What type of transactions are appropriate for agency funds?

Agency funds are used to account for assets held by a government in a purely custodial capacity, meaning the government does not have any direct financial responsibility for the funds. Transacting through agency funds is typically limited to handling resources belonging to others, where the government serves merely as an intermediary without assuming any risk or obligation related to those funds.

When considering the nature of agency fund transactions, debt service transactions with no government obligations are appropriate because they involve the government acting only as a pass-through for the payments on debt that is not owed by the government itself. This means the agency fund is managing the funds as custodians rather than as a responsible party for the debts, aligning perfectly with the purpose of an agency fund.

Conversely, administrative expenses, pension fund assessments, and contributions for capital assets usually involve some level of obligation, risk, or dependence on the government itself, which would not qualify for the characteristics of agency funds.