All too often, the topics that make us yawn prove to contain the nuts and bolts that keep government machinery chugging along. Changes to federal regulations have caused many administrators to question whether their approaches to school fundraising are in need of refinement. We are, of course, referring to Statement No. 84 of the Governmental Accounting Standards Board, more commonly known as GASB 84.
Historically, school districts categorized many student activity group funds (SAFs), including funds generated via fundraisers, as “Agency Funds.” Usually, SAFs were kept in a bank under the school district’s name. School districts implemented policies and procedures to exercise direct control over SAFs in order to ensure that collection, deposits, and recording of funds were done properly. With the advent of GASB 84, “Agency Funds” have been replaced by “Fiduciary Funds,” and school districts are now required to determine whether a specific activity – like a student fundraising activity – is a “fiduciary activity” or not. If the activity is not a “fiduciary activity,” then it is a “governmental activity.” The difference is that a “fiduciary activity” greatly limits the amount of control and oversight a school district may exercise. But, if an activity is a governmental activity, the funds are considered “public school funds” and become subject to the laws, regulations, Board policies, and administrative regulations to which all public school funds are subject.
So, when is a student group activity considered a “fiduciary activity” under GASB 84? An activity is a “fiduciary activity” if all of the following conditions are met:
- The activity’s assets are controlled by the school district, (e.g., maintained in a bank account in the school district’s name, or their use is directly controlled by the school district).
- The activity’s assets are not derived from revenues the school district generates (e.g., state aid, grants, sale of property, etc.);
- The activity’s assets are not derived from government-mandated or voluntary nonexchange transactions (e.g., property taxes); and
- One or more of the following conditions are met:
- The assets are held in a trust in which (1) the school district is not a beneficiary, (2) they are legally protected from the school district’s creditors, and (3) they are dedicated to providing benefits to the trust’s recipients;
- The assets are held for the benefit of individuals or groups of individuals (e.g., student activity groups/clubs) without the school district having administrative involvement or direct financial involvement; or
- The assets are held for the benefit of an outside organization which is not part of the school district’s reporting entity (e.g., 501(c)(3) district support organization).
Previously, student group activities had no trouble qualifying for the first three criteria. GASB 84’s addition of the second prong under the fourth criterion, however, significantly changes the manner in which many school districts will handle SAFs in the future. The new prong requires school districts not to have “administrative involvement” or “direct financial involvement” when agreeing to hold SAFs for the benefit of a group or club. Essentially, “administrative involvement” or “direct financial involvement” occurs where a student activity group does not have control over how SAFs are raised and spent. That lack of control may come, for example, through Board of Education control of the fees charged by student clubs to their members, or, by way of another example, through a school district requiring that all fundraising activities be approved before they may be undertaken.
Moving forward, school districts must consider and choose the degree of oversight and control they will exercise over SAFs. Because of the dense and complex requirements and procedures associated with GASB 84, we recommend that any specific questions and concerns should be directed to legal counsel.