Fund types and classifications

Fund Types

Governments have multiple options when it comes to handling money. The diversity of funds and having a policy on how to manage funds is essential for governments because of the many different ways in which the government must allocate its budget and the many different ways that a government is expected to generate returns on its investments. Critical oversight of this process is crucial to governmental monetary and fiduciary success.

The Eleven Fund Types

The eleven fund types that government agencies can use for allocating revenues can be categorized into the three broader groupings: governmental funds, proprietary funds (business type funds), and fiduciary funds. The eleven fund types as grouped by the three categories are as follows:

Governmental funds consists of: 1) general funds, such as accounts for general operations -- Sheriff, Parks, etc.; 2) special revenue funds, such as a Tourist Tax Fund; 3) debt service funds, such as the 2008 Series Debt Service Fund; 4) capital projects funds; 5) permanent funds, such as a cemetery care fund.

Proprietary funds consist of 6) enterprise funds, such as water/sewer funds; 7) internal service funds, such as a technology fund.

Fiduciary funds consist of 8) investment trust funds, such as a Countrywide Cash Investment fund; 9) private-purpose trust funds, such as a credit union for government employees; 10) pension trust funds, such as retirement funds for workers; and 11) agency funds, such as a local option sales tax fund (Lee, n.d.).

The Funds and Why They are Used

The funds listed above can be described in the following terms. Having a diversity of funds is important because it limits the risk of the government failing to have a positive return on investment; or, it limits the risk of money being misappropriated -- funds are allocated and limited by these different types. If all money was allocated to one big Fund, the risk would be high of funds being unavailable when needed: multiple funds allow the government to hedge and limit or have negative risk and better control over how money is moved, saved, and invested.

For example, a general fund is typically the largest and most essential to the aims of the government's budget, as it "contains all transactions not provided for in any other fund" (Lee, n.d., p. 171). It ensures that there are sufficient resources for budgeted programs. The Special Revenue Fund is for funds are restricted for specific purposes such as grants. Revenue and expenditures are separated so as to make audits easier. A Debt Service Fund is for funds that will go to pay the principle/interest on any debt accrued by the government. The Capital Projects Fund keeps accounting of all resources used for capital projects. The Permanent Fund is used like an endowment fund. The Enterprise Fund is used when the government provides a service that is supported by fees that consumers pay (electricity, water, etc.). This separate fund helps overseers to see if a service is providing sufficient income. The Internal Service Fund is for services provided to the government -- same as the Enterprise Fund except that the latter is for the public and the former for the government. The Investment Trust Fund is for commingling funds for investment via the trust. The Private-Purpose Trust Fund is the same as the Investment Trust Fund except that it is for private persons/organizations. The Pension Trust Fund is for investing money that will be paid to retired employees. The Agency Fund is for other government funds that are overseen by this government (Lee, n.d.).

Fund Balance

A fund balance is defined as "the difference between assets and liabilities in the governmental funds" (Lee, n.d., p. 180). The five types of fund balance are: 1) nonspendable fund balance -- such as inventory (not spendable), 2) restricted fund balance -- specific purpose funds (such as grants), 3) committed fund balance -- funds that require formalized action, 4) assigned fund balance -- amounts intended for specific purpose, 5) unassigned fund balance -- anything not included in any other fund.