Definition:
An agency fund is a type of fund used by governmental entities to hold assets and liabilities on behalf of others. It’s essentially a trust fund that is established to manage assets for a specific purpose, such as a pension plan or a trust fund for a charitable organization.
Key characteristics of agency funds:
- Third-party assets: Agency funds hold assets that belong to third parties, not the government entity itself.
- No ownership interest: The government entity does not have an ownership interest in the assets held in an agency fund.
- Fiduciary responsibility: The government entity has a fiduciary responsibility to manage the assets in the agency fund for the benefit of the beneficiaries.
Examples of agency funds:
- Pension trust funds: Funds established to hold assets for pension plans.
- Trust funds: Funds established to hold assets for charitable or other purposes.
- Escrow accounts: Funds held in escrow for specific purposes, such as real estate transactions.
Why are agency funds important?
- Fiduciary responsibility: Agency funds are used to fulfill fiduciary responsibilities to third parties.
- Financial transparency: Agency funds are subject to specific accounting and reporting requirements to ensure transparency and accountability.
- Legal compliance: Agency funds must comply with applicable laws and regulations.
In essence, agency funds are a type of fund used by governmental entities to hold assets and liabilities on behalf of others, and they are subject to specific accounting, reporting, and fiduciary requirements.
