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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, 2016

(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 the audit requirements of Title 2, U.S. Code of Regulations, Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance).

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 the OMB Uniform Guidance. 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, 2016. The information in the Schedule is presented in accordance with the requirements of OMB Uniform Guidance.

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. Such expenditures are recognized following, as applicable, either the cost principles in OMB Circular A-133, Audits of States, Local Governments, and Non-profit Organizations, or the cost principles contained in Title 2 U.S Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards, wherein certain types of expenditures are not allowable or are limited as to reimbursement.

The expenditures in the Student Financial Assistance Cluster that meet the qualification for continuing compliance requirements include the beginning balance of outstanding loans from previous reporting periods, new loans processed in the current reporting period and the administrative cost recovered. Additional information on all loan expenditures can be seen in Note 5.

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).

(e) Indirect Cost Rate

The state has elected not to use the 10-percent de minimis indirect cost rate allowed under the Uniform Guidance.

(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 addition of $1,362,626 for Smith Lever Foundation Appropriation; addition of $11,637,914 for Credit Enhancement for Charter School Facilities; deductions of $1,721,031 for fixed fee contracts; deductions of $22,584,941 for vendor transactions; additions of $1,595,572 for other transactions; and $23 for rounding in the Schedule.

Federal Revenues

Statement of Revenues, Expenditures,
and Changes in Fund Balances – Governmental
Funds, Federal Revenue
$ 44,283,961,567
Statement of Revenues, Expenses, and Changes
in Net Position – Proprietary Funds,
Federal Revenue

3,232,786,304

Statement of Revenues, Expenses, and Changes
in Net Position – Proprietary Funds, Capital
Contributions – Federal
2,053,702
Statement of Changes in Fiduciary Net Position 73,352,023
Total Federal Revenue per Fund Financial Statements $ 47,592,153,596

Reconciling Items

Non-Cash Federal Commodities/Vaccines/Surplus
Property/Other (Note 6)
$      692,822,412
Various Loans Processed by
Universities and Agencies (Note 5)
3,158,987,970
Beginning Balance of Loans
as of Sept. 1, 2015 for various loan programs (Note 5)
176,255,811
State Unemployment Funds (Note 4) 3,049,731,662
Programs Not Subject to OMB Uniform Guidance (Note 8) (173,729,916)
Other * (9,709,837)
Blended Component Unit not included in the Schedule of
Expenditures of Federal Awards (Note 1(a))
(73,853,101)
Expenditures per Schedule of Expenditures of Federal Awards $ 54,412,658,597

(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 $3.05 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 Beginning
Balance of
Loans as of
Sept. 1, 2015
Ending
Balance of
Loans as of
Aug. 31, 2016
New Loans
Processed

Student Loan Programs with Continuing Compliance Requirements

84.032L
Federal Family Education Loan Program (FFELP)
$    8,628,894 $    6,718,956  
84.038
Federal Perkins Loan Program (Perkins)
137,676,792 133,582,790 $ 19,426,982
93.108
Health Education Assistance Loan Program (HEAL)
3,879,319 2,861,293  
93.264
Nursing Faculty Loan Program (NFLP)
2,107,265 2,058,387 170,616
93.342
Health Professions Student Loans (HPSL)
19,971,352 19,915,621 2,512,765
93.364
Nursing Student Loans
3,767,619 3,202,379 415,371
93.408
ARRA – Nursing Faculty Loan Program
224,570 223,003 16,758
Total for Student Loan Programs with Continuing Compliance Requirements $ 176,255,811 $ 168,562,429 $ 22,542,492

Other Student Loan Programs

84.268
Federal Direct Student Loans (Direct Loans)
    $ 3,136,445,478
Total for Other Student Loan Programs     $ 3,136,445,478

 

New student loans processed totaling $3.2 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.

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 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, 2016, were approximately $63.8 million and are included in the Schedule. CWSRF outstanding loans, with no continuing audit requirements, at Aug. 31, 2016, 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 below market rate for those applicants financing the origination fee. The maximum repayment period for most DWSRF loans is 30 years from the completion of construction. Capitalization loans processed for DWSRF for the year ended Aug. 31, 2016, were approximately $134.9 million and are included in the Schedule. DWSRF outstanding loans, with no continuing audit requirements, at Aug. 31, 2016, were approximately $870.6 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)
$   63,785,610
66.468
Drinking Water State Revolving Funds (DWSRF)
134,864,399
Total New Loans Processed $ 198,650,009

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 $80.6 thousand of interest earned on the federal grant monies drawn down in fiscal 2016 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, 2016, $5.1 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
$ 172,965,163
10.565
Commodity Supplemental Food Program
8,081,231
10.569
Emergency Food Assistance Program (Food Commodities)
46,731,935
39.003
Donation of Federal Surplus Personal Property
10,845,683
93.268
Immunization Cooperative Agreements
454,198,400
Total Grant Awards $ 692,822,412

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

During fiscal 2016, the state received cash rebates from infant formula manufacturers in the amount of approximately $208.9 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 Uniform Guidance

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, 2016, the fund financial statements include $173.7 million of federal funds which are not subject to the continuing compliance requirements of OMB Uniform Guidance, and are not included in the Schedule.

Medicare Part D is not subject to OMB Uniform Guidance. Reimbursements of $85.1 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 $88.6 million related to the program.

(9) Disaster Grants – Public Assistance (CFDA 97.036)

After a Presidential-Declared Disaster, FEMA provides a Public Assistance Grant to reimburse eligible costs associated with repair, replacement, or restoration of disaster-damaged facilities. The federal government reimburses in the form of cost-shared grants which requires state matching funds. In 2016, FEMA approved $2.5 million of eligible expenditures that were incurred in prior years and of this approved amount, FEMA did not deobligate any funding. For the year ended Aug. 31, 016, $2.5 million of approved eligible expenditures that were incurred in a prior year are included on the Schedule.

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