Definition
An Enterprise Fund is a separate accounting and financial reporting mechanism for government-owned entities that provide goods or services to the public for a fee that makes the entity self-supporting. Typical examples of enterprise funds include municipal utilities, public transportation systems, and public swimming pools. These funds operate similar to private businesses where the revenue generated from services covers the costs of operations, and any excess revenue can be reinvested in the fund’s infrastructure or used to reduce the costs to consumers.
Examples
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Municipal Water Utility: A city might set up an enterprise fund to manage its water supply services. Residents pay a fee for the water they use, which covers the costs of delivering the water, maintaining the infrastructure, and regulatory compliance.
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Public Transportation System: A local government may have an enterprise fund to oversee the public bus and train systems. The fees paid by riders are used to offset the costs of operations, bus and train maintenance, and expansions of the system.
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Public Golf Course: Some cities may run public golf courses as enterprise funds. Fees charged for rounds of golf, memberships, and equipment rentals are used to maintain the course and operate the facility.
Frequently Asked Questions (FAQs)
1. What distinguishes an Enterprise Fund from other government fund types?
Enterprise Funds operate similarly to private businesses and rely on revenue from fees and charges to cover expenses. Unlike governmental funds, which are typically funded through taxes, enterprise funds are designed to be self-sustaining.
2. How is the financial health of an Enterprise Fund monitored?
The financial health of an Enterprise Fund is monitored through financial statements that are often similar to private-sector statements. They include income statements, balance sheets, and statements of cash flows. Regular audits and performance reviews are also common to ensure financial stability and accountability.
3. Can Enterprise Fund revenues be used for other public services?
Generally, Enterprise Fund revenues are restricted to use within the fund itself or for related activities. This ensures that the fees paid by users directly benefit the service they receive.
4. How are the fees for services provided by an Enterprise Fund determined?
Fees are typically set based on the cost of providing the service, including operating expenses, capital improvements, and reserves. Many jurisdictions require a public hearing or regulatory approval before fees can be changed.
5. Do Enterprise Funds contribute to a government’s general fund?
Generally, Enterprise Funds do not directly contribute to the government’s general fund. They are self-contained units, meaning the revenues generated are reinvested within the fund for maintenance, operations, and improvements.
Related Terms
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General Fund: The main operating fund used by a government, typically funded through taxes and used for general governmental functions.
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Internal Service Fund: Fund used by a government to account for the costs of goods or services provided by one department to other departments on a cost-reimbursement basis.
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Special Revenue Fund: Accounts for revenue sources that are restricted or committed to expenditure for specific purposes.
Online References
- Government Finance Officers Association (GFOA) on Enterprise Funds
- National Council on Governmental Accounting (NCGA) procedures
- Municipal Research and Services Center (MRSC) on Enterprise Funds
Suggested Books for Further Studies
- Governmental Accounting, Auditing, and Financial Reporting by Stephen J. Gauthier
- Accounting for Governmental and Nonprofit Entities by Jacqueline Reck, Suzanne Lowensohn, and Daniel Neely
- Budgeting: A Guide for Local Governments by Robert L. Bland
Accounting Basics: “Enterprise Fund” Fundamentals Quiz
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