March 26, 2010
Dear County Office of Education Chief Business Officials:
Assembly Bill 15 of the 2009–10 Fourth Extraordinary Session (ABX4 15) (Chapter 14, Statues of 2009) requires county auditors to reduce by a specified amount the total 2009–10 ad valorem property tax revenue otherwise required to be apportioned to cities, counties, and special districts and to transfer that amount to a Supplemental Revenue Augmentation Fund (SRAF) established in the county treasury for administration by the county office of education (COE). ABX4 15 requires that the moneys in the SRAF be transferred by the COE to the State Controller’s Office to reimburse the state for the costs of providing certain state-funded services. This letter provides guidance on how the COE should account for its SRAF transactions.
COEs will have neither administrative involvement nor financial involvement in the pass‑through of SRAF funds. Their role will be that of a pure cash conduit. COEs should therefore report their SRAF transactions in an agency fund.
Agency funds are discussed in the California School Accounting Manual (CSAM), Procedure 105, Fund Accounting, and Procedure 305, Fund Classification. Agency funds are used to account for resources in which the reporting entity’s role is purely custodial, such as the receipt and remittance of fiduciary resources to individuals or other governments. All assets reported in an agency fund are offset by a corresponding liability to the party on whose behalf they are held; the net assets of an agency fund are therefore always zero. Agency funds are not required to be reported to the California Department of Education (CDE), but in accordance with generally accepted accounting principles they must be included in the audited financial statements.
The agency fund defined in the standardized account code structure is Fund 76, Warrant/Pass-Through Fund. At the local level a COE may operate more than one agency fund, but if the COE reports its agency fund data to the CDE, the COE must report that data as one combined Fund 76.
A COE’s accounting entries in Fund 76 for its SRAF transactions are:
Although ABX4 15 structures the SRAF transfer as a loan to the state that will be repaid by 2013, the bill does not address the details of how the loan will be paid back. It does not appear that COEs will have any role in the repayment transactions.
Note that a pure cash conduit situation, in which the pass-through agency has neither administrative nor financial involvement in the pass-through of revenue, is rare. As described in CSAM, Procedure 750, Pass-Through Grants and Cooperative Projects, the use of an agency fund is not applicable for most pass-through revenue situations.
For further information on SRAF please refer to ABX4 15, which can be found on the Legislative Counsel of California’s Web page at http://www.leginfo.ca.gov/bilinfo.html . For further information on the accounting procedures described in this letter please refer to CSAM, which can be found on our Web page at http://www.cde.ca.gov/fg/ac/sa/. For accounting questions not answered in CSAM, contact the Office of Financial Accountability and Information Services by phone at 916-322-1770 or by e-mail at email@example.com.
Scott Hannan, Director
School Fiscal Services Division