In order to facilitate the reporting of state grant pass-throughs, the Comptroller’s office established the following policies:

1. Agencies must coordinate state grant pass-through transactions with other agencies.
2. Apply the following general rules:
   • The disbursing agency is responsible for determining the classification of funds:
     1. Pass-through vs. vendor
     2. Federal vs. state
     3. The portions of federal and state
   • The disbursing agency must confirm these decisions in writing to the receiving agency and the receiving agency must record the transactions as determined by the disbursing agency.
   • The receiving agency determines the amount of accruals.
3. The RTI process is required in recording pass-through accruals between agencies (including between agencies and universities).

   Component universities do not enter USAS entries for state grant pass-throughs made between component universities within the university system. But component universities must report the state grant pass-throughs within the university system in the SPTR web application.

4. Record cash pass-through transactions based on USAS data found in the Interagency/Interfund Activity report located in the FMQuery–SIRS USAS Research Tools in the General Ledger Reports drop-down menu –or– with the following reports located in FMQuery–SIRS AFR Desk Review in the SEFA/SPTR drop-down menu:
   • PT201 – State Pass-through Activity by General Ledger Account
   • PT202 – State Pass-through Activity by AGL

5. The Comptroller’s office uses State Pass-Through Reconciliation reports to resolve variances in state pass-through transactions. State Pass-Through Reconciliation reports are available through the SPTR web application. See the Instructions for the SPTR web application.

   State Pass-Through Reconciliation reports display both sides of each pass-through relationship. Data is presented at the Grant ID level or the USAS summary level. Agencies may access State Pass-Through Reconciliation reports at any time during the State Pass-Through Schedule preparation process. Agencies are encouraged to monitor the reports for imbalances in the days leading up to SPTR certification on Sept. 28, 20CY.

   After the SPTR web application opens each year, agencies must coordinate with each other to resolve all remaining pass-through differences at the Grant ID level or the USAS summary level. All pass-through variances must be resolved in order to complete the SPTR certification on Sept. 28, 20CY. If any pass-through amounts were rejected, the grantee agency must communicate with the grantor agency in order to resolve all discrepancies. The grantor agency should be aware that small variances are most likely due to the accrual process.

Note: All Agencies must enter USAS interfund/interagency transactions by close of business (COB) on Sept. 26. If Sept. 26 falls on a weekend, all transactions must be entered by COB on the prior Friday or they will not be processed until Monday, which is past the reporting requirement deadline.

Quarterly Reconciliation

Agencies are highly encouraged to perform reconciliation of pass-through funds on a quarterly basis.

When your agency receives state dollars from another state agency, classify the interfund activity as a state grant pass-through (subrecipient) or as a vendor/interfund service provided and used type of activity — in other words, a vendor payment. The following is a list of characteristics to help distinguish between a state grant pass-through and a vendor/interfund service provided and used activity.

The following COBJs can only be used when the above characteristics of a state grant exist:

• COBJ 3725 – State Grant Pass-Through Revenue, Non-operating
• COBJ 7614 – State Grant Pass-Through Expenditure, Non-operating
• COBJ 3842 – State Grant Pass-Through Revenue, Operating
• COBJ 7615 – State Grant Pass-Through Expenditure, Operating

For state grant pass-through revenue and expenditures/expenses, the grant name, agency name and agency number that the grant passed from/to must be identified and included in the SPTR entries. Contact your financial reporting analyst for assistance.

The classification of the money passed between agencies is the key to accurate reporting by both agencies. The chart below shows examples of current programs/grants from the Texas Higher Education Coordinating Board and how they should be classified for universities.

Pass-Through Activity Between Universities

Universities must report all state grant pass-through activity that occurs between other agencies and universities on their proprietary operating statements.

Vendor Services Provided and Used vs. Subrecipient

At the time the grant is awarded the agency that disburses funds (Agency A) to another agency (Agency B) is responsible for determining if the payment is recorded as a pass-through grant to a subrecipient or a vendor payment. Agency A confirms these decisions in writing on the grant award to Agency B and Agency B records the transaction as determined by Agency A. For state grant subrecipient versus vendor determinations, see Recognition of State Grant Pass-Through Funds.

State vs. Federal Grant Pass-Through

If Agency A determines a payment will be recorded as a grant pass-through transaction, Agency A is also responsible for determining the amount by funding source (such as state and/or federal) and if the payment is recorded as a state grant pass-through or a federal grant pass-through. Agency A should confirm this decision in writing on the grant award at the time the grant is originally awarded. If the funds for the grant program originate from state appropriations, the pass-through is classified as a state grant pass-through. If the funds were initially received from the federal government, the pass-through is classified as federal.

