Fiduciary funds are the funds a government uses to report assets it holds for the benefit of somebody other than itself, so the resources in them cannot be used to support the government’s own programs. They sit in state and local government accounting rather than in business accounting, and they exist to keep other people’s money visibly separate from the government’s own.
The governing standard is GASB Statement No. 84, and fiduciary activities are reported on the fiduciary fund financial statements based on the requirements of GASB 84 (Texas Comptroller of Public Accounts, Reporting Requirements for Annual Financial Reports, Fiduciary Funds). It moved the question away from what an arrangement is called and toward two things that can be tested: who controls the assets, and who the beneficiaries are.
The Control Test Decides What Goes In
Control is the gate, and it has two limbs rather than one.
A government controls the assets of an activity if it holds the assets, or if it has the ability to direct their use, exchange or employment, meaning it can expend or consume them for the benefit of individuals, organizations, other governments, or appoint a designee to perform fiduciary duties (Texas Comptroller of Public Accounts, Reporting Requirements for Annual Financial Reports, Fiduciary Funds).
That second limb catches the arrangements a custody question alone would miss. A government that never touches the cash but decides where it goes still controls it, and the activity is still fiduciary. Conversely, holding money that the government is free to spend on its own programs is not fiduciary at all, whatever the account is named.
Classification therefore runs on control and on the nature of the beneficiaries, not on the label in the chart of accounts (Texas Comptroller of Public Accounts, Reporting Requirements for Annual Financial Reports, Fiduciary Funds).
The Four Fund Types
Once an activity is fiduciary, it lands in one of four types. The names below are the standard’s; the fund numbers are one state’s own coding, shown to make the sorting concrete.
| Type | What it reports |
|---|---|
| Pension and other employee benefit trust funds | Retirement and other post-employment benefit arrangements held in trust |
| External investment trust funds | The external portion of investment pools and individual investment accounts held in a trust |
| Private-purpose trust funds | Fiduciary activities held in a trust that do not belong in either of the two above |
| Custodial funds | Fiduciary activities not required to be reported in any of the other three |
External investment trust funds report the external portion of investment pools and individual investment accounts that are held in a trust; private-purpose trust funds report fiduciary activities that are not required to be reported in pension and other post-employment benefit trust funds or external investment trust funds and are held in a trust; and custodial funds report fiduciary activities not required to be reported in the other fiduciary fund types (Texas Comptroller of Public Accounts, Reporting Requirements for Annual Financial Reports, Fiduciary Funds).
Read the definitions in order and the structure becomes obvious. Three of the four are defined by exception from the one before, and custodial funds are the residual class that takes whatever the trust types do not claim. The practical consequence is that the first question is never “is this custodial”, it is whether the activity is held in a trust at all.
The Statements, and One Reporting Shortcut
Fiduciary activities are reported on their own financial statements within the basic financial statements, with a separate column for each fiduciary fund type (Texas Comptroller of Public Accounts, Reporting Requirements for Annual Financial Reports, Fiduciary Funds).
The statement of changes in fiduciary net position normally disaggregates additions by source, including separate display of investment earnings and of investment costs such as management fees and custodial fees. There is one accommodation worth knowing: for custodial funds, a single aggregated total for additions and a single aggregated total for deductions may be reported where the resources are normally expected to be held for three months or less, provided the descriptions indicate their nature (Texas Comptroller of Public Accounts, Reporting Requirements for Annual Financial Reports, Fiduciary Funds).
That short-holding relief is the one most pass-through collection activity relies on, and it is the reason a government with dozens of small custodial arrangements does not file dozens of disaggregated schedules.
Why They Are Left Out of the Government-Wide Statements
The government-wide statements are meant to show what a government has and owes on its own account. Fiduciary resources are not available to it, so including them would overstate what the government could actually deploy, and a reader comparing two governments would be comparing two different mixes of other people’s money.
Excluding them is therefore not a presentational quirk. It follows from what the funds are, and it is why a fiduciary balance can be very large without changing anything a reader concludes about the government’s own position.
What Fiduciary Funds Are Not
They are not an endowment as such. An endowment can be reported inside a fiduciary fund where the beneficiaries are external, and it can equally sit in a government’s own permanent fund where the government is the beneficiary. The instrument does not settle the classification, and what the arrangement itself is is covered in endowment fund.
They are not governmental or proprietary funds. Those two report the government’s own activities, one on a modified accrual basis for its programs and the other for its business-type operations. Fiduciary funds report activity that never belonged to the government at all.
And they are not a legal trust. A trust in the legal sense is one input to whether an activity lands in a trust fund type or in a custodial fund, but the accounting classification is decided by control and beneficiaries rather than by the existence of a trust instrument.
Common Questions
Whether the activity is held in a trust. A private-purpose trust fund requires one and takes what the pension and investment trust types do not claim. A custodial fund is the residual type for fiduciary activity that does not meet the trust requirement, which is why most short-term collection and pass-through activity ends up there.
Yes. They are reported on the economic resources measurement focus and the accrual basis, which is the same basis the proprietary funds use and not the modified accrual basis the governmental funds use for their operating statements.
Only for the beneficiaries and the purpose the arrangement specifies. The moment resources become available to support the government’s own programs, the activity is not fiduciary, and the test is control and beneficiaries rather than what the fund has always been called.
Accountably places trained offshore accountants and tax preparers inside US CPA and EA firms, and a firm can put a real block of its own close and reporting work through a trial task before anything client facing depends on it.
