What is a primary characteristic of agency funds?

Agency funds are designed to hold and manage funds for specific purposes on behalf of other entities, typically without the entity having direct control over the vaulting or disposition of the funds. A primary characteristic of agency funds is that they do not involve administrative involvement in terms of decision-making or governance regarding the funds. This means that the organization managing the agency fund merely acts as a custodian of the assets held in these funds and is responsible for distributing them according to the instructions of the fund’s beneficiaries or other entities.

In essence, the role of an agency fund is to ensure that these resources are managed in accordance with specific legal or contractual obligations without the organization exercising any privilege that comes with ownership. This characteristic distinguishes agency funds from other types of funds, where administrative involvement might be prevalent. The absence of administrative involvement underscores the concept that these funds are held strictly for others without a fiduciary responsibility for how the funds are used beyond their custodianship.

The other options relate to characteristics that do not apply to agency funds. For example, agency funds do not include significant administrative functions, they are typically not included in the budget of the organization managing them as they simply pass through from one entity to another, and they do not usually report significant liabilities since the funds are