Enterprise Fund
An Enterprise Fund is a proprietary fund for activities primarily supported by charge for services to external users for debt-funded government activities.
- Context:
- It can range from being a Local Government Enterprise Fund (such as a city enterprise fund) to being a State Enterprise Fund.
- It can (typically) restricted to support activities that is financed with debt which is secured solely by pledge of the net revenues from fees of the government activity.
- It can (typically) restricted to support activities where laws or regulations require that the activity's costs of providing services (including capital costs such as depreciation or debt service) be recovered with fees and charges, rather than with taxes or similar revenues.
- Example(s):
- Public Utility Enterprise Fund for public utility services, such as water, sewer, and trash disposal.
- Health-Care Service Enterprise Fund - for health-care services, such as: ambulance service, nursing homes.
- Recreation Service Enterprise Fund - for recreation services, such as: skating rinks, pools, golf courses.
- Transportation Service Enterprise Fund - airports, dock and wharf facilities
- Counter-Example(s):
- See: Governmental Activities Funds.
References
2016
- https://en.wikipedia.org/wiki/Fund_accounting#State_and_local_government_funds
- QUOTE: … Enterprise funds are used for services provided to the public on a user charge basis, similar to the operation of a commercial enterprise. ...
- (City Council of Cambridge, 2016) ⇒ City Council of Cambridge, MA. (2016). “Annual Budget 2016-2017 Adopted by the City Council, Cambridge, Massachusetts."
- QUOTE: ENTERPRISE FUND. A proprietary fund type used to report an activity for which a fee is charged to external users for goods and services.
- (City Council of Barnstable, 2016b) ⇒ Town of Barnstable. (2016). “Town of Barnstable Adopted Operating Budget - 2017."
- QUOTE: Enterprise Funds: An enterprise fund, authorized by MGL Ch. 44 §53F½, is a separate accounting and financial reporting mechanism for municipal services for which a fee is charged in exchange for goods or services. It allows a community to demonstrate to the public the portion of total costs of a service that is recovered through user charges and the portion that is subsidized by the tax levy, if any. With an enterprise fund, all costs of service delivery--direct, indirect, and capital costs--are identified. This allows the community to recover total service costs through user fees if it chooses. Enterprise accounting also enables communities to reserve the "surplus" or retained earnings generated by the operation of the enterprise rather than closing it out to the general fund at year-end. Services that may be treated as enterprises include, but are not limited to, water, sewer, hospital, and airport services. Barnstable has seven: water pollution, solid waste, golf course, airport, marinas, water and Sandy Neck Park. Both the costs and the revenues of the enterprise are segregated from other finances of the Town.
- http://mass.gov/dor/docs/dls/mdmstuf/technical-assistance/best-practices/enterprisefunds.pdf
- QUOTE: Increasingly, communities are establishing enterprise funds for their business-type services (e.g., water, sewer, trash disposal, ambulance services, skating rinks, golf courses, airports, etc.). A community adopts an enterprise by a vote of town meeting or city council with the mayor’s approval. The enterprise fund establishes a separate accounting and financial reporting mechanism for a municipal service for which a fee is charged in exchange for goods or services (M.G.L. c. 44, §53F½). Under enterprise accounting, the service’s revenues and expenditures are segregated into a separate fund with its own financial statements, rather than being commingled with the revenues and expenses of all other governmental activities.
Enterprise accounting allows a community to demonstrate to the public the true, total cost of providing a service by consolidating all the program’s direct and indirect costs (e.g., interdepartmental support, insurance costs, etc.), debt service, and capital expenditures into a segregated fund. To support the service, a community may choose to recover total costs through user charges (rates), through a tax levy subsidy, or through appropriation of other available funds.
At year-end, the enterprise fund’s performance is measured in terms of positive (surplus) or negative (deficit) operations. An operating surplus results from revenue collected in excess of estimates and appropriation turnbacks and translates into retained earnings, which are retained in the fund rather than closing to the town general fund. The Division of Local Services (DLS) Director of Accounts must certify enterprise fund retained earnings as an available fund based on the community’s submission of a June 30th balance sheet to DLS. Once certified, retained earnings may be appropriated only for expenditures relating to the enterprise fund. Conversely, if during the year, the enterprise fund incurs an operating loss, the loss must be raised in the subsequent year’s budget.
