Every country does not just run on its own. The people make their country move forward and the Government is responsible for providing a pathway that includes the rules, regulations, and processes. They help people who want to take part in the betterment of the country.
Funding is a type of help that people of the country do. They provide sources to the country to make it a better place to live. However, these sources are in the form of money. People give money to the Government in the form of different taxes and donations. In return, the Government gives them a beautiful country. A country in which they can peacefully set it.
What is the Importance of Funding?
Funding is done to identify the weak areas of the community. After identifying, the idea is to invest in them. Funding is the allocation of the resources to the places it deserves the most. The obligation of allocation of resources is on the political party. The party that is in power. It has to distribute it to the appropriate authorities. It plays a role in achieving many tasks. These tasks include essential development, usage of resources, and growth of public drives. It also includes ending the wars, filtering defense items, expanding the IT industry, removing market differences between sections of the society, and improving academic facilities. Any imbalance in proper provision can lead to conflicts in the state.
Three Types of Government Funds
People fund government bodies mainly by a variety of taxes or donations. These constitute the term ‘Government Funds’. There are three main groups of government funds. I will explain them in the later section. The process of allotment of the funds under these groups has also been explained.
Moreover, it also includes the process of usage of funds.
- Governmental Funds
- Proprietary Funds
- Fiduciary Funds
To understand this group of funds, see if it suits the objectives of a typical government. If the answer is yes, then it is a governmental fund.
Governmental funds follow the modified type of accrual accounting. It groups the flow of financial revenues available. It documents the expenditures during all sorts of activities. Govt. Funds include emergency services for police and the general Government. Thus, these bodies look after the development of infrastructure.
Five types of funds fall under this.
It is the chief fund utilized to manage the operations of an entire government. It is the catch-all category of governmental funds. It means that the resources assigned to this division are not specified for any other task or program. For example, the tax money is the general fund.
Special revenue fund
It represents the funds extracted from specific donors. It is restricted to be used for specified purposes, such as funding schools, libraries, etc.
Debt service fund
It is a type of money bank that is reserved for repaying certain debts. The debt includes both the interest and the principal amounts.
Capital projects funds
Government reserves these funds for financing major long-term capital programs. It includes building a school or a bridge. Primarily, various capital projects are being funded at the same time.
In this type, the primary fund has to remain intact permanently. We can only use the earnings that we generate from it.
Proprietary funds use the accrual method of accounting. It is unlike governmental funds. Such funds conduct much similar to a business. The money highly supports proprietary funds. The money that they charge for certain services. These services are not compulsory to run a government but they are crucial to some point.
There are two types of proprietary funds.
These are allocated to the users external to the governmental agencies. They charge an amount of fee in exchange for the provision of specific utilities. These funds include Sewer or Gas Fund, Airport Funds.
Internal Service Funds
These are internal to the corporation. The government uses internal service funds to pay the in-service costs. These costs might be from other funds or government agencies. A typical example of these funds is a parking service. It is provided to various departments. Other examples include funds for copiers, computers, or worker’s compensation funds.
These are the types of funds reserved for fiduciary activities. It includes the activities in which they hold assets that benefit different systems and governments. However, they do not assist the primary Government. The only role of the state is to hold these funds as a trustee.
Following are the four types of fiduciary funds.
Pension and employee benefit trust funds
In these types of funds, the state is not a payee. It acts only as a fund manager. It has the role of delivering the funds to its proper recipients. These funds are either designated pension funds or employment-related funds.
Investment trust funds
Governments invest these funds as a gesture of goodwill. Also, the primary government does it when the Government receives resources from other governments.
Private purpose trust funds
There are two bodies involved in this type of fund. One is the sponsor and the other is the Government. The sponsor invests in the funds. Moreover, the Government ensures that the income is used only for welfare purposes. It is used for the betterment of businesses as well. No one can exploit this type of fund for any other use.
Custodial funds are also referred to as agency funds. The state holds these funds on a provisional basis. Then it reassigns it to the appropriate parties.
We should ensure that the funds are suitably accounted for. We should account for them as per the stated guidelines. Full disclosure of incoming and outgoing funds is to be made. We should be sure that Government accounts are being audited regularly. Thus, it is necessary to record all transactions in due time. We should mention all the cash and non-cash items on the financial statements. It will minimize the chances of any scam.
Matthew is a Co-Founder at BusinessFinanceArticles.org. Matthew was a floor manager at a local restaurant in Wales. He lost his job after the pandemic and took initiative to make a team and start the project.