, private
organizations, or other governments. (NOTE: GASB Statement No. 54,
paragraph 33)
(2)
One important reason governments wish to distinguish capital outlays
from operating outlays is to avoid distorting operating trend data
("spikes" in operating expenses during peak periods of major construction).
Typically, a capital projects fund is not used for the routine capital
maintenance or projects that are anticipated to be recurring in nature
and that would be provided for from routine operating revenues (i.e.,
real estate tax revenues, charges for services, etc.).
(3)
The use of a capital projects fund frequently is required by debt
covenants, grant contracts, law or regulation. Otherwise, the use
of a capital projects fund is permitted, not required for financial
reporting purposes.
F.
Permanent funds. Permanent funds are used to account for and report
resources that are restricted to the extent that only earnings, and
not principal, may be used for purposes that support the reporting
government's programs: that is, for the benefit of the government
or its citizenry. A good example of the proper use of a permanent
fund would be to account for a perpetual care endowment for a municipal
cemetery.
A.
Enterprise funds.
(1)
An enterprise fund should be used if it meets any of the following
criteria (in the context of its principal revenue sources):
(a)
There is outstanding debt that is backed solely by user fees
and charges;
(b)
Laws or regulations require that fees and charges be set to
recover costs, including capital costs (depreciation, replacement,
or debt service); or
(c)
There is a pricing policy that fees and charges be set to recover
costs, including capital costs (depreciation, replacement, or debt
service).
(2)
Enterprise fund accounting is designed to highlight the extent to
which user fees and charges are sufficient to cover the associated
cost of providing the goods or services.
B.
Internal service funds. Internal service funds are utilized to report
activities that provide goods or services to other funds, departments
or agencies of the primary government and its component units, or
to other governments, on a cost-reimbursement basis. In order for
an internal service fund to be utilized, the primary government must
be the predominant participant and the fund should function on an
essentially break-even basis over time.
A.
Fiduciary funds are used to report assets held in a trustee or custodial
capacity on behalf of others.
B.
Pension and other employee benefit trust funds. A pension (or other
employee benefit) trust fund is used to report resources that are
held solely in a trustee capacity for members and beneficiaries. In
order to meet the trust or equivalent arrangement requirements, there
are three criteria that must be met:
(1)
Contributions made to the trust by employers and other contributing
entities must be irrevocable;
(2)
Plan assets may only be used to provide the defined and specified
benefits to plan members within the plan's defined benefit terms;
and
(3)
Plan assets are legally protected from creditors of the employers,
plan sponsors, other contributing entities, and, in the case of defined
benefit plans, from creditors of the plan's members.
C.
Investment trust funds. Frequently governments pool resources for
investment purposes. When a state or local government sponsors these
arrangements, they are known as "governmental external investment
pools," and the sponsor itself may be a participant. Investment trust
funds are to be used to account and report for the external portion
of these investment pools.
D.
Private purpose trust funds.
(1)
Private purpose trust funds are used to report all fiduciary activities
that do not meet the requirements to be reported in pension (and other
employee benefit) trust funds or investment trust funds but that do
meet the requirements to be a GASB other fiduciary fund.
E.
Custodial (agency) funds. Custodial funds are utilized to report
activities carried out exclusively for the benefit of those outside
of the government which are not administered through a trust arrangement.
