The following are excluded from the reporting entity:

Maryland Health and Higher Education Facilities Authority—The fiscal operations and management are
outside of the State system, the State does not have the ability to significantly influence operations and has no
legal liability for deficits or loan defaults, and the governing board selects management staff.

Maryland Automobile Insurance Fund (Fund)—The governing board members are selected equally by the
Governor and the insurance industry. The board then selects a chairperson. The Fund operates and is managed
similar to companies in the insurance industry.

Injured Workers' Insurance Fund (IWIF)—The IWIF was established to provide workers' compensation
insurance for participating employers in the State, including the State. Legislation was enacted, effective July 1,
1988, that made the IWIF independent of all State agencies, and not subject to any law affecting governmental
public entities, with certain exceptions. The commissioners of the IWIF have control of its fiscal affairs. They are
selected from employers, employees or other citizens of the State by the Governor to serve a 5-year term,
indicating that the commissioners are not policy making instruments of any one Governor. The IWIF is
independent of the authority of any State official. There are no special financing relationships between the State
and the IWIF. Accordingly, the IWIF is autonomous and is not included in the financial reporting entity.

There are various other entities which are non-State agencies that have been excluded from the reporting
entity. These entities, which include the Maryland School for the Blind, Blind Industries and Services of Maryland,
Maryland Economic Development Corporation, Maryland-National Capital Park and Planning Commission, State
Employees Credit Union and the Maryland Credit Union Insurance Corporation, are governed and controlled by
their boards, members or by-laws. The scope of public service is limited in many cases and there are no special
financial relationships with the State.

The GASB has adopted Statement Number 14 "The Financial Reporting Entity" which becomes effective for
fiscal years beginning after December 15,1992. The State plans to implement Statement Number 14 during the
fiscal year ending June 30,1994. The State has not completely analyzed the effects of this Statement and thus has
not determined its impact on the financial statements.

B. Fund Accounting:

The State uses funds and account groups to report on its financial position and the results of its operations.
Fund accounting is designed to demonstrate legal compliance and to aid financial management by segregating
transactions related to certain functions or activities. A fund is a separate accounting entity with a self-balancing
set of accounts which represent the fund's assets, liabilities, equity (deficit), revenues and expenditures or
expenses. Funds are classified into three categories: governmental, proprietary and fiduciary. Each category is
then divided into separate ' 'fund types".

GOVERNMENTAL FUND TYPES

Transactions related to the acquisition and use of the government's expendable financial resources received
and used for those services traditionally provided by a state government are accounted for in governmental funds.
The governmental fund measurement focus is on determination of financial position (sources, uses and balances of
financial resources), rather than on net income determination. Governmental funds include:

General Fund:

Transactions related to resources obtained and used for those services traditionally provided by a state
government, which are not accounted for in other governmental funds, are accounted for in the general fund. The
services include, among other things, general government, public safety and judicial, health and mental hygiene,
human resources and education (other than higher education institutions). Resources obtained from federal grants
and used for activities accounted for in the general fund consistent with applicable legal requirements are
recorded in the general fund.

Special Revenue Funds:

Transactions related to resources obtained, the uses of which are restricted for specific purposes, are
accounted for in the special revenue funds. The special revenue funds account for resources used for operations

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