In which situation would the use of an internal service fund be most appropriate?

An internal service fund is designed to account for services provided by one department or agency to another within the same government entity, primarily on a cost-reimbursement basis. The most appropriate situations for using an internal service fund typically involve services that are rendered to other departments rather than to the general public.

When considering both scenarios, the first option describes an activity that serves both the government and outside parties. An internal service fund can be utilized if the primary users are within the government, but it can still charge external parties for services. Thus, this scenario aligns with the use of an internal service fund, especially if the services are also provided at cost.

The second option refers to a public-entity risk pool, which can also function similarly to an internal service fund by providing services related to risk management. Public-entity risk pools often aggregate resources from various governmental units to manage risks collectively, which aligns with the internal service fund concept of serving multiple departments.

Therefore, both situations in the choices can be appropriate contexts for the use of an internal service fund, as they either support inter-departmental services or collectively manage risks within multiple governmental entities. This makes the selection that includes both options the most suitable choice.