The consolidation of a program’s revenues and costs combined with information on the fund’s operating performance (positive or negative) provides the community with useful information to make decisions on user charges and other budgetary items. The community can analyze how much the user fees and charges support the service and to the extent to which the tax levy or any other available revenues may be needed to subsidize the enterprise fund. The community can include the enterprise’s fixed assets and infrastructure as assets in financial statements and recognize these assets’ annual depreciation.
Establishing an enterprise fund does not create a separate, autonomous entity from the municipal government operation. Like every other department, the municipal department overseeing the enterprise service prepares a budget to be reviewed and analyzed by the finance committee. The budget and any line-item transfers among the enterprise fund’s appropriations still require action by the mayor and council or town meeting. And the enterprise-related department must fulfill the same financial and managerial reporting requirements as any other department.
- QUOTE: Increasingly, communities are establishing enterprise funds for their business-type services (e.g., water, sewer, trash disposal, ambulance services, skating rinks, golf courses, airports, etc.). A community adopts an enterprise by a vote of town meeting or city council with the mayor’s approval. The enterprise fund establishes a separate accounting and financial reporting mechanism for a municipal service for which a fee is charged in exchange for goods or services (M.G.L. c. 44, §53F½). Under enterprise accounting, the service’s revenues and expenditures are segregated into a separate fund with its own financial statements, rather than being commingled with the revenues and expenses of all other governmental activities.
2015
- http://www.mass.gov/treasury/docs/mwpat/inthenews/entereprise-fund.pdf
- QUOTE: An enterprise fund is considered the best practice to promote and maintain long-term financial sustainability for water, sewer and stormwater activities. An enterprise fund is a separate accounting and financial reporting mechanism for which revenues and expenditures are segregated into a fund with financial statements separate from all other governmental activities. An enterprise fund identifies the total direct and indirect costs to provide the service and the sources and amounts of revenues that support the service for which a fee is charged in exchange for service. Direct costs generally consist of personnel services, expenses and capital outlay, which are budgeted and accounted for in the enterprise fund. Indirect costs are expenditures budgeted and accounted for in the general fund on behalf of the enterprise fund, which are allocated to the enterprise fund for funding. Examples of indirect costs are central service department costs (accounting, treasury, collections, law and the like), insurances and fringe benefits that are not budgeted and accounted for in the enterprise fund.
2011
- http://www.municipalconsultants.net/enterprise_fund_accounting_systems.aspx
- QUOTE: An enterprise fund establishes a separate accounting and financial reporting mechanism for municipal services for which a fee is charged in exchange for goods or services. Under enterprise accounting, the revenues in expenditures of services are separated into separate funds with its own financial statements, rather than commingled with the revenues and expenses of all other government activities.
Enterprise funds may be established, "for a utility, health care, recreational transportation facility." Examples of which include the following.- Public utilities - water, sewer, trash disposal.
- Health-care - ambulance service, nursing homes.
- Recreation - skating rinks, pools, golf courses
- Transportation - airports, dock and wharf facilities
- QUOTE: An enterprise fund establishes a separate accounting and financial reporting mechanism for municipal services for which a fee is charged in exchange for goods or services. Under enterprise accounting, the revenues in expenditures of services are separated into separate funds with its own financial statements, rather than commingled with the revenues and expenses of all other government activities.
2010
- http://www.ofm.wa.gov/policy/glossary.asp#enterpriseFunds
- QUOTE: ENTERPRISE FUNDS - Used to account for any activity for which a fee is charged to external users for goods or services. Activities are required to be reported as enterprise funds, in the context of the activity's principal revenue sources, if any one of the following criteria is met:
- the activity is financed with debt that is secured solely by pledge of the net revenues from fees and charges of the activity;
- laws or regulations require that the activity's costs of providing services, including capital costs (such as depreciation or debt service), be recovered with fees and charges, rather than with taxes or similar revenues.
- Refer to PROPRIETARY FUNDS.
- QUOTE: ENTERPRISE FUNDS - Used to account for any activity for which a fee is charged to external users for goods or services. Activities are required to be reported as enterprise funds, in the context of the activity's principal revenue sources, if any one of the following criteria is met: