Determining When a Fiduciary Relationship Exists

If you only read one thing GASB 84’s test is control plus benefit to someone else. If the government controls the assets, and those assets benefit parties outside the government, it’s fiduciary.

Why This Matters

This is the classification test everything else in this module depends on. Get it wrong, and money that should be excluded from the government-wide statements ends up counted as if it belonged to the government.

What’s Actually Going On

Under GASB 84, two conditions have to both be true for an activity to count as fiduciary. First, the government controls the assets, it can direct how they’re used, invested, or distributed. Second, the assets benefit parties outside the reporting government, not the government itself.

Both conditions matter. Control alone isn’t enough, plenty of resources the government controls are meant for its own use. Benefiting others alone isn’t enough either, without control, the government isn’t really the one making decisions about the money.

Miss either condition, and it isn’t fiduciary, even if it looks similar on the surface.

How This Applies

Before classifying any activity as fiduciary, check both conditions separately, don’t assume one implies the other. Payroll withholding, for example, is money the government controls, but it’s held for someone else entirely, employees and taxing authorities, which is exactly the combination that makes it fiduciary.