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Glenn Hegar  ·  Texas Comptroller of Public Accounts

Notes to Schedule of Expenditures for Federal Awards for the Year Ended Aug. 31, 2015

(1) Summary of Significant Accounting Policies

(a) Reporting Entity

The state of Texas Schedule of Expenditures of Federal Awards (Schedule) includes the activity of all federal award programs administered by the primary government except for the federal activity of the Texas A&M Research Foundation (TAMRF), a blended component unit of the Texas A&M University System. TAMRF is excluded from the Schedule and is subject to a separate audit in compliance with OMB Circular A-133, Audits of States, Local Governments and Non-Profit Organizations.

The Schedule does not include the federal activity of discrete component units. These entities are legally separate from the state and are responsible for undergoing separate audits as needed to comply with OMB Circular A-133. The federal activity of the following discrete component units is excluded from the Schedule:

(b) Basis of Presentation

The Schedule presents total federal awards expended for each individual federal program during the fiscal year ended Aug. 31, 2015. The information in the Schedule is presented in accordance with the requirements of U.S. Office of Management and Budget (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 CFDA are identified by federal agency number followed by (.XXX). Federal award programs include expenditures, pass-throughs to non-state agencies (i.e. payments to subrecipients), non-monetary assistance and loan programs.

(c) Basis of Accounting

The expenditures for each of the federal financial assistance programs are presented in the Schedule on the accounting basis as presented on the fund financial statements. For entities with governmental funds, expenditures are presented on a modified accrual basis. For entities with proprietary or fiduciary funds, expenditures are presented on the accrual basis.

Both the modified accrual and accrual basis of accounting incorporate 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.

* This amount includes deductions of Smith Lever Foundation Appropriation of $1,157,861; deductions of $2,326,714 for fixed fee contracts; deductions of $36,254,131 for vendor transactions; additions of $11,592,324 for Credit Enhancement for Charter School Facilities; and, additions of $1,772,805 for other transactions; and $132 for rounding in the schedule.

Federal Revenues

Statement of Revenues, Expenditures,
and Changes in Fund Balances – Governmental
Funds, Federal Revenue
$ 41,869,118,868
Statement of Revenues, Expenses, and Changes
in Net Position – Proprietary Funds,
Federal Revenue

3,208,269,800

Statement of Revenues, Expenses, and Changes
in Net Position – Proprietary Funds, Capital
Contributions – Federal
5,307,617
Statement of Changes in Fiduciary Net Position 92,279,398
Total Federal Revenue per Fund Financial Statements $ 45,174,975,683

Reconciling Items

Non-Cash Federal Commodities/Vaccines/Surplus
Property/Other (Note 6)
$      616,932,141
Various Loans Processed by
Universities and Agencies (Note 5)
3,085,253,727
State Unemployment Funds (Note 4) 2,475,784,380
Programs Not Subject to OMB A-133 Reporting Requirements (Note 8) (194,041,787)
Other * (26,373,445)
Blended Component Unit not included in the Schedule of
Expenditures of Federal Awards (Note 1(a))
(89,056,617)
Expenditures per Schedule of Expenditures of Federal Awards $ 51,043,474,082

(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 under CFDA 17.225. The state portion in the amount of $2.5 billion is a reconciling item in the reconciliation of the Schedule to revenues in the fund financial statements (See Note 3).

(5) Federally Funded Loan/Credit Enhancement Programs

The state participates in various federally funded loan and credit enhancement programs. The programs can be grouped into three broad categories:

a) Federally Funded Student Loan Programs

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

CFDA Number Program Name Ending Balances
as of
Aug. 31, 2014
Ending Balances
of Prior Year’s
Loans as of
Aug. 31, 2015
New Loans
Processed

Student Loan Programs with Continuing Compliance Requirements

84.038
Federal Perkins Loan Program (Perkins)
$ 140,283,642 $ 116,266,596 $ 21,004,186
93.108
Health Education Assistance Loan Program (HEAL)
7,333,556 6,091,187  
93.264
Nursing Faculty Loan Program (NFLP)
1,677,267 1,937,887 212,880
93.342
Health Professions Student Loans (HPSL)
19,986,225 17,835,581 2,078,847
93.364
Nursing Student Loans
1,236,886 3,281,806 455,403
93.408
ARRA – Nursing Faculty Loan Program
169,820 184,149 40,421
Total for Student Loan Programs with Continuing Compliance Requirements $ 170,687,396 $ 145,597,206 $ 23,791,737

Other Student Loan Programs

84.268
Federal Direct Student Loans (Direct Loans)
    $ 3,061,461,990
Total for Other Student Loan Programs     $ 3,061,461,990

 

New student loans processed totaling $3.1 billion are included in the Schedule and are part of a reconciling item on Note 3.