Confirmations Required

Agency A must confirm the above decisions in writing to Agency B and Agency B must record the transaction as determined by Agency A to avoid disputes. Both parties should sign the confirmation.

Year-End Considerations for State Grant Pass-Throughs

• Agency A COBJ 7614 or 7615 state grant pass-through expenditure must equal Agency B COBJ 3725 or 3842 state grant pass-through revenue.
• COBJ 7614 or 7615 and 3725 or 3842 must equal the state grant pass-through amounts on Exhibit II and/or Exhibit IV.
• The amounts on the DAFR8910 for COBJs 3725 and/or 3842 and 7614 and/or 7615 must equal the pass-through amounts on Exhibit II and/or Exhibit IV.
• All items on the DAFR8910 must have the proper AGL. All NPs must be corrected prior to fiscal year-end.

Grant Pass-Through COBJs

Below is a chart with the related expenditure/expense and revenue objects.

Agency General Ledger Accounts (AGL)

At fiscal year-end, state grant pass-throughs must be matched and then eliminated statewide to ensure revenues and expenditures/expenses are not overstated. At the statewide level, state grant pass-through expenditures (7614 and 7615) must equal state grant pass-through revenues (3725 and 3842).

DAFR8680 – Detail Account Activity by Fund Report

Make corrections to the AGL in USAS to ensure proper AGL information is recorded if your agency used T-codes that do not allow the AGL or failed to record the AGL on pass-through transactions. Request the DAFR8680 report monthly, that provides document-level detail for pass-through transactions. Items with blank AGLs appear at the top of the report. For more information, see DAFR8680 Detail Account Activity by Fund.

State grant pass-through expenditure/expense can be recorded in USAS in several ways.

• When the activity occurs within the state treasury, use the RTI process with T-code 274, state grant pass-through expenditure (7614 or 7615) COBJs (see RTI Table 1).
• When the pass-through is expended to local funds from cash in state treasury funds, use the RTI process with T-code 268 to generate payment (see RTI Table 11).
• Agencies that do not expend the funds from cash in state treasury funds use generic T-code 642 to record the expenditure when reconciling their AFR to USAS.

Note: Run the Interagency/Interfund Activity reports (located in the FMQuery–SIRS Main Menu USAS Research Tools in the General Ledger Reports drop-down menu) to assist agencies with recording pass-through grant expenditure/expenses. These reports show the amount of cash expenditures/expenses using COBJ 7614 – state pass-through expenditures, non-operating and COBJ 7615 – state pass-through expenditures, operating. Contact your financial reporting analyst for additional help.

When a warrant is generated, the AGL is on the expenditure/expense general ledger (GL) account. If there are data entry errors for the incorrect COBJ and/or a blank or incorrect AGL, see the following sections that list the necessary correcting entries.

Correcting Blank or Incorrect AGL on Pass-Through Expenditures/Expenses

When correcting pass-through expenditures/expenses with T-codes 407/408 or 467R/467, be sure to use the recipient’s correct vendor number. This allows the Comptroller’s office to properly prepare the cash basis pass-through expenditure/expenses report to help agencies reconcile their pass-through amounts at fiscal year-end.

The process to correct the AGL on pass-through expenditures/expenses is as follows:

If the entries are recorded BEFORE Aug. 31, 20CY:

Accounting effect of entries recorded BEFORE Aug. 31, 20CY:

After fiscal year-end, if a USAS transaction has a blank AGL that posted to CIST (GL0045) or expenditure control-cash (GL 5500), corrections can no longer be made by reversing the original T-codes because cash transactions cannot be backdated. Therefore, correct the transaction using the expenditure transfer process outlined as follows:

If the entries are recorded AFTER Aug. 31, 20CY:

Accounting effect of entries recorded AFTER Aug. 31, 20CY:

Generated Entries Note: T-code 467 posts as of the effective date of this transaction and generates a cash entry (T-code 471) that posts on the system management date. If this entry is backdated, the generated entry posts in the next period.

Correcting COBJ on Pass-Through Expenditures/Expenses

Be especially cautious when correcting COBJs by ensuring the COBJs for Agency A still match the corresponding COBJs for Agency B. For example, if Agency A already confirmed with Agency B that a state grant pass-through COBJ was used and later decides to change the object to a federal grant pass-through COBJ, Agency B must be notified of the change before the interagency deadlines to allow the correction to be made on both sides of the pass-through.

