Eleven fund types used in governmental budget allocation

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.).

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.

Having a policy on managing Fund Balance is so important because governments need to be able to predict how much funds are available throughout the year and they also need to be able to regulate and measure that funds are being properly managed. A policy allows managers to follow guidelines designed to protect the funds and ensure that they are not needlessly depleted or mismanaged by mistake. So many programs and people's lives are impacted by these funds -- jobs, services, investments -- all of this depends upon fund managers maintaining proper balances.

Three principles that should be included in fund management policy are: 1) maintain a balanced fund balance -- i.e., not too much (citizens may feel unnecessarily taxed) and not too little (funds must be adequate to provide for expenditures throughout the year) -- this also ensures "stable tax rates" (Appropriate level of unrestricted fund balance in the general fund, n.d.); 2) GAAP accounting guidelines should be followed; 3) accounting policies should be communicated to the public so as to avoid confusion and maintain transparency.