The Federal Direct Student Loans Program (Direct Loans, CFDA 84.268) do not require universities to disburse funds. The proceeds are disbursed by the federal government for Direct Loans.

The Texas Higher Education Coordinating Board (THECB) participates in the Federal Family Education Loan Program (FFELP, CFDA 84.032L) as a servicer of the loans. During fiscal 2015 THECB received $61.3 thousand in net interest subsidy payments that are included in the Schedule. As of Aug. 31, 2015, THECB services approximately $35.3 million of FFELP loans. During fiscal 2015, zero new loans were processed by THECB under the FFELP.

b) Other Federally Funded Loan Programs

Clean Water State Revolving Funds (CWSRF, CFDA 66.458)

The Texas Water Development Board receives capitalization grants to create and maintain Clean Water State Revolving Funds 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. Mainstream funds offer a net long-term fixed interest rate of 1.55 percent below market rate for those applicants financing the origination fee. The maximum repayment period for most CWSRF loans is 30 years from completion of construction. Capitalization loans processed for CWSRF for the year ended Aug. 31, 2015, were approximately $64.1 million and are included in the Schedule. CWSRF outstanding loans, with no continuing audit requirements, at Aug. 31, 2015, were approximately $2.6 billion

Drinking Water State Revolving Funds (DWSRF, CFDA 66.468)

The Texas 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 provide other types of financial assistance for qualified communities, local agencies and private entities. Mainstream funds offer a net long-term fixed interest rate of 1.25 percent below market rate for those applicants financing the origination fee. The maximum repayment period for most DWSRF loans is 20 years from the completion of construction. Capitalization loans processed for DWSRF for the year ended Aug. 31, 2015, were approximately $73.9 million and are included in the Schedule. DWSRF outstanding loans, with no continuing audit requirements, at Aug. 31, 2015, were approximately $855.4 million.

The chart below summarizes activity by the state for the two revolving loan programs.

CFDA Number Program Name New Loans
Processed
66.458
Clean Water State Revolving Funds (CWSRF)
$   64,062,065
66.468
Drinking Water State Revolving Funds (DWSRF)
73,851,999
Total New Loans Processed $ 137,914,064

c) Federally Funded Credit Enhancement Program

Credit Enhancement for Charter School Facilities (CFDA 84.354)

In 2005, the Texas Public Finance Authority Charter School Finance Corporation formed a consortium with the Texas Education Agency and the Texas Charter School Resource Center to apply for a federal grant to assist charter schools. In November 2006, the consortium received $10.1 million in federal grants to establish the Texas Credit Enhancement Program (“TCEP”). The $11.6 million of federal grants received are subject to continuing audit requirements and are included in the Schedule. In addition, approximately $45.6 thousand of interest earned on the federal grant monies drawn down in fiscal 2015 is also included in the Schedule.

The TCEP provides credit enhancement to eligible charter schools by funding debt service reserve funds for bonds issued on behalf of the schools to finance education facilities. As of Aug. 31, 2015, $6.2 million of the federal grant funds had been allocated to various charter schools.

(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 fund financial statements. Awards received by the state which includes cash and non-cash amounts are included in the Schedule as follows:

CFDA Number Program Name Grant Awards
10.555
National School Lunch Program
$ 154,833,516
10.565
Commodity Supplemental Food Program
9,176,890
10.569
Emergency Food Assistance Program (Food Commodities)
36,608,878
39.003
Donation of Federal Surplus Personal Property
9,717,776
93.268
Immunization Cooperative Agreements
406,595,081
Total Grant Awards $ 616,932,141

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

During fiscal 2015, the state received cash rebates from infant formula manufacturers in the amount of approximately $214.2 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 Code of Federal Regulations, Title 7: Agriculture, Chapter II, Subchapter A, Part 246.16a 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) Programs Not Subject to OMB A-133 Reporting Requirements

The fund financial statements include federal funding received from certain programs which are not subject to continuing compliance requirements. For the year ended Aug. 31, 2015, the fund financial statements include $194.0 million of federal funds which are not subject to the continuing compliance requirements of OMB A-133, and are not included in the Schedule.

Medicare Part D is not subject to OMB Circular A-133. Reimbursements of $101.3 million were received related to the Medicare Part D program by the administrators of postemployment health care plans. Administrators include the Employees Retirement System of Texas, University of Texas System and Texas A&M University System.

The Build America Bonds are taxable municipal bonds that carry special tax credits and federal subsidies for either the bond issuer or the bondholder. The revenue generated is excluded from the Schedule. The state recognized federal revenues of $92.7 million related to the program.

(9) 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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