An agency fund is an assemblage of funds that one government agency holds on behalf of another government agency. These funds typically arise when it is more efficient for one fund to collect cash on behalf of other funds, either through fund raising activities, billings, or tax collections, and then distribute the funds elsewhere. It would be much more expensive for the downstream funds to collect the cash on their own, since they would need to pay for additional administrative staff in order to do so.

Example of an Agency Fund

For example, if the State of Colorado collects sales tax funds on behalf of the City of Aurora, these funds are considered to be agency funds. In the example, the State of Colorado acts as the custodian for the funds, which are designated for eventual transfer to the City of Aurora.