Requirements for Local Operating Funds and Associated Local Funds

Overview

Applicable to

• State agencies and self-directed semi-independent (SDSI) agencies with funds held outside the state treasury (local funds). Institutions of higher education are excluded from these requirements.
• All authorized and/or existing local funds, regardless of activity or balance.

Policy

Agencies are required to consistently use and report local funds as detailed in this fiscal policy and procedure (FPP). These requirements allow the Texas Comptroller of Public Accounts to ensure proper tracking of local funds.

Legal citations

Texas Government Code, Section 403.011; Texas Finance Code, Title 2, Chapter 16; General Appropriations Act (GAA), Article IX, Section 17.08, 87th Legislature, Regular Session.

Definitions

Local Funds – Operating

Funds held outside the state treasury and used to make general expenditures for the daily operations of state government.

Any local fund not meeting the description in the three categories defined below (custodial, bonds, trust) must be reported in the Local Funds – Operating category, including any local fund for component units. The D23 Agency Fund (D23 fund) for any component unit’s local fund should include “CU” at the beginning of the title.

Local Funds – Custodial

Funds held outside the state treasury containing assets belonging to individuals and other entities held temporarily in a custodial capacity.

Local Funds – Bonds

Funds held outside the state treasury created by bond resolution requirements that specify the maintenance of separate funds to account for the bond program.

Local Funds – Trust

Funds held outside the state treasury in a trustee capacity for individuals, private organizations or other governmental entities.

Summary

Background

Local funds are individually reported in the Uniform Statewide Accounting System (USAS). D23 funds for local funds that do not use USAS to make payments or process payroll infer D22 Appropriated Fund (D22 Fund) – 9999 Funds Held Outside the Treasury.

Separate D23 fund required for each local fund

Agencies must have a separate D23 fund for each local fund. Each local fund must be designated in USAS as one of the following:

• Local Funds – Operating
• Local Funds – Custodial
• Local Funds – Bond
• Local Funds – Trust

Contact your financial reporting analyst with any questions on fund designation.

D23 funds, D24 GAAP fund (D24 fund) and AFR Reporting

For annual financial report (AFR) purposes, the D24 GAAP fund (D24 fund) on a D23 fund profile for a local fund is based on whether the D23 fund is:

• Reported in a separate column.
  
  –OR–
  
  
• Reported in a column with other similar D23 funds.

If the D23 fund is reported in a separate column, it will have an inferred D24 fund different from the other D23 funds.

If the D23 fund is combined with other D23 funds, all of the related D23 funds will infer the same D24 fund. D23 funds that share the same D24 fund allow for the balances and activities in similarly related funds to be reported in the same column for AFR purposes. This is primarily the case for local funds and related local USAS operating funds.

See Agency Requirements for the procedures associated with creating D23 funds in USAS for local funds.

Agency Requirements

Section 1 – Procedures for a local fund where no related fund for making payments or processing payroll exists in USAS

Agencies must create a D23 fund for all local funds that are designated as a local operating, custodial, bond or trust fund that infers the respective D22 appropriated fund (D22 fund).

See below for procedures by type of local fund for creating a new D23 fund.

Note: The D22 fund on an existing D23 fund cannot be changed if balances have already posted to the D23 fund. Instead, create a new D23 fund with the correct D22 fund.

Local Funds – Operating

For each Local Fund – Operating that will be reported in a separate column in the AFR, establish at least one D23 fund in USAS that infers the D22 fund 9999 – Operating Funds Held Outside the State Treasury and the D24 fund – XXXX.

Example:

If the D23 fund will be reported in a column with other similar D23 funds, please contact your financial reporting analyst for assistance in determining the correct D24 fund to infer on the D23 profile.

Local Funds – Custodial

For each Local Fund – Custodial that will be reported in a separate column in the AFR, establish at least one D23 fund in USAS that infers the D22 fund 9995 – Custodial Funds Held Outside the State Treasury and the D24 fund – XXXX.

Example:

If the D23 fund will be reported in a column with other similar D23 funds, please contact your financial reporting analyst for assistance in determining the correct D24 fund to infer on the D23 profile.

Local Funds – Bond

For each Local Fund – Bond that will be reported in a separate column in the AFR, establish at least one D23 fund in USAS that infers the D22 fund 9994 – Bond Funds Held Outside the State Treasury and the D24 fund – XXXX.

Example:

If the D23 fund will be reported in a column with other similar D23 funds, please contact your financial reporting analyst for assistance in determining the correct D24 fund to infer on the D23 profile.

Local Funds – Trust

For each Local Fund – Trust that will be reported in a separate column in the AFR, establish at least one D23 fund in USAS that infers the D22 fund 9993 – Trust Funds Held Outside the State Treasury and the D24 fund – XXXX.

Example:

If the D23 fund will be reported in a column with other similar D23 funds, please contact your financial reporting analyst for assistance in determining the correct D24 fund to infer on the D23 profile.

Section 2a – Procedures for a local fund where a related fund for making payments or processing payroll already exists in USAS

Certain agencies have local D23 funds held with the Texas Treasury Safekeeping Trust Company or at local banks that use USAS to issue payments. The fund that reports the expenditure activity in USAS is a local USAS operating fund.

The local D23 fund records the revenue activities and transfers cash periodically to the local USAS operating fund to cover payments and payroll. This primarily applies to self-directed, semi-independent (SDSI) agencies. See Section 3 – Procedures for moving cash from a local fund into a USAS operating fund of this FPP for procedures on this process.

Local Funds – Operating

D23 funds that share the same D24 fund make it possible for the balances and activities in both the local fund and the local USAS operating fund to be reported in the same column for AFR purposes.

