Question

If a state or local government acts as an intermediary between the federal government and beneficiary recipients in processing grant or entitlement resources, those resources should be accounted for in an agency fund.

a) True
b) False

Answer 1

The statement is false; state or local governments use special revenue funds or other governmental funds—not agency funds—to account for federal grants or entitlements.

Step-by-step explanation:

The statement is false. When a state or local government acts as an intermediary in processing grants or entitlements from the federal government, these funds should not be accounted for in an agency fund.

Instead, they are often accounted for in special revenue funds or other governmental funds, depending on the specific purpose of the grant and the requirements attached to it. Agency funds are typically used to account for resources held by the government in a purely custodial capacity—assets it holds for others that do not belong to the government.

Intergovernmental grants are a means through which the federal government provides financial incentives to encourage state and local governments to achieve certain objectives, aligning with national goals. These grants in aid come with specific conditions that recipient governments must comply with to use the funds.