Fiduciary activities under GASB 84: trust and custodial funds

In this lesson you will

Apply the control and own-source revenue tests to decide whether an activity is fiduciary
Classify fiduciary activities into the four fiduciary fund types
Determine when a custodial fund recognizes a liability to beneficiaries
Evaluate the business-type activity exception for short holding periods

Why GASB 84 exists

Before GASB Statement No. 84, practice varied widely on what belonged in agency funds. Statement 84 set criteria for identifying fiduciary activities, replaced agency funds with custodial funds, and required custodial funds to report additions and deductions in a statement of changes in fiduciary net position.

Is the activity fiduciary?

The core questions:

Does the government control the assets? Under paragraph 12, the government controls assets if it holds them or has the ability to direct their use, exchange or employment to benefit the intended recipients. Custody alone is enough; an arrangement where the government neither holds nor directs the assets is not fiduciary.
Where do the assets come from? Under paragraph 11b, the activity is not fiduciary if the assets are derived solely from the government's own-source revenues, or from government-mandated or voluntary nonexchange transactions (except pass-through grants in which the government has no administrative or direct financial involvement).
Who benefits? Under paragraph 11c, the assets must be (1) held in a trust that meets the trust criteria, (2) for the benefit of individuals, with no administrative or direct financial involvement by the government, or (3) for the benefit of organizations or other governments outside the reporting entity. Under (2) and (3), the assets also cannot come from the government's provision of goods or services to those beneficiaries.

Component units and pension and OPEB arrangements follow their own paths through the criteria.

The own-source test catches many items. Implementation Guide 2019-2 gives examples: a county collecting a 1 percent fee from other governments for collecting their property taxes reports that fee as its own revenue in governmental funds, not in the custodial fund (question 4.38). Student activity fees billed by a university with tuition are own-source revenue of the university (question 4.36).

The four fiduciary fund types

Pension (and other employee benefit) trust funds: resources held in a qualifying trust for members and beneficiaries of pension, OPEB and other employee benefit plans.
Investment trust funds: the external portion of investment pools held in a qualifying trust.
Private-purpose trust funds: other trust arrangements benefiting individuals, private organizations or other governments.
Custodial funds: fiduciary activities not held in a qualifying trust. Under paragraph 18, the external portion of investment pools not held in a qualifying trust goes in a separate external investment pool column within custodial funds, and that column must appear in the basic financial statements, not only in combining statements (questions 4.43 and 4.44).

Recognition of liabilities

A fiduciary fund recognizes a liability to beneficiaries when an event has occurred that compels the government to disburse resources. Demand by the beneficiary is one such event. Until then, resources held are fiduciary net position. Implementation Guide question 4.47 shows a youth sports fund where the liability arises when coaches acquire the uniforms, not when registration money comes in.

Business-type activity exception

Paragraph 19 lets a business-type activity that expects to hold custodial assets for three months or less report them in its own statements, with additions and deductions as operating cash flows, instead of in a custodial fund. The expected holding period can be set from past practice for recurring receipts, and an occasional late remittance does not break it (question 4.45). If the history shows resources are normally held longer than three months, the exception does not apply (question 4.46).

Audit procedures

Inventory all bank accounts in the government's name and ask what each holds; fiduciary activities can sit in accounts outside the general ledger.
For each activity, document the control, own-source and beneficiary analysis.
Test additions and deductions in custodial funds and the liability cutoff.
Check that fiduciary activities are excluded from the government-wide statements.

The GASB 84 audit guide has a decision flowchart, and lesson 2 places custodial funds among the other fund types.

Worked example

County tax collector: what goes where

Grant County collects property taxes for itself, four school districts and three cities. For the year ended June 30, 2026:

Taxes billed for the other governments: $50,000,000
Collection fee charged to those governments: 1 percent of the amount billed = $500,000
Taxes collected for the other governments: $49,000,000
Distributed to them during the year: $46,000,000, after withholding the fee

Step 1: Fee. The county provides a service for a fee, an exchange-like transaction. The $500,000 is own-source revenue reported in the general fund, not in the custodial fund (Implementation Guide question 4.38).

Step 2: Taxes for others. The county has custody (control), the assets are not its own-source revenue, and the beneficiaries are other governments. This is a custodial fund activity.

Step 3: Additions and deductions. Additions: $49,000,000 of taxes collected for other governments. Deductions: $46,000,000 distributed plus the $500,000 fee transferred to the general fund = $46,500,000.

Step 4: Year end. Cash held = 49,000,000 minus 46,500,000 = $2,500,000. State law requires the county to remit collections through June 30 at the July 10 settlement, so the collection event has already compelled disbursement. Liability to other governments = $2,500,000, and fiduciary net position = $0.

Conclusion: the custodial fund reports $49,000,000 of additions, $46,500,000 of deductions and a $2,500,000 liability; the general fund reports $500,000 of fee revenue.

Self-check

Answer each question before you open the answer.

Are fees a government charges for collecting another government's taxes fiduciary?
Show answer
No. The government provides a collection service for the fee, so it is own-source revenue from an exchange or exchange-like transaction. Paragraph 11b(1) excludes own-source revenue from fiduciary activities, and Implementation Guide question 4.38 puts the fee in governmental funds.
When does a custodial fund recognize a liability to beneficiaries?
Show answer
When an event has occurred that compels the government to disburse the resources, such as a demand by the beneficiary. Until then the resources are fiduciary net position, which is why the youth sports fund in question 4.47 records the liability only when coaches buy the uniforms.
Can the external investment pool column appear only in the combining custodial fund statements?
Show answer
No. Implementation Guide question 4.44 says it must be in the basic financial statements.
Which entities may use the three-month exception in paragraph 19?
Show answer
Business-type activities that normally expect to hold the custodial assets for three months or less. The exception is in paragraph 19, and question 4.46 shows it does not apply when the history shows longer holding periods.

Sources

Back to the syllabus

Standards are paraphrased from the primary sources listed above; read the source before relying on a requirement. This lesson is training material, not professional advice. Report an error