Any governmental entity should ensure the appropriate segmentation of its resources to maintain proper transparency and accountability for the received financial assets. In particular, the government should guarantee that any donations accepted from the citizens are allocated to the specific cause they were granted for. This essay will argue that a special revenue fund is more appropriate to record funds intended for ongoing maintenance of the new town hall than a private purpose trust fund.
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Each fund that government can legally establish should be organized to conduct specific financial operations and be restricted to a particular purpose. The Governmental Accounting Standards Board (GASB) defines private purpose trust funds as funds held in a qualifying trust (Panter, 2018). Their use is restricted to a specific purpose established by the persons or organization that donated assets to the governmental entity (Panter, 2018). Thus, the resources received by the government for the ongoing maintenance of the town hall can only be allocated to the building’s upkeep. Similarly, special revenue funds are set for special-purpose activities and ensure the accountability of the received resources (Accounting Tools, 2021). Furthermore, both funds require a detailed record of cash inflows and outflows to offer transparency to the taxpayers.
Nevertheless, a special revenue fund would be a more appropriate solution. Panter (2018) notes that the government cannot be the beneficiary of the assets put in a private purpose trust fund as it acts on behalf of the donating parties. Therefore, as a town hall is an administrative building of the local government, it can be argued that organizing a private purpose trust fund for its maintenance will benefit the government. Meanwhile, according to the GASB statement №54, special revenue funds are restricted to a specific purpose, excluding capital projects or debt services (Corporate Finance Institute, 2021). As a town hall does not generate revenue, it cannot be considered a capital asset, and its renovations cannot be viewed as a capital project. Therefore, a special revenue fund for ongoing maintenance of the new town hall should be established.
Accounting Tools. (2021). Special revenue fund definition. AccountingTools. Web.
Corporate Finance Institute. (2021). Special revenue fund. Web.
Panter, A. D. (2018). GASB 84 – Defining four generic types of fiduciary funds. Yeo and Yeo. Web.