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Glenn Hegar  ·  Texas Comptroller of Public Accounts

Notes to Schedule of Expenditures of Federal Awards For the Year Ended August 31, 2006

(1) Summary of Significant Accounting Policies

(a) Reporting Entity

The Schedule of Expenditures of Federal Awards (the "Schedule") includes the activity of all federal award programs administered by the State of Texas, except for three components units, for the fiscal year ended August 31, 2006. Those component units, Texas Guaranteed Student Loan Corporation, Texas A&M Research Foundation, and Boll Weevil Foundation of the Department of Agriculture, are subject to separate audits in compliance with Office of Management Budget (OMB) Circular A-133, Audits of States, Local Governments and Non-Profit Organizations. The federal transactions for these three entities are excluded from the Schedule.

The Texas A&M Research Foundation is a blended component unit of Texas A&M University System and is included as part of the primary government in the State of Texas Comprehensive Annual Financial Report (CAFR). The Texas Guaranteed Student Loan Corporation and Boll Weevil Foundation are discrete component units and are not part of the primary government in the CAFR.

Federal award programs include expenditures, pass-throughs to non-state agencies (i.e. payments to subrecipients), non-monetary assistance, and loan programs.

(b) Basis of Presentation

The Schedule presents total federal awards expended for each individual federal program in accordance with OMB Circular A-133, Audits of States, Local Governments and Non-Profit Organizations. Federal award program titles are reported as presented in the Catalog of Federal Domestic Assistance (CFDA). Federal award program titles not presented in the Catalog are identified by Federal Agency number followed by (.xxx).

(c) Basis of Accounting

The expenditures for each of the federal financial assistance programs are presented in the Schedule on a modified accrual basis. The modified accrual basis of accounting incorporates an estimation approach to determine the amount of expenditures incurred if not yet billed by a vendor. Thus, those Federal programs presenting negative amounts on the Schedule are the result of prior year estimates being overstated and/or reimbursements due back to the grantor.

(d) Matching Costs

Matching costs, the nonfederal share of certain program costs, are not included in the Schedule, except for the State's share of unemployment insurance (See Note 4).

(2) Relationship to Federal Financial Reports

The regulations and guidelines governing the preparation of Federal financial reports vary by Federal agency and among programs administered by the same agency. Accordingly, the amounts reported in the Federal financial reports do not necessarily agree with the amounts reported in the accompanying Schedule which is prepared on the basis explained in Note 1(c).

(3) Relations to Revenues in the State of Texas' Fund Financial Statements

The following is a reconciliation of total Federal awards expended as reported in the Schedule to Federal revenues reported in the fund financial statements.

Federal Revenues

Statement of Revenues, Expenditures, and Changes in Fund Balances – Governmental Funds, Federal Revenue $28,212,025,530
Statement of Revenues, Expenses, and Changes in Net Assets – Proprietary Funds, Federal Revenue 2,379,393,910
Statement of Revenues, Expenses, and Changes in Net Assets – Proprietary Funds, Capital Contributions- Federal 47,904,895
Statement of Changes in Fiduciary Net Assets 36,029,849
Total Federal Revenue Per Financial Statements $30,675,354,184

Reconciling Items

* This amount includes deductions of $1,286,461 for fixed fee contracts; $2,008,751 for vendor transactions; $774,174 for funds that were recorded as federal revenue in the financial statements but are not in the Schedule; $63,023,263 for the Medicare portion of Part D which is not subject to OMB A-133 since it does not include any Medicaid funds; and $231,143 of other transactions. The amount also includes additions of $345,266 for deferred revenues recognized on the Schedule but not in the financial statements.
Non-Cash Federal Commodities/Vaccines/Surplus Property/Other (Note 6) $315,553,611
Various Loans Processed by Universities and Agencies (Note 5) 1,966,246,569
State Unemployment Funds (Note 4) 1,143,429,806
Cash rebates to participants in the Special Supplemental Food Program for Woman Infants and Children (WIC) (Note 7) 224,549,690
Other * (66,978,526)
Blended Component Unit not included in the Schedule of Expenditures of Federal Awards (Note 1(a)) (129,040,145)
Expenditures Per Schedule of Expenditures of Federal Awards $34,129,115,189

(4) Unemployment Insurance Funds

State unemployment tax revenues and the government and non-profit contributions in lieu of State taxes (State UI funds) must be deposited into the Unemployment Trust Fund in the U.S. Treasury. Use of these funds is restricted to pay benefits under the federally approved State Unemployment Law. State UI funds as well as federal funds are reported in the Schedule of Expenditures of Federal Awards under CFDA #17.225. The state portion in the amount of $1,143,429,806 is a reconciling item in the reconciliation of the Schedule to revenues in the Basic Financial Statements (See Note 3).

(5) Federally Funded Loan Programs

The State participates in various federally funded loan programs. The programs can be grouped into two broad categories:

  • Federally Funded Student Loan Programs
  • Other Federally Funded Loan Programs

(a) Federally Funded Student Loan Programs

The State participates in student loan programs that the federal government imposes continuing compliance requirements on. Additionally, the State participates in other student loan programs that do not require continuing compliance. The chart below summarizes activity by the State for federally funded student loan programs:

Student Loan Programs with Continuing Compliance Requirements

CFDA Number Program Name Ending Balances of Previous Year's Loans New Loans Processed
84.038 Federal Perkins Loan Program (Perkins) $94,198,756 $33,619,177
93.342 Health Professions Student Loans (HPSL) 14,338,161 2,777,343
93.364 Nursing Student Loans 3,261,840 680,343
Total $111,798,757 $ 37,076,863

Other Student Loan Programs

CFDA Number Program Name New Loans Processed
84.032 Federal Family Education Loan Program (FFELP) $1,808,665,162
84.268 Federal Direct Student Loans (Direct Loans) 120,445,925
93.264 Nursing Faculty Loan Program 58,619
Total $1,929,169,706

Total New Loans Processed

Total New Loans Processed $1,966,246,569

The total new loans processed amount of $1,966,246,569 is included in the Schedule and recorded as a reconciling item on Note 3.

