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
therefore, 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. Retirement costs have been provided on the accrual basis predicated on actuarial valuations. The excess
amounts of actuarially determined retirement costs over the amounts recorded as expenditures are carried in the
general long-term debt account group and accrued as a liability for the proprietary fund type and higher education
fund.

Employee Benefit Costs:

Substantially all expenditures for pension, health and Federal Social Security benefits of governmental fund
types, including approximately $479,703,000 of expenditures applicable to teachers and other employees of
political subdivisions are reported as program expenditures in the respective funds when paid. Material benefit
costs applicable to the proprietary fund type and higher education fund are reflected as expenses or expenditures
in the appropriate funds.

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