When correcting pass-through expenditures/expenses with T-codes 407/408 or 467R/467, be sure to use the recipient’s correct vendor number. This enables the Comptroller’s office to properly prepare the cash basis pass-through expenditure report to help agencies reconcile their pass-through amounts at fiscal year-end.

The process to correct the COBJs on pass-through expenditures/expenses is as follows:

If the entries are recorded BEFORE Aug. 31, 20CY:

Accounting effect of entries recorded BEFORE Aug. 31, 20CY:

If the entries are recorded AFTER Aug. 31, 20CY:

Accounting effect of entries recorded AFTER Aug. 31, 20CY:

Generated Entries Note: T-code 467 posts as of the effective date of this transaction and generates a cash entry (T-code 471) that posts on the system management date. If this entry is backdated, the generated entry posts in the next period.

Correcting D23 and GAAP Fund on Pass-Through Expenditures/Expenses

If at fiscal year-end an agency realizes the D23 fund(s) and/or GAAP fund(s) are incorrect for a pass-through transaction that was already coordinated and is in balance with the other agency, the Comptroller’s office recommends the following method to correct the error. This discrepancy may occur due to an occasional immaterial coding or data entry error.

If the incorrect D23 fund and the correct D23 fund are both within the same GAAP fund, no entry is required by the Comptroller’s office, although the agency may choose to do the entry if needed for internal purposes. If the GAAP fund is incorrect, the Comptroller’s office requires the agency to make the correction. In both situations, the Comptroller’s office recommends the agency make the correction within its own agency to avoid having to re-coordinate with the other agency.

If the D23/GAAP fund is the only error, the agency may leave the pass-through due from/due to as is and run the GAAP fund adjustment through other expenditures/other operating expenses using COBJ 7970 outlined as follows:

If the entries are recorded AFTER Aug. 31, 20CY between different GAAP funds:

Accounting effect of entries recorded AFTER Aug. 31, 20CY between different GAAP funds

Generated Entries Note: T-code 467 posts as of the effective date of the transaction and generates a cash entry (T-code 471) that posts on the system management date. If this entry is backdated, the generated entry posts in the next period.

State grant pass-through revenue can be recorded in USAS in various ways:

• Agencies recording the activity within the state treasury use the RTI process with T-code 273 and state grant pass-through revenue COBJ 3725 non-operating or 3842 operating. For more information, see RTI Table 1.
• Agencies recording the activity from the state treasury to an agency for funds held outside the state treasury use the RTI process with T-code 268 and state grant pass-through revenue COBJ 3725 non-operating or 3842 operating. For more information, see RTI Table 11.
• Agencies not recording local funds to the state treasury must use generic T-code 643 when reconciling their AFR to USAS.

To assist with recording pass-through grant revenue, agencies can run the following FMQuery–SIRS reports (located under the USAS Research Tools in the General Ledger Reports drop-down menu –and– the AFR Desk Review in the SEFA/SPTR drop-down menu):

• Interagency/Interfund Activity
• PT201 – State Pass-through Activity by General Ledger Account
• PT202 – State Pass-through Activity by AGL

Whether the RTI process is used or a warrant is received, the correct AGL information must be recorded on the revenue GL account. The following sections list the correcting entries regarding any data entry errors that may have occurred due to incorrect COBJ and/or a blank or incorrect AGL.

Correcting Blank or Incorrect AGL on Pass-Through Revenues

If a USAS transaction has a blank or incorrect AGL that posted to CIST (GL 0045) or revenue control-cash (GL 5000), correct the transaction using the revenue transfer process outlined below:

If the entries are recorded BEFORE Aug. 31, 20CY:

Accounting effect of entries recorded BEFORE Aug. 31, 20CY:

If a USAS transaction has a blank AGL that posted to CIST (GL 0045) or revenue control – cash (GL 5000) and fiscal year-end has already passed, corrections can no longer be made by reversing the original T-codes because cash transactions cannot be backdated. Therefore, correct the transaction using the revenue transfer process below:

If the entries are recorded AFTER Aug. 31, 20CY:

Accounting effect of entries recorded AFTER Aug. 31, 20CY within the same GAAP fund/agency:

Generated Entries Note: T-code 465 posts as of the effective date of the transaction and generates a cash entry (T-code 469) that posts on the system management date. If this entry is backdated, the generated entry posts in the next period.

