How do I establish a Custodial Fund?

Guidelines for UCSB Custodial Funds

UC Policy Business Financial Bulletin A-54

Overview

This local procedure on custodial funds is UCSB’s guideline to implement BFB A-54, which has been UC Policy on agency accounts since October 15, 1987. This local guideline clarifies and provides instruction to UC Santa Barbara for establishing and managing custodial funds for non-university entities known as Agencies.

Custodial funds are set up by UCSB’s General Accounting team for non-university entities — these are not UCSB revenues nor expenditures. Custodial funds are used when the University does not have ownership of the funds. The financial activity of custodial funds is reported in accordance with Government Accounting Standards Board pronouncement 84, Fiduciary Activities (GASB 84).

Guidelines & Process

What is a Custodial Fund? Custodial funds are established by UCSB for non-UCSB entities. The activity must provide benefits to the university community. The university acts as a custodial or fiscal agent. The university does not exercise any direct financial control over the use of the funds. Custodial fund balances are reported on the balance sheet as a current liability in “Funds Held for Others.”

How to Establish a Custodial Fund: The outside agency must coordinate with a sponsoring campus department to establish a custodial fund. To establish a new agency fund, the outside agency must provide a completed Agency Accounting/Custodial Fund Request Form to General Accounting, including:

1. The name of the agency
2. The primary contact person(s) for the agency
3. The purpose of the custodial fund, including benefit to the university community
4. The estimated monthly custodial fund expenditures
5. Which sponsoring campus department/contact person will be acting as fiscal agent for the agency account
6. Agency, sponsoring department, and control point approval signatures

Depending on the level of services provided, the University may charge the entity an administrative fee for services (purchasing, payment of invoices, etc.) provided as part of the custodial agreement. General Accounting will approve and maintain the forms and set up the fund. These funds will be set up as non-reportable expenditures in the 50xxx fund series.

Roles and Responsibilities of Approved Custodial Fund Holders:

1. Maintain a positive fund balance, depositing funds as needed to cover overdrafts in a timely manner, and no later than fiscal close each year.
2. Review disbursements for appropriateness and maintain compliance with applicable UC Policy, federal, state, and local laws.
3. Notify General Accounting to close the custodial fund once no future activity is anticipated. Any credit balance remaining in the fund will be refunded to the agency or, if the agency no longer exists, transferred to the Chancellor’s campus-wide miscellaneous income account. If a deficit in the fund cannot be recovered from the agency, it will be charged to the department sponsoring it.

Services Provided for Custodial Funds:

All activity on custodial funds should typically be processed using “Funds Held for Others” liability account 227001. Expense and revenue accounts cannot be used with these funds, as they do not represent university income or expenses. Therefore Gateway, Flexcard, Concur, and Payroll activity cannot be processed on custodial funds. The University provides normal administration of cash receipts for agencies, and disbursement services via Miscellaneous Direct Payment Request forms.

Agencies with custodial funds may also make use of campus recharge operations and service departments. Custodial funds are charged the same recharge rates as UCSB users for these services. Note that because these funds belong to outside entities, amounts charged to custodial funds should not credit a recharge account in the 77500D range, but should instead credit an appropriate income account starting with 4, similar to income received from off-campus sources. This charge must be processed via a non-recharge journal.

Note that checks for deposit to a custodial fund should still be made payable to UC Regents, as these deposits are processed using university bank accounts.

Custodial funds do not have campus budget appropriations, therefore budget activity cannot be processed on custodial funds.

Additional Information & Background

It's important to note that BFB A-54 specifically excludes the Associated Students organizations from UC agency accounting, as these are UC entities. "The Regents at their May 18, 1972 meeting reaffirmed that the, “Associated Students in the several campuses of the university are official units of the university.” Accordingly, at UCSB, Associated Students is included in our General Ledger. They operate as a separate department and they manage some UC fees separately with their own bank account, however their financial activity is included in UCSB’s consolidated financial reporting.

Funds accepted for a custodial fund are not tax deductible charitable contributions to the University.

UCSB established these guidelines for custodial funds to minimize the risk of financial exposure to the university resulting from a custodial fund holder’s inability to pay. General Accounting periodically audits custodial funds for compliance, evaluating the convenience of keeping the cooperation with the agency, or the cancellation of the relationship.

For additional information/references, see Business and Finance Bulletin (BFB) Bus-54 Policy for Agency Accounts.