Fiscal Policies - Deposit Liabilities
The purpose of this policy is to improve the accountability of long term substantial amounts of cash and non-cash assets and the related liabilities by ensuring that they are recorded on the State accounting system. When cash is collected as a deposit liability, it must be deposited with the State Treasurer in accordance to Idaho Code and recorded in STARS.
Often the State requires a third party to post collateral (generally in the form of cash, cash equivalents, or securities) as an endorsement of certain activities that will be performed, such as land reclamation or construction. The asset may be returned to the third party or become property of the State if default occurs.
When the asset is received by the State, it is not possible to determine if a default will occur. It is assumed in good faith that the outside party will meet all obligations and the asset will revert to the original owner. Therefore, a liability rather than revenue is recorded at the time the State receives the asset.
The State has a fiduciary responsibility for these assets until they are returned to the third party upon satisfactory completion of the commitment.
Cash Equivalents - short-term highly liquid investments that are readily convertible to known amounts of cash. Examples of cash equivalents are certificates of deposit, money market accounts, and short-term bonds.
Securities - a negotiable or nonnegotiable instrument that signifies an ownership interest, the right to an ownership interest or creditor status. Examples of securities include stocks, government securities, and surety bonds.
Deposit Liability - assets held as security or collateral but will likely be returned to businesses, individuals, etc.
Long Term Substantial – Cash or cash equivalents that will be held for 12 consecutive months or more in amounts greater than $500.
In order to properly account for and ensure safekeeping of all cash held by the State as collateral, it will be placed on deposit with the State Treasurer unless otherwise specified by law. Other securities or cash equivalents may be placed on deposit with the State Treasurer, with another fiduciary agent, or retained by the agency.
The receipt of long term substantial amounts of deposit liabilities will be recorded in STARS as a liability in the fund used to account for the financial activities which necessitated the deposit or bond.
Interest earned on the investment of cash by the State Treasurer will become revenue to the State, unless statutory exemptions apply. The outside entity will retain all earnings on other instruments, e.g., certificates of deposit.
The agency will maintain individual accounts for those assets held by the State for third parties. The accounts should be reconciled periodically, no less than annually. All records must be available for audit.
NOTE: See also Funds Held as an Agent.
If cash is collected as a deposit liability, it must be deposited with the State Treasurer in accordance with Idaho Code 59-1014 and recorded in STARS accordingly. To record the transaction in STARS, use transaction code 104.
In the instance of receiving cash equivalents or securities, the collecting agency will record the value of the instruments, either individually or as a collective total, in STARS using transaction code 146. Physical custody of the instrument may be with the agency, State Treasurer, or other fiduciary agent.
When the activity for which the deposit was being held has been satisfactorily performed, cash should be returned to the entity using transaction code 287. At the time a security is returned to the original owner, the corresponding liability in STARS should be reduced using transaction code 147.
When a default or other circumstance occurs causing the cash to become property of the State, reduce the liability using transaction code 779.
Should a default or other circumstance occur causing a non-cash asset to become property of the State, the asset should be converted to cash following appropriate agency procedures or guidelines. Transactions should be recorded in STARS to reflect the transfer of ownership of the asset. In STARS, use Transaction Code 118 to deposit the cash received from the conversion of the non-cash asset.