For each Local Fund – Operating, establish at least one D23 fund in USAS that infers the D22 fund 9999 – Operating Funds Held Outside the State Treasury and the D24 fund – XXXX that will also be used on the corresponding D23 fund for the local USAS operating fund.

Local Funds – Trust

As noted below, agencies must create a D23 fund for a local fund that is designated as a local trust fund that infers the respective D22 fund.

Note: The D22 fund on an existing D23 fund cannot be changed if balances have already posted to the D23 fund. Instead, create a new D23 fund with the correct D22 fund.

For each Local Fund – Trust, establish at least one D23 fund in USAS that infers the D22 fund 9993 – Trust Funds Held Outside the State Treasury and the D24 fund – XXXX that will also be used on the corresponding D23 fund for the local USAS operating trust fund.

Section 2b – Procedures for the Local USAS Operating Fund used to make payments for a local fund

Local USAS Operating Funds

For each Local USAS Operating Fund, establish at least one D23 fund in USAS that infers the assigned D22 fund 10XX – Agency Name Local Operating Fund and a D24 fund – XXXX that will also be used on the corresponding D23 fund that infers D22 fund – 9999 Operating Funds Held Outside the State Treasury.

Example: Local USAS Operating Fund

An agency has a D23 fund 0585 that infers D22 fund 9999 and uses USAS to process the payments for the fund. The D22 fund 1001 has been assigned for the corresponding local USAS operating fund that is used for processing payments. The agency established D23 fund 1001 for the local USAS operating fund. Both D23 funds – 0585 and 1001 – infer D24 fund 1001.

Local USAS Operating Trust Funds

For each Local USAS Operating Trust Fund, establish at least one D23 fund in USAS that infers the assigned D22 fund 08XX – Agency Name Local Operating Funds and the D24 fund – XXXX that will also be used on the corresponding D23 fund that infers D22 fund – 9993 Trust Funds Held Outside the State Treasury.

Example: Local USAS operating trust fund

An agency has a D23 fund 2801 that infers D22 fund – 9993 and uses USAS to process the payments for the fund. The D22 fund 0801 has been assigned for the corresponding local USAS operating trust fund used for processing payments. The agency established D23 fund 0801 for the local USAS operating trust fund, both D23 funds – 2801 and 0801 – infer D24 Fund 0801.

Example: Local USAS operating trust fund with two local trust funds reported in the same column on the AFR

An agency has two D23 funds – 2801 and 3801 – for local funds designated as trust that infer D22 fund 9993. Both funds use USAS to process their payments. The D22 fund 0801 has been assigned for the corresponding local USAS operating trust fund used for processing the payments.

The agency established two separate D23 local operating trust funds – 0801 and 4801 – to account for the activity of each of the local funds, respectively. The D23 funds will be reported in the same column on the AFR.

Section 3 – Procedures for moving cash from a local fund into a USAS operating fund

An agency must use the following coding block to move cash into a USAS operating fund – only to the extent needed to cover operating expenses.

Important Note: Agencies should not carry excessive balances in local USAS operating or operating trust funds at any time. The local USAS operating and operating trust funds do not accrue Treasury interest.

Comptroller Object 3847 – Deposit into the Treasury from Fund Outside the Treasury rolls to Backout – Not Applicable and must be reclassified as a transfer-in at fiscal year-end for AFR reporting purposes. This reclassification transaction may be entered at a summary level on a monthly basis or at fiscal year-end. The related Local Fund – Operating or Local Fund – Trust should report a corresponding transfer-out. For more information on required entries for these funds, see the Transaction Entry section of Self-Directed and Semi-Independent Agencies in the Reporting Requirements for Annual Financial Reports of State Agencies and Universities (FPP A.036).

Local USAS operating and operating trust funds are not subject to the lapse and encumbrance provisions of Encumbrance Reporting and Lapsing of Appropriations (APS 018) (FPP A.019). They are still subject to the accrual requirements. In addition to this FPP, see Payables/Accrued Expenditures in the AFR website for help on recording accruals.

To facilitate accurate annual state cash reporting, local operating and operating trust fund cash balances in USAS in excess of posted accrued expenditures must be returned to the agency’ Local Fund – Operating and Local Fund – Trust, at least two days prior to the end of each fiscal year using the following coding block:

Note: DAFR8665 will provide cash transaction details and ending balances at the D23 fund level within the D22 fund.

Additional reporting requirements per the GAA (Art. IX, Sec. 17.08)

Under the requirements of the 2022-23 GAA, any state agency that receives, spends or administers revenue held outside the state treasury is required to submit financial data on the funds to the Comptroller’s office. The Comptroller’s office works with the Legislative Budget Board to prepare a report based on the local funds data for each regular session of the Legislature.

Required biennial reporting using provided Excel spreadsheet

The reporting requirements are due to the Comptroller’s office by Dec. 9.

For 2022-23 biennium, each agency and SDSI must:

1. Complete the Required Biennial Local Funds Reporting Excel spreadsheet provided in this fiscal policy and procedure (FPP) to report funds held outside the state treasury
2. Submit the completed spreadsheet by Dec. 9 to ACO.Reports@cpa.texas.gov

Contact Leonard Pierce at (512) 936-4233 or by email at leonard.pierce@cpa.texas.gov for spreadsheet questions.

The report data for the fiscal 2022-23 biennium due Dec. 9, 2022, must include:

• Title
• Fund Number
• The legal/statutory basis for fund or revenue held outside the state treasury
• Allowable uses of the fund or revenue held outside the treasury
• A list of programs for which the fund or revenue is being or can be spent
• Projected fiscal year 2023 totals listed by the General Ledger account that corresponds to an asset class
• For previously reported USAS data, contact Leonard Pierce at the Comptroller’s office. See the Contacts area in this fiscal policy and procedure for details.