Before establishing an agency account, each institution should ensure that its relationship with the organization or third party is that of custodian or fiscal agent. A request for an agency account can originate from a department acting on behalf of an external organization or an outside third party.
Agency agreements should be completed by the institution and signed by representatives of both the institution and the external organization. Each agreement should contain complete information on the terms and conditions of the agency relationship, including:
- The business reason for the agency account; that is, the reason why the organization does not open its own bank account.
- The nature of activity that will be processed through the account.
- The legal/corporate status of the organization. For example, 501(c)(3), Corporation, etc.
- The Federal tax ID number of the organization.
- The name of any other organization on whose behalf the organization is functioning as an agent or intermediary.
- The affiliation of the organization with the institution.
- The person or persons authorized to request expenditures from the fund.
- The term of the agency agreement.
- The disposition of any remaining funds at the end of the agreement.
Because an agency account represents activity that is related, but not fundamental, to the institution’s primary missions, it is important that agency fund treatment is not awarded to activities that are a normal and continuing part of the institution’s mission. For example, Student Housing Fees should not be accounted for as an agency account because Student Housing is fundamental to an institution’s education mission.
The process of evaluating an activity for agency treatment must be in place to ensure the accuracy of the institution’s accounting for agency funds, and to facilitate effective stewardship of funds for which the institution has a fiduciary responsibility. At the same time, ongoing accountability and oversight for agency funds must be established to minimize the institution’s financial exposure.
The status of each agency fund should be reviewed periodically, at least once a year, for the purpose of ensuring whether the agency status should be suspended or revoked. Circumstances to consider include:
- Failure to adhere to institution policies and procedures.
- The nature of the activities and functions has changed such that agency account status is no longer appropriate.
- Deficit balances that are not remedied on a timely basis.
- In the judgment of the president or designee, suspension or revocation is in the best interest of the institution.
- Inactive balances should not be carried forward indefinitely from year to year, but should be disposed of in accordance with the agency agreement.
After five (5) years without activity, unused balances must be forwarded to the state as mandated by escheatment laws, unless the disposition of unused balances is covered in the agency agreement. In instances involving federal funds, those funds should be returned to the appropriate federal agency. Complete files should be maintained for all agreements, letters, or other documents, for guidance in the proper handling of the funds. Please refer to BPM Section 19.1, Unclaimed Property, for additional information.
Individual agency funds should not carry a negative balance outside of short-term timing differences in processing, but under no circumstances should the agency fund groups as a whole have a deficit balance. At the end of the fiscal year, accounts receivables should be set up and donors should be billed for any applicable deficit balances.↑ Top