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Glenn Hegar  ·  Texas Comptroller of Public Accounts

Reporting Requirements for Annual Financial Reports of State Agencies and Universities

Pass-Through Activity

Federal Pass-Throughs
Distinguishing between Subrecipients and Vendors

Source: The Uniform Guidance (2 CFR 200.330).

Use the following information to distinguish between subrecipients and vendors. However, this information is only applied when analyzing a non-state entity. For information on pass-through relationships between state agencies, see Interagency Federal Pass-Through Relationships.

  1. General — An auditee may be a recipient, a subrecipient or a vendor. Federal awards expended as a recipient or a subrecipient are subject to audit. The payments received for goods or services provided as a vendor are not considered federal awards and are not reported in SEFA, even if the vendor transaction of federal money is received directly from the federal government. Consider the guidance in paragraphs (B) and (C) below when determining if payments constitute a federal award or a payment for goods and services.
  2. Federal Award — A subrecipient:
    • Determines who is eligible to receive what federal financial assistance.
    • Has its performance measured against whether the objectives of the federal program are met.
    • Has responsibility for programmatic decision-making.
    • Has responsibility for adherence to applicable federal program compliance requirements.
    • Uses the federal funds to carry out a program of the organization as compared to providing goods or services for a program of the pass-through entity.
  3. Payment for goods and services — A vendor:
    • Provides the goods and services within normal business operations.
    • Provides similar goods or services to many different purchasers.
    • Operates in a competitive environment.
    • Provides goods and services that are ancillary to the operation of the federal program.
    • Is not subject to compliance requirements of the federal program.
  4. Use of judgment in making determination — When making the determination if the relationship is that of a subrecipient or vendor, the substance of the relationship is more important than the form of the agreement. It is not expected that all of the characteristics will be present. Use good judgment to determine if an entity is a subrecipient or vendor.
  5. For-profit subrecipient — Since the federal audit requirement does not apply to for-profit subrecipients, the pass-through entity is responsible for establishing requirements (as necessary) to ensure compliance by for-profit subrecipients. The contract with the for-profit subrecipient should describe applicable compliance requirements and the for-profit subrecipient’s compliance responsibility. Methods to ensure compliance for federal awards made to for-profit subrecipients may include pre-award audits, monitoring during the contract and post-award audits.
  6. Compliance responsibility for vendors — In most cases, the auditee’s only compliance responsibility for vendors is to ensure that the procurement, receipt and payment for goods and services comply with laws, regulations and the provisions of contracts or grant agreements. Program compliance requirements normally do not pass through to vendors. The auditee is responsible for ensuring compliance for vendor transactions. These vendor transactions are structured in such a way that the vendor is responsible for program compliance or the vendor’s records must be reviewed to determine program compliance. Also, when these vendor transactions relate to a major program, the scope of the audit should include determining if these transactions are in compliance with laws, regulations and the provisions of contracts or grant agreements.

Note: In SEFA, federal funds received from non-state entities are considered “pass-throughs from non-state entities.” These funds are not considered pass-throughs in USAS. Instead, these funds are recorded as federal revenue using a federal-related USAS COBJ.

Determining Subrecipient Versus Vendor

Use the Subrecipient vs. Vendor Determination Form PDF to determine vendor versus subrecipient identification. Subrecipient versus vendor status is only relevant when a pass-through between state agencies occurs.

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