Internal Service
Policy
FIACCT 12-01_00 Internal Service Funds – Establishing
Effective: July 1, 1998
Revised: December 20, 2015
Purpose
This policy defines the policy and procedures for establishing new Internal Service Funds (ISFs).
Policy
A. Department operations providing services to multiple users may request to account for their operations as an ISF if they meet one or more of the following criteria:
1. The function provides significant services to multiple users such as multiple state departments or component units, or autonomous divisions of a single department of the state; and the cost of operations is recoverable through user charges. If the majority of the services to be provided are to agencies outside state government or to component units of the state government, then the fund should be an Enterprise fund and not an Internal Service Fund.
2. The function is operated by a single department, and the department needs to allocate the cost of operations to various programs or functions.
3. The function supports programs that receive federal funds, and costs need to be allocated to the federal programs.
4. The operation is required by the Federal Government to maintain its capital assets through user charges.
B. Requests for approval of new ISFs must be sent to the Division of Finance before submitting them to the Legislature for approval. Include the following information when requesting an ISF:
1. Anticipated customers
2. Asset base description and source
3. Number and source of employees
4. Proposed billing structure and rate analysis
5. Any needed supplemental support besides user charges (such as general appropriation, general fund borrowing, or other)
6. Responsible accounting staff
C. When the request is approved, the Division of Finance will work with the requesting department to submit the proposed ISF to the Legislature for review and approval. Legislative approval is required to establish an ISF. Legislative approval must be included in statute or in legislative intent language.
D. The effective date of newly established ISFs will be July 1 of the fiscal year.
Procedures
Responsibility
Action
Department
Study the need and justification for an ISF. Submit a request to the
Division of Finance for approval.
Division of Finance
Evaluate the request for an ISF. Notify the department of approval or
disapproval, and return the request with an explanation if needed.
Department
Submit approved request to the Governor’s Office of Management
and Budget and to the Legislative Fiscal Analyst’s Office.
Department/Division of Finance
Obtain legislative approval
Department
After approval of the Legislature, contact the Division of Finance to
set up fund, department, units and appropriation units on FINET.
Division of Finance
Set up new ISF on FINET
Department/ Division of Finance
Prepare initial Journal Vouchers to establish assets, liabilities,
retained earnings, and contributed capital of the ISF.
Division of Finance
Review Journal Vouchers, and post to FINET