The Federal Family Education Loan Program (FFELP, CFDA 84.032) and the Federal Direct Student Loans Program (Direct Loans, CFDA 84.268) do not require universities to disburse funds. The proceeds are disbursed by lending institutions for FFELP and by the federal government for Direct Loans. For both programs, loan guarantees are issued by the Texas Guaranteed Student Loan Corporation or other guarantee agencies. The federal government reinsures these guarantee agencies.

The Texas Higher Education Coordinating Board (THECB) participated in the Federal Family Education Loan Program (FFELP, CFDA 84.032) as a servicer of the loans. During the year ended August 31, 2006, THECB received $465,093 in interest subsidy payments which are included in the Schedule. For the year ended August 31, 2006, THECB originated loans of approximately $3.7 million to university students which are included in the Schedule. As of August 31, 2006 THECB services approximately $51 million of FFELP.

(b) Other Federally Funded Loan Programs

The State participates in other federally funded loan programs. The chart below summarizes activity by the State for these programs:

CFDA Number Program Name New Loans Processed
66.458 Clean Water State Revolving Fund (CWSRF) $15,495,249
66.468 Drinking Water State Revolving Fund (DWSRF) 45,876,298
Total New Loans Processed $61,371,547

Clean Water State Revolving Fund (CWSRF, CFDA 66.458)

The Water Development Board receives capitalization grants to create and maintain Clean Water State Revolving Fund programs (CWSRF, CFDA 66.458). The State can use capitalization grant funds to provide a long-term source of State financing for construction of wastewater treatment facilities and implementation of other water quality management activities.

The CWSRF provides loans at interest rates lower than what can be obtained through commercial markets. The CWSRF offers a net long-term interest lending rate of 0.7 percent below the rate the borrower would receive in the open market at the time of closing. The maximum repayment period for most CWSRF loans is 20 years from completion of construction. Capitalization grants received for CWSRF for the year ended August 31, 2006 were approximately $15 million and are included in the Schedule. CWSRF outstanding loans, with no continuing audit requirements, at August 31, 2006, were approximately $2.3 billion.

Drinking Water State Revolving Fund (DWSRF, CFDA 66.468)

The Water Development Board receives capitalization grants to create and maintain Drinking Water State Revolving Funds programs (DWSRF, CFDA 66.468). The State can use capitalization grant funds to establish a revolving loan fund. The revolving loan fund can assist public water systems in financing the costs of infrastructure needed to achieve or maintain compliance with the Safe Drinking Water Act. These compliance requirements ensure the public health objectives of the Safe Drinking Water Act.

The DWSRF can provide loans at interest rates lower than the market or to provide other types of financial assistance for qualified communities, local agencies, and private entities. The DWSRF offers a net long-term interest lending rate of 1.2 percent below the rate the borrower would receive in the open market at the time of closing. The maximum repayment period for most DWSRF loans is 20 years from the completion of construction. Capitalization grants received for DWSRF for the year ended August 31, 2006, were approximately $46 million and are included in the Schedule. DWSRF outstanding loans, with no continuing audit requirements, at August 31, 2006, were approximately $172 million.

(6) Non-Monetary Assistance

The State is the recipient of federal financial assistance programs that do not result in cash receipts or disbursements and are therefore not recorded in the State's basic financial statements. Awards received by the State which include cash and non-cash amounts are included in the Schedule as follows:

CFDA Number Program Name Grant Awards
10.550 Food Distribution $86,954,660
10.565 Commodity Supplemental Food Program 4,075,575
10.569 Emergency Food Assistance Program 26,069,158
17.002 Labor Force Statistics 86,877
17.225 Unemployment Insurance 5,415,160
39.003 Donation of Federal Surplus Personal Property 6,205,602
93.268 Immunization Grants 186,746,579
Total $315,553,611

(7) Rebates from the Special Supplemental Food Program for Women, Infants, and Children (WIC)

During fiscal year 2006, the State received cash rebates from infant formula manufacturers in the amount of approximately $225 million on sales of formula to participants in the WIC program (CFDA 10.557), which are netted against total expenditures included in the Schedule. Rebate contracts with infant formula manufacturers are authorized by 7 CFD 246.16(m) as a cost containment measure. Rebates represent a reduction of expenditures previously incurred for WIC food benefit costs. Applying the rebates received to such costs enabled the State to extend program benefits to more participants than could have been serviced this fiscal year in the absence of the rebate contract.

(8) Depository Libraries for Government Publications

Several State agencies and universities participate as depository libraries in the Government Printing Office's Depository Libraries for Government Publications program, CFDA 40.001. The State agencies and universities are the legal custodian of government publications, which remain the property of the federal government. The publications are not assigned value by the Government Printing Office.

Glenn Hegar
Texas Comptroller of Public Accounts
Questions? Contact statewide.accounting@cpa.texas.gov
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