Correcting COBJ on Pass-Through Revenues

Be especially cautious when correcting COBJs to ensure that the COBJ for Agency A still matches with the corresponding COBJ for Agency B.

For example, if Agency A already confirmed with Agency B that a state pass-through COBJ was used and now decides to change the object to a federal grant pass-through COBJ or a non-pass-through COBJ, Agency B must be notified of the change before the interagency deadlines to allow the correction to be made on both sides of the pass-through. The AGL only needs to be entered on the side of the transaction with the pass-through COBJ.

If the entries are recorded BEFORE Aug. 31, 20CY:

Accounting effect of entries recorded BEFORE Aug. 31, 20CY:

If the entries are recorded AFTER Aug. 31, 20CY:

Accounting effect of entries recorded AFTER Aug. 31, 20CY

Generated Entries Note: T-code 465 posts as of the effective date of the transaction and generates a cash entry (T-code 469) that posts on the system management date. If this entry is backdated, the generated entry posts in the next period.

Correcting D23 and GAAP Fund on Pass-Through Revenues

If at fiscal year-end you realize the D23 fund(s) and/or GAAP fund(s) are incorrect for a pass-through transaction that was already coordinated and is in balance with the other agency, the Comptroller’s office recommends the following method to correct the error. This discrepancy may occur due to an occasional immaterial coding or data entry error. If the incorrect D23 fund and the correct D23 fund are both within the same GAAP fund, no entry is required by the Comptroller’s office — although the agency may choose to do the entry if needed for internal purposes. If the GAAP fund is incorrect, the Comptroller’s requires the agency to make the correction.

In both situations, the Comptroller’s office recommends the agency make the correction within its own agency to avoid having to repeat the coordination with the other agency. If the D23/GAAP fund is the only error, the agency may leave the pass-through due from/due to as is and run the GAAP fund adjustment through other revenues (for governmental funds)/other operating revenues (for proprietary funds) using COBJ 3970 as shown in the following:

If the entries are recorded AFTER Aug. 31, 20CY between different GAAP funds:

Generated Entries Note: T-code 465 posts as of the effective date of the transaction and generates a cash entry (T-code 469) that posts on the system management date. If this entry is backdated, the generated entry posts in the next period.

Accounting effect of entries recorded AFTER Aug. 31, 20CY between different GAAP funds

As per GASB 24, agencies often receive grants and other financial assistance to transfer to, or spend on behalf of, a secondary recipient. These amounts are referred to as pass-through grants. Record all cash pass-through grants received by an agency in the financial statements.

As a general rule, pass-through grants are recognized as revenue and expenditure or expenses in a governmental, proprietary or trust fund. In those infrequent cases when an agency serves only as a cash conduit, the grant is reported in custodial fund (FT22).

An agency serves only as a cash conduit if it merely transmits grantor-supplied moneys without having administrative or direct financial involvement in the program.

An agency has administrative involvement if, for example, it:

• Monitors secondary recipients for compliance with program-specific requirements.
• Determines eligible secondary recipients or projects, even if using grantor-established criteria.
• Has the ability to exercise discretion in how the funds are allocated.

An agency has direct financial involvement if, for example, it:

• Finances some direct program costs because of a grantor-imposed matching requirement.
• Is liable for disallowed costs.

Important Note: GASB found when considering administrative and direct financial involvement, that agencies will report few, if any, pass-through grants in agency funds. For more information, see GASB 24.

Agencies are required to use an RTI for transfers of funds between agencies when both funds are within the state treasury and for transfers between agencies with funds outside the state treasury. However, it is not possible to use the RTI process prior to Aug. 31, 20CY to record pass-through refunds from funds held outside the state treasury (local funds) to funds held in the state treasury. Therefore, the receiving agency coordinates with the disbursing agency to determine the correct AGLs and COBJs to record the pass-through refund using USAS journal entries. This facilitates proper recoding on both agencies for the reconciliation of pass-throughs.

Agencies must use the RTI process for fiscal year-end entries. Use RTI Table 4 to record a fiscal year-end pass-through decrease accrual for funds in the state treasury and funds held outside the state treasury.

Receiving agency processing refund BEFORE Aug. 31, 20CY:

Accounting effect of receiving agency processing refund BEFORE Aug. 31, 20CY:

Disbursing agency processing refund BEFORE Aug. 31, 20CY:

Accounting effect of disbursing agency processing refund BEFORE Aug. 31, 20CY: