3. Agency funds, which account for the receipt and disbursement of various taxes and federal grant
proceeds collected by the State for distribution to the Federal government and political subdivisions,
patient and prisoner accounts, amounts in the custody of the State Treasurer to be paid to holders of
refunded transportation bonds and amounts withheld from employees and invested in the Deferred
Compensation Plan as directed by the employee.

ACCOUNT GROUPS

Account groups are used to establish accounting control and accountability for the State's general fixed
assets, and the unmatured principal of its general long-term debt and other long-term obligations of
governmental funds. General fixed assets do not represent financial resources available for appropriation and
expenditure, nor does the unmatured principal of general long-term obligations require current appropriation
and expenditure of governmental fund financial resources.

General Fixed Assets Account Group:

General fixed assets acquired or constructed for use by the State in the conduct of its activities, other than
activities accounted for in the proprietary fund type and the higher education fund, are reflected in the general
fixed assets account group at the time of acquisition. As of June 30,1980, the State established and recorded
in the general fixed assets account group the estimated cost of general fixed assets based on available
historical cost records. Activity subsequent to June 30, 1980, is recorded at cost. Donated fixed assets are
recorded at their fair market value at the time donated. Depreciation is not provided for general fixed assets.
Infrastructure assets, consisting principally of highways, roads and bridges are not recorded in the general
fixed assets account group.

General Long-Term Debt Account Group:

Unmatured long-term general obligation and transportation bonds payable, capital lease obligations,
accrued retirement costs, accrued workers' compensation costs and accrued annual leave related to general
governmental activities are reflected in the general long-term debt account group.

HIGHER EDUCATION FUND

Transactions related to the financial activities of State higher education institutions are accounted for in
the higher education fund. The financial statements of this fund have been prepared in accordance with the
American Institute of Certified Public Accountants' Industry Audit Guide-Audits of Colleges and Universities
and are presented as a discrete entity in a separate column in the combined balance sheet.

2. Summary of Significant Accounting Policies:

A. All Funds:
Grants:

Federal reimbursement type grants are recorded as revenues when the related expenditures, or expenses,
are incurred.

Retirement Costs:

Substantially all State employees participate in one of several State retirement systems (see Note 16). The
State also provides retirement benefits to teachers and certain other employees of its political subdivisions.
Retirement expenditures for governmental fund types represent amounts contributed by the State for the
fiscal year. The excess amounts of actuarially determined retirement costs over the amounts recorded as
expenditures are carried in the general long-term debt account group. For the proprietary fund type and
higher education fund, retirement costs have been provided on the accrual basis predicated on actuarial
valuations. The excess of retirement costs provided over amounts funded is carried as a liability in the
respective funds.

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